Mathematics for Management

Chapter 1
Includes
Operations Research
Meaning
Scope
Models
Limitations
Linear Programming
Formulation
Application in Management Decision Making
Problems (Graphical Method)

History of OB
Concept originated during World War II (1939-
1945)
Military commands of UK and USA engaged
several inter-disciplinary teams of scientists to
undertake scientific research into strategic and
tactical military operations for optimal utilization
of scarce resources and efforts.
Following the end of war, the success of military
teams attracted the attention of Industrial
managers.
The most common purpose was to find the
method so that the total cost is minimum i.e.
Profit maximization.
Operations Research
Operations Research (OR) is an interdisciplinary
branch of applied mathematics and formal
science that uses methods such as mathematical
modeling, statistics, and algorithms to arrive at
optimal or near optimal solutions to complex
problems. It is typically concerned with
optimizing the maxima (profit, performance, etc.)
or minima (loss, risk, etc.) of some objective
function. Operations research helps management
achieve its goals using scientific methods.

Scope of OR
Critical path analysis or project planning: Identifying those
processes in a complex project which affect the overall
duration of the project.
Designing the layout of a factory for efficient flow of
materials.
Constructing a telecommunications network at low cost
while still guaranteeing QoS (Quality of Service) or QoE
(Quality of Experience) if particular connections become
very busy or get damaged.
Road traffic management and 'one way' street allocations
i.e. allocation problems.
Determining the routes of school buses (or city buses) so
that as few buses are needed as possible.
Designing the layout of a computer chip to reduce
manufacturing time (therefore reducing cost).


Scope of OR contd...
Managing the flow of raw materials and products
in a supply chain based on uncertain demand for
the finished products.
Efficient messaging and customer response
tactics.
Robotizing or automating human-driven
operations processes.
Globalizing operations processes in order to take
advantage of cheaper materials, labor, land or
other productivity inputs.
Managing freight transportationand delivery
systems.
Models of OR
Distribution (Allocation) Models
Production/Inventory Models
Waiting Line (Queueing) Models
Markovian Models
Competitive Strategy Models (Game Theory)
Network Models
Job Sequencing Models
Replacement Models
Simulation Models
Limitations of OR

Costly: It is very costly. This is because OR makes mathematical

models for taking decisions and solving problems. The company has
to make various models for solving different problems. All this
increases the cost.

Non-realistic: OR experts make very complex models for solving

problems. These models may not be realistic. Hence, they may not be
useful for real-life situations.

Complex : OR is very complex concept. It is very difficult for an

average manager to understand it. Therefore, most managers do not
use OR techniques.

Time Consuming: OR being very complex requires a lot of time for

solving any problem and implementing the solution.

Gap between manager and the operations researcher: Researchers

may not be aware of the real problem situations and OR being
complex managers are not aware of the solution. Hence, there exists
a gap.
Linear Programming
The general linear programming problem is
used for optimizing a linear function of
variables called the Objective Function
subject to a set of linear equations and/or
inequilities called as constraints.
Formulation of LPP
Step 1: Study the given situation, find the key decision
to be made and hence find the decision variables of
the problem.
Step 2: Formulate the objective function to be
optimized.
Step 3: Formulate the constraints of the problem.
Step 4: Add the non-negativity restrictions.

The objective function, the set of constraints and the
non-negativity restrictions together form an LP model.
Problems
A firm manufactures three products A, B and C. The
profits are Rs.3, Rs.2 and Rs.4 respectively. A firm has
two machines. The required processing time in minutes
for each machines for each product are:
Machines Products
A B C
D 4 3 5
E 2 3 4
Machines D and E have 2000 and 2500 machine
minutes respectively. The firm must manufacture at
least 100 As, 200 Bs and 50 Cs but not more than 150
As. Formulate as an LPP.
Problems on LPP (Graphical Method)
Step 1: Consider each inequility as equation.
Step 2: Plot each equation on the graph, as each equation will
represent a straight line.
Step 3: Shade the feasible region. If the inequility-constraint
corresponding to the line is <=, then the region below the
line lying in the first quadrant is shaded. For inequility-
constraint >=, the region above the line lying in the first
quadrant is shaded. The common shaded region thus
obtained is called the feasiblle region.
Step 4: Find the co-ordinates of the corners of the polygon
formed by the feasible region and put the values in the
objective function.
Step5: If the objective function is of maximize type then the
highest value obtained is the optimal solution and if the
objective function is of minimize type, the least value
obtained is the optimal solution.
Problems
A company produces two types of hats. Each
hat of the type A requires twice as much
labour time as the type B. The company can
produce a maximum of 500 hats a day. The
market limits daily sales of A and B to 150 and
250 hats respectively. Assuming that the
profits per hat are Rs.8 for A and Rs.5 for B,
formulate a LPP and find the optimal solution.
A toy company manufactures two types of
dolls, A and B. Each doll of type B takes twice
as long as to produce as one of type A, and
the company would have time to make a
maximum of 2000 per day. The supply of
plastic is sufficient to produce 1500 dolls/day.
Type B requires a fancy dress of which there
are only 600/day available. If the company
makes a profit of Rs.3 and Rs.5 per doll
respectively on A and B, then formulate the
LPP and find the optimal solution to maximize
the profit.