UNIT – 1

OPERATIONS RESEARCH

INTRODUCTION
Operations Research (O.R.) is a discipline that provides scientific methods for the purpose of
solving real life problems that helps us in determining the best utilization of limited resources.
Here we study about optimization techniques. In everyday life, we observe many situations of
optimization around us. For example, suppose we want to maximize the profit or minimize the
cost then maximization of the profit or minimization of cost is the optimization of profit/cost.

In O.R., we obtain the optimal solution for decision making problems with the help of
optimization techniques.

Operations Research can be defined simply as combination of two words operation and research
where operation means some action applied in any area of interest and research imply some
organized process of getting and analyzing information about the problem environment

OPERATIONS RESEARCH REFERS TO QUANTITATIVE APPROACH TO DECISION

MAKING BASED ON SCIENTIFIC METHOD FOR PROBLEM SOLVING
 SCOPE OF OPERATIONS RESEARCH

OR has used effectively in many area of research. The Operation Research may be considered as
a tool which is employed to raise the efficiency of management decisions. Scientific method of
OR is used to comprehend and explain the phenomena of operating system. It is useful in the
following various important fields

In agriculture and cultivation

As we seen that the population is increasing day by day and resultant of it there is deficiency of
groceries and every country of the world facing the problem of most favorable or best possible
allocation of the land for their crops as it is requires by the climate conditions. Moreover the
problem of water resources distribution and allotment for the same is also the problem of
developing countries. So the operational research techniques provide the data to determine the
policy and by effects of the policy proper action can take place in the better directions.

In promotion and selling of the product

OR techniques assist the marketing executives to take the decision about where they should sell
their product, how they can transport the product at minimum cost. It also helps in decide about
the price of the commodity, requirement of the stock as per the future demand of the product. By
using the appropriate OR technique there can be proper choice of advertise media as per cost
constraint which type of media would be economical print or electronic media.

In human resources management

A personnel manager can make use of OR techniques to appoint the highly suitable and qualified
human being on minimum salary Moreover OR Techniques help in recruitment of person as per
the requirement of the organization whether on contract basis or permanent basis, fulltime or
seasonal working

In production and manufacturing

OR technique helps the production manger to calculate the size and how many items should be
produced. It is helpful in scheduling and sequencing of the machine. OR methodology helps to
choose the appropriate location of the plant, plant design etc
Facilities Management

Operations managers ensure that inventory levels are maintained to avoid overstocking or
stockouts, which can affect sales.

Supply chain optimization involves coordinating with suppliers, improving logistics, and using
predictive analytics to forecast demand. All these efforts contribute significantly to reducing
costs and improving service delivery.

Financial Modeling and Portfolio Optimization

In the financial sector, OR plays a crucial role in portfolio optimization, asset allocation, and risk
management. Operations Research models are used to construct optimal portfolios that maximize
returns while minimizing risk.

OR techniques are also applied in credit risk analysis, fraud detection, and option pricing,
helping financial institutions make informed decisions and manage risks effectively.

PHASES OF OPERATIONS RESEARCH

An O.R. study typically comprises six phases:

1. Problem definition and formulation

2. Data collection

3. Model construction

4. Solution Derivation

5. Model Validation and Verification

6. Implementation

7. Monitoring and Feedback

1. Problem Definition and Formulation

In this phase, the problem is identified and defined, and the objectives of the study are
determined. The scope of the study, the constraints, and assumptions are also defined in this
phase. The primary output of this phase is a clear statement of the problem, which helps guide
subsequent phases.

2. Data Collection

In this phase, the necessary data for the study are collected. Data can be collected from various
sources, including databases, surveys, and historical records. Data quality is crucial at this stage,
and it is essential to ensure that the data collected is complete, accurate, and relevant.

3. Model Construction

In this phase, a mathematical o model is developed to represent the problem. The model should
be simple enough to be solved using available techniques, but complex enough to capture the
essential characteristics of the problem.

