Quantitative Techniques

for Managers
(KMBN 206)
SHEFALI SINGH
ASSISTANT PROFESSOR
FOMS, AKTU, LUCKNOW
 What is Operations Research?

• Operations Research (O.R.) is a discipline that provides scientific methods to solve real-life problems that help
us in determining the best utilization of limited resources. Here we study optimization techniques.
• O.R. is a scientific method of providing executive departments with a quantitative basis for decisions regarding
the operations under their control. (Morse and Kimbal (1946) )
• O.R. is a scientific method of providing executives with an analytical and objective basis for decisions. (P.M.S.
Blackett (1948) )
• O.R. is the application of scientific methods, techniques and tools to problems involving the operations of the
system so as to provide these in control of the operations with optimum solutions to the problem. (Churchman,
Acoff, Arnoff (1957) )
• O.R. is a management activity pursued in two complementary ways one half by the free and bold exercise of
commonsense untrammeled by any routine, and the other half by the application of a repertoire of well-
established pre-created methods and techniques.(Jagjit Singh (1968))
 SCOPE OF OPERATIONS RESEARCH
The scope of O.R. is very wide in today’s world as it provides better solution to various decision-making problems with
great speed and efficiency. Areas where methods/models developed in Operations Research can be applied are given here
under:
1. In Agriculture:
• With the explosion of population and consequent shortage of food, every country is facing the problem of optimum
allocation of land to various crops following the climatic conditions and optimum distribution of water from different
resources. Problems of agriculture production under various restrictions can be solved by applications of Operations
Research techniques.
2. In Defence Operations:
• Since Second World War operations research has been used for Defence operations to obtain maximum gains with
minimum efforts.
3. In Finance:
• In these modern times, the government of every country or every organization wants to introduce such type of
planning/policies regarding their finance and accounting which optimize capital investment, determine optimal
replacement strategies, apply cash flow analysis for long-range capital investments, formulate credit policies, and
credit risk. Techniques developed in O.R. can be applied to attain above said things.
4. In Marketing:
A Marketing Administrator has to face many problems like production selection, formulation of competitive strategies,
distribution strategies, selection of advertising media concerning cost and time, finding the optimal number of salesmen,
and finding optimum time to launch a product. All such problems can be overcome using Operations Research Techniques.

5. In Personnel Management:
Every organization wants to make a selection of personnel on minimum salary. It needs to find the best combination of
workers in different categories concerning costs, skills, age, and nature of jobs. It also needs to frame recruitment policies
and assign jobs to machines or workers.

6. In LIC:
Operations Research Techniques can be fruitfully applied in LIC offices as it enable the policymakers to decide the
premium rates for various modes of policies.

7. In Research and Development:

In determination of the areas of concentration of research and development. It also helps in project selection.
 ADVANTAGES OF OPERATIONS RESEARCH
Following are certain advantages of Operations Research (OR):
• Operations Research helps decision –maker to take better and quicker decisions. It helps decision –maker to evaluate
the risk and results of all the alternative decisions. So, it improves the quality of decisions and makes the decisions
more effective.
• Operation Research helps, in preparing future managers as it provides in-depth knowledge about a particular action.
• Operations Research develop models, which provides logical and systematic approach for understanding, Solving and
controlling a problem.
• Operations research reduces the chances of failure as it provides many alternatives for one problem, which helps the
management to choose the best decision. Even managers can evaluate the risks associated with each solution and can
decide whether they want to go with the solution or not.
• It helps users in optimum use of resources. For example, linear programming techniques in Operations Research
suggest most effective methods and efficient ways of optimality.
• It helps in finding the limitations and scope of an activity.
• Using this information, he can measure the performance of employees and can compare it with the standard
performance. It modifies mathematical solutions before these are applied. Managers may accept or modify the
mathematical solutions obtained using Operations Research techniques.
• It helps suggest alternative solutions for the same optimum profit if the management wants so.
 Challenges
1. Magnitude of computation: To arrive at an optimum solution OR takes into account all the
variables that affect the system. Hence the magnitude of computation is very large.
2. Non-quantifiable variables: OR can give an optimum solution to a problem only if all the variables
are quantified. Practically all variables in a system cannot be quantified.
3. Time and Cost: To implement OR in an organization, consumes more time and cost. If the basic
decision variables change OR becomes too costly for an organization to handle it.
4. Implementation of OR: Implementation of OR may lead to HR problems. The psychology of
employees should be considered and the success of OR depends on the cooperation of the employees.
5. Distance between Manager and OR Specialist: Managers may not have a complete overview of
OR techniques and have to depend upon an OR Specialist. Only if the good link is established OR can
be a success.
 LINEAR PROGRAMMING
• Definition:
Samuelson, Dorfman, and Solow define LP as :
“the analysis of problems in which linear function of several variables is to be maximized (or minimized)
when those variables are subject to several constraints in the form of linear inequalities”.
We are already familiar with the concept of optimization. Mathematical programming is an optimization
technique by which the maximum or minimum value of a function is determined under certain conditions.
Mathematical programming in which constraints are expressed as linear equalities/inequalities is called linear
programming.
We first introduce three basic components essential for the development of LP theory.
Decision Variables: The variables in terms of which the problem is defined.
Objective Function: A function that is to be maximized or minimized subject to the given
constraints/limitations.
Constraints: There are always certain limitations on the use of resources that limit the degree to which an
objective can be achieved. These limitations are known as constraints or restrictions. Constraints must be
represented as linear equalities or inequalities in terms of decision variables.
Example
Max (Z) = 9x1 + 3x2
Subject to the constraints: 5x1 + 2x2 ≤ 20;
9x1 + 3x2 ≤ 30;
x1, x2 ≥ 0

