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Meaning : A Linear Programming Problem is a mathematical model dealing with the use
or allocation of certain scarce resources (i.e. key factors like raw material, labour
hours,machine time,capital availability etc.) is the best possible manner in order to
maximize profit or minimize cost.

Conditions : Linear Programming Problem consists of a particular class of programming


problems, which should meet the following –

Variables : There must be decision variables e.g. products, time, process etc. Which the
decision maker may use at different levels. There must be non-negative. These decision
variables may be denoted by alphabets like x,y,z etc or X1,X2,X3 etc.
b) Objectives : There must be a defined objective i.e. either maximization of profit or
minimization of cost. The objective function should be defined by use of a linear function
involving the decision variables.

c) Constraints : There shoule be limitations/restrictions relating to the use of certain


resources. These constraints are denoted by investigations having ‘ < ‘ ‘>’ signs. In some
cases, the conditions can be stated using ‘=’sign also.

A large number of decision problems faced by a business managers involve allocation of


resources to various activities, with the objective of increasing profits or decreasing costs,
or both. When resources are in excess, no difficulty is experienced. But such cases are
very rare. Practically in all situations, the management is confronted with the problem of
scarce resources. Normally, there are several activities to perform but limitations of either
of the resources or their use prevent each activity from being performed to the best level.
Thus, the manager has to take a decision as to how best to allocate the resources among
the various activities.

The decision becomes complicated when a number of resources are required to be


allocated and there are several activities to allocated and there are several activities to
perform, Rule of thumb, even of an experienced manager, may not provide the right
answer to such cases.

3 answer

“Linear programming is one of the most frequently and successfully employed


operational research technique to managerial and business decisions”

The decision problem becomes complicated when the number of resources are required to
be allocated and experienced managers, in all likelihood, may not provide the right
answers in such cases. The decision problem can be formulated and solved, as
mathematical programming problems, and linear programming is considered as one of
the most frequently and successfully employed operational research technique to
managerial and business decisions because of its easy-to-use and easy-to-understand
methods. Linear programming divides the problem into its object (minimizing cost and
maximizing profit) and constraints (best allocation of resources) and formulate the
decision problem of manager into a linear programming problem and the take an
informed linear programming problem and the take and informed decision based on the
scientific method. Linear programming also decision based on the scientific method.
Linear programming also gives the manager a better understanding by usage of ‘graph’

Example:

4 answer

The term transport is associated with such problems principally because in studying
efficient transportation routes, a special procedure was used which has come to be known
as the transportation method.

The classical transportation problem can be stated mathematically as follows:


Let ai = quantity of product available at origin i
bj = quantity of product required at destination j
cij = the cost of transporting one unit of product from source/origin I to destination j
xij = the quantity transported from origin I to destination j
m n
Assume that ∑ai = ∑bj which means that the total quantity available at the origins is
i=1 j=1

precisely equal to the total amount required at the destinations.


With these, the problem can be stated as a linear programming problem as :

m n
Minimise Total Cost Z=∑∑ cji xij
i=1j=1

Subject to
n
∑ xij = ai for i = 1,2,….,m
j=1

m
∑ xij = bj for j = 1,2,….,n
i=1
and xij ≥ 0 for all i = 1,2,………….m, and
j = 1,2,…………n
The transportation model can also be portrayed in a tabular form by means of a
transportation tableau.

1. North-West Corner Rule, wherein starting with north-west corner of the table and
moving in a zig-zag manner ending at the south-east corner, quantities are
assigned to various cells by considering demand and supply.

Total cost = 20 x 6/- + 30 x 4/- + 40 x 8/- + 25 x 4/- + 35 x 2/- = Rs730/-

2. Least Cost Method , in which least cost cell is detected and quantity is assigned.
After this, the row/column satisfied is deleted and the least cost cell from the
remaining ones is chosen. Move in the same manner until all requirements are
met.