4. Solution Derivation

In this phase, model is solved using optimization techniques (linear programming etc.) to
determine optimal conditions that either maximizes profit or minimizes cost while satisfying
constraints

5. Model Validation and Verification

In this phase, the model is tested and validated to ensure that it accurately represents the
problem. The model’s assumptions are tested, and the output is compared to real-world data to
verify its accuracy. If the model is found to be inaccurate, it is refined or reconstructed in the
previous phase.

6. Implementation

In this phase, the solution is implemented, and the outcomes are monitored to ensure that they
meet the objectives. This phase also involves developing an implementation plan, providing
support to the implementation team, and addressing any challenges that arise.

7. Monitoring and Feedback

Continuously monitor the implemented solution and refine the model based on feedback.

LIMITATIONS OF OPERATIONS RESEARCH

Operated by Technical & Electronic Devices: These days operational research techniques
obtain an optimal solution using various computational systems, model and techniques. In this
scenario , these factors are colossal and expressing them in quantity and establish the
relationships among these require calculations that can only be handled by computers.

Solve only quantitative problems: O.R. techniques provide a solution only when all the
elements related to a problem can be quantified. All relevant variables do not lend themselves to
quantification. Factors that cannot be quantified find no place in O.R. models.

Widen the Gap between executive and Researcher: O.R. being specialist's job requires a
mathematician or a statistician, who might not be aware of the business problems. Similarly, a
manager fails to understand the complex working of O.R. Thus, there is a gap between the two.

More time and cost consuming: When the basic data are subjected to frequent changes,
incorporating them into the O.R. models is a costly affair. Moreover, a fairly good solution at
present may be more desirable than a perfect O.R. solution available after sometime.

Problem in execution and Implementation: Implementation of decisions is a delicate task. It

must take into account the complexities of human relations and behavior

DECISION MAKING

Decision making involves choosing a course of action from various available alternatives.

The job of a manager, in the process of selecting from among available alternatives, is facilitated
in a large measure by the application of appropriate quantitative techniques, when and to an
extent, a problem is quantified

Traditionally, decision making has been considered purely as an art, a talent that is acquired over
a period of time through experience.
Decision-making is a constant of both personal and business day-to-day life, and while some
decisions have no significant long-term consequences, others can be absolutely crucial to the
success or failure of a company.

Therefore, a good manager or responsible person is the one who is able to make sound decisions
that respond to the company's main objectives and guide them to achieve their goals.

You should also be able to be consistent with your decisions and the method you choose to make
them, as well as correct the course and rectify if necessary.

Here three possible decision-making scenarios based on the available information that you may
encounter:

Decision making under certainty. In this scenario, the person in charge of making the decision
knows for sure the consequence of each alternative, strategy or course of action to be taken. In
these circumstances, it is possible to foresee (if not control) the facts and the results. The
decision-making process will be relatively simple: the one that maximizes utility and responds
better to the objectives set will be chosen.

Under conditions of Certainty, accurate, measurable and reliable information on which to base
decisions is available. The future and outcome are highly predictable under conditions of
certainty

The more information decision maker has the better the decision will be.

Decision making under risk. Business owner or Manager makes decisions under risk when you
have incomplete about the opportunities associated with each alternative, the likelihood and
consequences of each alternative and the likelihood and the extent of business success/failure

This scenario presents an intermediate situation between the two previous ones: each alternative,
strategy or course of action has several possible consequences, but the person in charge of
making the decision knows the probability of each of them. Although the choice will not be as
easy as in the case of decisions under certainty, it will be possible to apply a decision-making
model that facilitates it.
Decision making under uncertainty.

This is when the future and outcome are unpredictable. Everything is in a state of flux.

The business owner or manager is not aware of all available alternatives, the opportunities and
the risks associated with each alternative

In making decisions under uncertainty, you do not have any information about the outcomes

There are many unknowns. Nobody knows what will happen

In this case, each course of action has several possible consequences and the person in charge of
making the decision does not know the probability of each of them. It is therefore a scenario poor
in information, as opposed to the previous case. The decision is complicated because past
experiences do not make it possible to predict the future and there are many uncontrollable
variables.

In summary, good decisions are those that are based on logic; examine all available information
based on predefined objectives and apply a quantitative decision-making model. The choice of
the model will depend on the situation of each company, but will always be based on statistical
and mathematical criteria.