Min (Z) = 35x1 + 41x2

Subject to the constraints: 5x1 + 2x2 ≤ 20;
9x1 + 3x2 ≥ 3;
x1, x2 ≥ 0
IMPORTANT DEFINITIONS
Solution
• A set of values of the decision variables which satisfy the constraints of the given
LPP is said to be a solution of that LPP.
Feasible Solution
• A solution in which values of decision variables satisfy all the constraints and non-
negativity conditions of an LPP simultaneously is known as a feasible solution.
Infeasible Solution
• A solution in which values of decision variables do not satisfy all the constraints and
non-negativity conditions of an LPP simultaneously is known as infeasible solution.
Basic solution
• Suppose there are m equations representing constraints (limited available
resources) containing n variables in an allocation problem. The solution obtained by
setting any (m-n) variables equal to zero and solving for the remaining m variables
and the remaining n variables are non – basic variables.
Basic Feasible Solution
• A basic solution for which all the basic variables are non–negative is called the basic
feasible solution. Further basic feasible solutions are of two types:
i) Degenerate Solution
• A basic feasible solution is known as degenerate if the value of at least one basic
variable is zero.
ii) Non-Degenerate Solution
• A basic feasible solution is known as non-degenerate if the value of all basic
variables is non-zero and positive.

Optimum Basic Feasible Solution

• A basic feasible solution that optimizes i.e. maximize or minimize the objective
function value of the given LPP is called an optimum basic feasible solution.
Unbounded Solution
• A solution in which the value of the objective function of the given LPP
increases/decrease indefinitely is called an unbounded solution.
APPLICATIONS/SCOPE OF LINEAR PROGRAMMING
• MANUFACTURING PROBLEMS: to find the number of items of each type that should be manufactured to maximize the
profit subject to production restrictions imposed by limitations on the use of machinery and labor.
• ASSEMBLING PROBLEMS: To have the best combinations of basic components to produce goods according to certain
specifications.
• TRANSPORTATION PROBLEMS: to find the least costly way of transporting shipments from the warehouses to customers.
• BLENDING PROBLEM: To determine the optimal amount of several constitutes to use in producing a set of products which
determines the optimal quantity of each product to produce.
• PRODUCTION PROBLEMS: To decide the production schedule to satisfy demand and minimize cost in face of fluctuating
rates and storage expenses.
• DIET PROBLEMS: To determine the minimum requirement of nutrients subject to availability of foods and their prices.
• JOB ASSIGNING PROBLEMS: To assign job to workers for maximum effectiveness and optimal results subject to
restrictions of wages and other costs.
• TRIM-LOSS PROBLEMS: To determine the best way to obtain a variety of smaller rolls of paper from a standard width of
roll that it kept its stock and at the same time minimize wastage.
• STAFFING PROBLEM: To find optimal staff in hotels, police stations and hospitals to maximize the efficiency.
• TELEPHONE EXCHANGE PROBLEMS: To determine optimal facilities in telephone exchange to have minimum
breakdowns.
 BASIC ASSUMPTIONS OF LINEAR
PROGRAMMING
• Proportionality: The relationship between the constraint inequalities and the objective function is linear. In
other words, any change in the constraint inequalities results in a proportional change in the objective
function. For example, if a product contributes Rs 20 towards profit, then the total contribution would be
equal to (20x_1), where (x_1) represents the number of units of the product. Doubling the output (sales)
would also double the profit.
• Additivity: The total profit of the objective function is determined by the sum of profits contributed by each
product separately. Similarly, the total amount of resources used is determined by the sum of resources used
by each product individually. This assumption implies that there is no interaction between decision variables.
• Continuity: Decision variables are continuous, allowing for fractional values. For instance, if 5 2/3 units of
product A and 10 1/3 units of product B need to be produced in a week, fractional production amounts can be
considered as work-in-progress, with the remaining production carried over to the following week.
• Certainty: The parameters of objective function coefficients and constraint inequalities are known with
certainty. These include profit per unit of product, availability of materials, labor per unit, and other relevant
data provided in the linear programming problem.
• Finite Choices: Decision makers have specific choices, and decision variables assume non-negative values.
For production problems, the output cannot be negative, making this assumption feasible.
 Formulation of LPP
Linear Programming Problems (LPPs) involve maximizing or minimizing a linear objective function
subject to linear constraints. The steps for formulating an LPP typically involve the following:

Identify Decision Variables: These are the variables that you can control or decide upon to achieve your objective. Assign
symbols to represent these variables.