Total cost = 20 x 3/- + 15 x 4/- + 20 x 8/- + 60 x 4/- + 35 x 1/- = Rs 555/-

3. Vogel’s Approximation Method , in which difference between two least values


for each row and column is obtained and quantity assigned to the least cost cell of
the row/column with the largest difference. After deleting the row/column
satisfied, move in the same manner until all the requirements are met.

Total cost = 20 x 3/- + 15 x 4/- + 20 x 8/- + 60 x 4/- + 35 x 1/- = Rs 555/-

Northwest Corner Rule :-


Advantages :
1 Very simple and reliable method
2 Easy to compute, understand and interpret.

Disadvantages :
1 Ignores the relative cost of different routes while making the first assignment
2 Does not give a IBFS close enough to the Optimal Solution
Areas of Application :
Northwest Corner Rule may be used in transportation application
1 Within the campus of an organization as cost differences are not significant
2 Obligations where cost is not the criteria for decision-making

Least Cost Cell Method :-


Advantages – The cost associated with each route is taken into consideration. So, this
method leads to a better allocation than Northwest Corner Method.

Vogel’s Approximation Method (VAM):-


Advantages :
1 It is simple and considerably reduces the number of iterations required to arrive at
the optimal solution.
2 The IBFS derived is very close to the optimal solution.
Disadvantages :
1 It takes more time to compute the IBFS compared to Northwest Corner rule.
2 It does not guarantee minimum cost solution

5 Answers

An assignment problem is the problem of assigning a job to a person because people


possess varying abilities for performing different jobs and, therefore, the costs of
performing those jobs by different people are different. Thus, in an assignment
problem, the question is how the assignment should be made in order that the total
cost involved is minimized or profits are maximized.

The assignment problem can be expressed as a transportation problem also. The


various cost (or time) elements are taken as given, and the availability at each of the
sources and the requirement at each of the destination is taken to be 1. Further, as
assignments are made on a one-to-one basis, the numbers of origins and destinations
should be made exactly equal. The Xij values should equal ‘0’ or ‘1’, so that for a job
assigned to a worker Xij would be 1 and other values in that (Ith) row and the (jth)
column should equal to ‘0’.

Thus, an assignment problem is a variation of the transportation problem with two


characteristic. First, the pay off matrix for the problem would be a square matrix, and,
second, the optimal solution to the problem would always be such that there would by
only one assignment in a given row or column of the pay-off matrix.

An assignment problem can be formulated as a linear programming problem (with


integer variables) and solved using a modified simplex method or otherwise. It may
be noted that the formulation requires that the decision variables take only one of the
two values 1 or 0, according as an assignment 1 of a worker to a job is made or not.

Example:
Have to be written

Answer 6

Inventories may be held for a variety of purposes, but, in general, there are five types in
inventories that an organization can use for serving these purposes. These are:

(a) Movement Inventories;


(b) Buffer Inventories;
(c) Anticipation inventories;
(d) Decoupling inventories and
(e) Cycle inventories

[a] Movement Inventories : Movement inventories are also called transit or pipeline
inventories. Their existence owes to the fact that transportation time is involved in
transferring substantial amounts of recourses.

[b] Buffer Inventories : Buffer inventories are held to protect against the uncertainties of
demand and supply.

The idea of keeping buffer stocks is to render higher level of service and consequently
reduce the number of stock outs and back-orders. In some situations back-ordering is
possible (i.e. the order for goods demanded may be fulfilled as soon as the next shipment
if the items is received) while in others it is not and the demand might be lost forever
leading to temporary/permanent loss of customer goodwill.

It is almost inevitable to keep buffer stocks for the simple reason that perfect prediction
of demand and lead time is an expectation rather than the rule.

[c] Anticipation inventories : Anticipation inventories are held for the reason that a future
demand for the product is anticipated. Production of specialized items like crackers well
before Diwali, umbrellas and raincoats before rains set in, are all examples of anticipation
inventories. The underlying idea is to smoothen the production process for a longer
duration on a continuous scale rather than operating with excessive overtime in one
period and then letting the system be idle or closing down for the reason of inadequate/no
demand for another period.

