Unit 1: Introduction To Management Science

UNIT 1
Introduction to Management Science

Prepared
MICHAEL BONN A. BONIFACIO, MSPPM

Alumnus
Carnegie Mellon University
Before everything goes serious, let us kick this off with…
References:
1. Taylor, B. (2013). Introduction to Management
Science. Pearson Education, Inc.
2. Kunc, M. (2019). Strategic Analytics:
Integrating Management Science and Strategy.
John Wiley and Sons Ltd.
3. Ragsdale, C. (2015). Spreadsheet Modelling
and Decision Analysis, 7e. Cengage Learning
Supplementary Readings
4. Harvard Business Publishing Education (Online
Resources). Hbsp.harvard.edu
Management Science in ACTION!
Qantas Group (also known as Qantas Ltd.)
The Qantas Group employs more than

30,000 people and offer services, across
a network of more than 180 destinations
in more than 40 countries in Australia,
Asia, the Americas, Europe, Middle East
and Africa.
Qantas Group has two airline brands:

Qantas and Jetstar, which is a low-cost
airline.
In the domestic market (Australia),

Qantas, QantasLink and Jetstar operate
more than 5,000 flights a week serving
59 cities and regional destinations.
Jetstar operates 160 domestic flights a
week in New Zealand. Internationally,
Qantas and Jetstar operate more than
900 flights each week.
Question: How can management science help Qantas in its operations?

Management science and quantitative

analysis has been a vital component of
Qantas Group and Qantas Limited
operations and success.
The following are some key areas and

strategies identified for managing its
revenue (Qantas 2010).
Revenue Management System
1. Yield Management – For example, there is

heavy demand on domestic routes during
weekday peak periods and to leisure
destinations during holiday periods, but there is
low demand at other times. Therefore, each
flight has its own individual forecast. Yield
managers look at external and internal factors as
diverse as economic indicators which affect
longer term demand, seasonal schedule changes
and changes in aircraft capacity to achieve an
optimal mix of fares.
1. Yield Management – Yield managers employ widely accepted statistical

tools to forecast seat demand, using historical data and seasonal variables.
interesting FACT!
VIRGIN AUSTRALIA
Fly business class on an A330-200 and
you can also make use of a 203-cm
convertible flat bed. If extra legroom is
all you're after, you can get up to
96.5cm in extra pitch from for $10-$175
(depending on fleet and class).
2. Overbooking - A component of yield
management is the overbooking of flights.
Overbook occurs because there is a
percentage of passengers and travel agents
that make reservations without ever trying to
use them and others make multiple bookings.
Overbooking profiles are monitored and
managed, so flights are not closed for
bookings ahead of departure. Therefore,
fewer seats are wasted and more customers
can travel.
3. Pricing initiatives
A range of fares is offered to meet overall revenue targets since not everyone
is prepared to pay the same price at the same time. Some customers are
driven by price and choose to purchase discounted fares, such as sale or
promotional airfares. Other customers want to book early or travel on a day
or time in order to secure a seat.
3. Pricing initiatives
Customers who are time sensitive or want greater flexibility are often willing
to pay a higher price. The full range of fare types is available for sale for some
time during the booking lifecycle. In its aim to maximize seat sales, pricing
initiatives play a role in identifying areas of weaker demand and releasing
special fares to stimulate demand.
4. Capacity to meet demand - When it is viable, peak travel periods are

matched with additional capacity to meet customer demand. In periods of
lower demand, a combination of pricing initiatives and/or capacity changes is
applied in order to best match seat demand and supply.
Is quantitative techniques and management science helpful for Qantas ?
On general, the use of quantitative applications are

essential to the day-to-day decisions of Qantas and
other airline companies. Forecasting demand and
identification of the right combinations of airfare
prices are just few of the many uses of quantitative
techniques.
So, what and why use techniques in management science?