Formulate the Objective Function: Define the objective function, which is a linear expression representing the quantity to
be maximized or minimized. It should be expressed in terms of the decision variables identified in step 1.

Determine Constraints: Identify the constraints or limitations on the decision variables. These constraints should be
expressed as linear inequalities or equations involving the decision variables.

Write Down Constraints: Express each constraint in mathematical form using the decision variables. Constraints can
represent limitations on resources, capacities, or other factors.

Non-negativity Constraints: Specify that decision variables cannot take negative values if applicable. This is usually
implicit but sometimes explicitly stated.

Formulate the Complete Model: Combine the objective function and constraints to form the complete mathematical
model of the problem. This involves writing down the objective function and constraints in standard mathematical notation.
Example: Production Planning

A company produces two types of products, Product A and Product B. Each unit of Product A requires 2 hours of labor and 1 hour of
machine time, while each unit of Product B requires 1 hour of labor and 3 hours of machine time. The company has 100 hours of labor and
120 hours of machine time available each week. The profit per unit is $5 for Product A and $4 for Product B. The company wants to
determine how many units of each product to produce each week to maximize profit.

Soln:

Define Variables Labour Machine

Let
Product A 2 hours 1 hour
• x1​ be the number of units of Product A produced per week.
• x2​ be the number of units of Product B produced per week. Product B 1 hour 3 hour
Objective Function
• The objective is to maximize profit. The profit function 𝑃P can be written as: 100 hours 120 hours
𝑃=5𝑥1+4𝑥2
Constraints
• The production is constrained by the available labor and machine time.
1. Labor Constraint: Formulating the LP Problem
1. Each unit of Product A requires 2 hours of labor. Maximize (Z) =5𝑥1 + 4𝑥2
2. Each unit of Product B requires 1 hour of labor. Subject to: 2𝑥1 + 𝑥2 ≤ 100
3. Total labor available is 100 hours per week. 2𝑥1+ 𝑥2 ≤ 100
𝑥1 +3𝑥2 ≤ 120
2. Machine Time Constraint: x1​ + 3x2 ​≤ 120
1. Each unit of Product A requires 1 hour of machine time.
2. Each unit of Product B requires 3 hours of machine time.
x1​ ≥ 0
3. Total machine time available is 120 hours per week. 𝑥1+ 3𝑥2 ≤ 120 𝑥2 ≥ 0
3. Non-negativity Constraints:
1. The number of units produced cannot be negative. 𝑥1 ≥ 0 ; x2 ≥0
Question:
• A company produces two types of items P and Q that require gold
and silver. Each unit pf type P requires 4g silver and 1g gold while
that od type Q requires 1g silver and 3g gold. The company
produces 8g silver and 9g gold. If each unit of type P brings a profit
of rupees 44 and that of type Q rupees 55, determine the number
of units of each type that the company should produce to
maximize the profit.
Graphical method to solve LPP
• There are various methods for solving Linear Programming Problems and one of the easiest and
most important methods for solving LPP is the graphical method. In Graphical Solution of Linear
Programming, we use graphs to solve LPP.
We can solve linear programming problems using two different methods are,
• Corner Point Methods
• Iso-Cost Methods
Corner Point Method
To solve the problem using the corner point method you need to follow the following steps:
• Step 1: Create mathematical formulation from the given problem. If not given.
• Step 2: Now plot the graph using the given constraints and find the feasible region.
• Step 3: Find the coordinates of the feasible region(vertices) that we get from step 2.
• Step 4: Now evaluate the objective function at each corner point of the feasible region. Assume
N and n denote the largest and smallest values of these points.
• Step 5: If the feasible region is bounded then find the maximum and minimum value of the
objective function.
Example 1: Solve the given linear programming problems graphically:
Maximize: Z = 8x + y
Constraints are,
x + y ≤ 40
2x + y ≤ 60
x ≥ 0, y ≥ 0
Solution:
Step 1: Constraints are, Step 2: Draw the graph using these constraints.
x + y ≤ 40
2x + y ≤ 60
x ≥ 0, y ≥ 0
Consider it as equality:
x+y =40
if x=0,y=40 (0,40)
If y=0, x=40 (40,0)
2x+y =60
if x=0,y=60 (0,60)
If y=0, x=30 (30,0)
X=0
y=0
Step 3: calculate using the given constraints:
• x + y = 40 …(i)
• 2x + y = 60 …(ii)
Now multiply eq(i) by 2 and then subtract both eq(i) and (ii), we get
y = 20
Now put the value of y in any of the equations, we get
x = 20 ,So the third point of the feasible region is (20, 20)

Step 4: To find the maximum value of Z = 8x + y.

Compare each intersection point of the graph to find the maximum value.

Points Z = 8x + y

(0, 0) 0

(0, 40) 40

(20, 20) 180

(30, 0) 240

So the maximum value of Z = 240 at point x = 30, y = 0.