[e] Decoupling inventories : The idea of the decoupling inventories is to decouple , or


disengage, different parts of the production system. As we can observe easily, different
machines/ equipment and people normally work at different rates. In the absence of
decoupling inventories, different machines and people cannot work simultaneously alone
a continuous basis, When such inventories are held, then, even if a machine breaks down,
the work on others would not stop.

Indeed, if all the machines and people work at the same rare then there would be no need
for such inventories. But then, in that case if a machine breaks down, very soon the entire
work might come to a standstill. Clearly, therefore the decoupling inventories act as a
shock absorbers and have a cushioning effect in the face of varying work-rates, and
machine breakdowns and failures, and so on.

[e] Cycle inventories: Cycle inventories are held for the reason that purchases are usually
made in lots rather than for the exact amounts which may be needed at a point of time.

As the cycle inventories are related to the purchases in lots they are also called lot size
inventories and, obviously the larger the lot-size the greater would be the level of cycle
inventories.

Inventory Decisions
The basic functions of an inventory management are:-
1. How much to order? That is to say, what is the optimal quantity of an item that
should be ordered whenever an order is placed?
2. When should the order be placed?
3. How much safety stock should be kept? Thus, what quantity of an item in excess
of the expected requirements should be held as buffer stock in anticipation of the
variations in its demand and/or the time involved in acquiring fresh supplies?

The two basic inventory decisions management must make, are:-


1. Purchase cost : This refers to the nominal cost o f inventory. It is the purchase
price for the items that are bought from outside source, and the production cost if
the items are produced within the organization. This may be constant per unit, or
it may vary as the quantity purchased/produced increases or decreases. Quite
often situations are found when it may be stipulated that, for example, the unit
price is Rs.20 for an order upto 100 units and Rs19.50 if the order is for more than
100units.

If the unit cost is constant, it does not affect the inventory control decision
because then whether all the requirements are bought(produced) just once , or
whether they are obtained in installments, the total amount of money involved
would be the same. However, we do consider the quantity discounts when they
occur, because they effect these decisions.

2. Ordering Cost / Set-up cost : Ordering cost is incurred whenever the inventory
is replenished. It includes costs associated with the processing and chasing of the
purchase order, transportation, inspection for quality, expediting overdue orders
and so on. It is also know as the procurement cost.
The parallel of the ordering cost when units are produced within the organization
is the set-up cost. It refers the cost incurred in relation to developing the
production schedules, the resources employed in making the production system
ready and so on.
The ordering (and set-up) cost is likely, and taken, to be independent of the order
size. Therefore, the unit ordering/set-up cost declines as the purchase
order/production run increases in size.

7 Answer
The queuing theory, also called the waiting line theory. The theory is applicable to
situations where the ‘customers’ arrive at some ‘service station(s)’ for some service;
wait (occasionally not); and then leave the system after getting the services. In such
‘arrival and departure’ problems, the customers might be people waiting to deposit
their electricity bills at a cash counter, machines waiting to be repaired in a factory’s
repair shop, aero planes waiting to land at an airport, patients in a hospital who need
treatment … and so on . The service stations in such problems are the cash counters
in the electricity office, repairmen in the shop, runways at the airport and doctors
attending the patients, respectively.

The Waiting lines develop because the services to a customer may not be rendered
immediately as the customer reaches the service facility. Thus, lack of adequate
service facility would cause waiting lines of customers to be formed. The only way
that the service demand can be met with ease is to increase the service capacity (and
raising the efficiency of the existing capacity if possible) to a higher level. The
capacity might be built to such a high level as can always meet the peak demand with
no queues. But adding to capacity may be costly affair and uneconomic after a stage
because then it shall remain idle to varying degrees when there are no or few
customers. A manager, therefore, has to decide on an appropriate level of service
which is neither too low nor too high. Inefficient or poor service would cause
excessive waiting which has a cost in terms of customer frustration, loss of goodwill
in the long run, direct cost of idle employees (where, for example, the employees
have to wait near he store to obtain the supplies of materials, parts or tools neened for
their work), or loss associated with poor employee morale resulting from being idle.
On the other hand, too high a service level would result in very high set up cost and
idle time for the service station(s). thus, the goal of queuing modeling is the
achievement of an economic balance between the cost of providing service and the
cost associated with the wait required for that service.