According to Taylor, Management Science is the application of scientific
approach to solving management problems in order to help managers
make better decisions. It encompasses a number of mathematically
oriented techniques (as quantitative techniques do).
So, what and why use quantitative techniques?
The introduction of management science tools can help to mitigate this

problem. Management science tools provide the opportunity for companies
to gain a competitive advantage or neutralize a threat. The evaluation of
these tools can identify which ones are more useful in relation to the
industry in question.
One of the important issues with using management science tools is all
elements related to a problem have to be quantified but all variables do not
lend to quantification and models may not qualitative factors or emotional
factors which can be important.
Where can you get quantitative information?
Management Science Process
As graduates of this course, you are

expected to master the skill of model
creation from perceived problems of
businesses and organisations. These
models and methodologies should and
must be able to provide them with
insights and solutions that they can
apply the actual practice.
Model Building: Breakeven Analysis
The purpose of break-even analysis is to determine the number of units of a

product to sell or produce that will equate total revenue with total cost. The
point where total revenue equals total cost is called the break-even point, and at
this point profit is zero.
The break-even point gives a manager a point of reference in determining how

many units will be needed to ensure a profit.
Components of Breakeven Analysis:
1. Volume – level of sales or production (v)
2. Cost – fixed costs, Cf and variable costs, Cv
3. Profit – Selling price
Sample problem 1 (single product)

The Willow Furniture Company produces tables. The fixed monthly cost of
production is $8,000, and the variable cost per table is $65. The tables sell for $180
apiece.
a. For a monthly volume of 300 tables, determine the total cost, total revenue, and
profit.
b. Determine the monthly break-even volume for the Willow Furniture Company.
Sample problem 2 (single product)
The Rolling Creek Textile Mill produces denim. The fixed monthly cost is
$21,000, and the variable cost per yard of denim is $0.45. The mill sells a yard
of denim for $1.30.
a. For a monthly volume of 18,000 yards of denim, determine the total cost,
total revenue, and profit.
b. Determine the annual break-even volume for the Rolling Creek Textile Mill.
Sample problem 3 (multiple product)

Tala Corporation produces and sells three products and has provided the following
operating data:
Product TOTAL
X Y Z
Unit Sales Price 400 600 700
Unit Variable costs 100 350 500
Budgeted sales in units 500 300 200 1000
Budgeted sales in pesos 200,000 180,000 140,000
Total Fixed Costs = 795,000
Compute for: 1. Composite breakeven point (CBEP) in units
2. sales mix for product X, Y and Z.
Sample problem 4 (multiple product):

AJ Marketing produces and sells products A, B, C, D, E and F. Each Product has
different selling price (SP) and variable costs (VC). The summary of SP and VC is in
the table below:
A B C D E F
Unit Sales Price 350 450 300 450 600 650
Unit Variable costs 150 200 170 350 250 550
Total Fixed Costs = 2,550,000

Production budget (based on capacity): A = 200 units; B = 250% of A; C = 50% of B; D
= 150; E = 300; F = 50% of the C and D combined. Find the composite BEP in units
and the corresponding sales mix

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UNIT 1

Introduction to Management Science

MICHAEL BONN A. BONIFACIO, MSPPM

The Qantas Group employs more than

Qantas Group has two airline brands:

In the domestic market (Australia),

Question: How can management science help Qantas in its operations?

Management science and quantitative

The following are some key areas and

1. Yield Management – For example, there is

1. Yield Management – Yield managers employ widely accepted statistical

4. Capacity to meet demand - When it is viable, peak travel periods are

On general, the use of quantitative applications are

So, what and why use techniques in management science?

The introduction of management science tools can help to mitigate this

As graduates of this course, you are

The purpose of break-even analysis is to determine the number of units of a

The break-even point gives a manager a point of reference in determining how

Sample problem 1 (single product)

Sample problem 2 (single product)

Sample problem 3 (multiple product)

Sample problem 4 (multiple product):

Total Fixed Costs = 2,550,000

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