Some more examples of queuing situations are given in Table below

8 Answers

In any establishments, sooner or later all equipments need to be replaced. A replacement


is called for whenever new equipment offers more efficient or economical service than
the old, existing ones. The problem, in such situation, is to determine the best policy to be
adopted with respect to replacement of the equipment. The replacement theory provides
answer to this question in terms of optimal replacement period.

Generally, there are two types of replacement problems:

1. For items that deteriorate gradually, and


2. For items that fail suddenly

The replacement policies for the above are:

1. For the items that deteriorate generally, operating and maintenance costs steadily
increase with passage of time, whereas depreciation per year decreases with time.
In view of this behavior of the two elements of cost, the problems in such cases is
to determine at what point in time should an asses be replaced so that the total
cost may be minimized.

Assuming (1) the asset can be replaced at the same cost (2) there is no time value of
money, and (3) replacements are done only at the year-ends ( not during a year ), the
problem of obtaining the optimal replacement interval is solved as follows :
(a) Fine the cumulative operating/maintenance .
(b) Find the total depreciation (i.e. Purchase cost minus resale price ).
(c) Add (a) and (b) to get Total Cost.
(d) Divide Total cost by n, the number of years, to get average cost. The optimal
period of replacement is the one corresponding to which average cost is
minimum.

In case the time value of money is considered, the present value of the maintenance
cost and resale values need to be obtained first. After this, the weighted average cost
(using the present value factors as weights) is determined. The replacement in such a
case is done at a point when is found that the next period’s cost is greater than the
weighted average of the previous costs.

2. For the items that fall suddenly, we first obtain the expected number of failures
per period of time. This is done by applying the appropriate probabilities. Once
the individual replacement are ascertained, we consider the various alternate
policies of group replacement and determine the cost implications of each one of
them, The policy with the least average cost is chosen to be the appropriate one.

GR represents the sum of the cost of group replacement per unit of time (G/T) and the
cost of individual replacement of times which fail during the replacement interval (also
per unit of time) and, hence, equal to I (T/T). In figure, the optimal group replacement
interval is determined as T*, corresponding to the lowest point on the GR curve.
9. Answer

The use of the PERT and CPM techniques is made in both planning and controlling of the
projects. Planning in this context implies developing the overall layout of the project with
estimates of the time and resources required and the detailed scheduling of the timing and
sequence of various jobs to be performed. The control on the other hand, takes place
during the work on the project. In particular, these techniques help the project managers
to determine the expected project completion time/date; the scheduled start and the
completion time for the different activities comprising the project; the key activities of
the project which must be completed at the scheduled time; the time period by which the
non-key activities may be delayed without causing a delay in the completion of the whole
project, etc.

Ex: PERT is used more in research and development projects, while CPM is used in
construction activities, etc.

 The major similarities between PERT and CPM are that, they use similar terminology
and have the same general purpose.

 CPM is better technique of project management than PERT, when activity duration a
project is known with certainty. Not only the amount of times needed to complete the
various facets of the project but also the amounts of resources required for performing
each activities are assumed to be known.

 It is advised to employ CPM for construction projects as ‘time’ is critical factor at the
same time ‘money’ is also a considerable factor; and project resources are usually known.
Therefore, it is advisable to employ CPM for construction projects.

10 answer

Decision making process:


The decision-making process involves the following steps:
1. Identification of the various possible outcomes, called states of nature or events,
Ei’s, for the decision problem. The events are beyond the control of the decision-
maker.
2. Identification of all the courses of action, Aj’s, or the strategies that are available
to the decision-maker. The decision-maker has control over choice of these.
3. Determination of the pay-off function which describes the consequences resulting
from the different combinations of the acts and events. The pay-offs may be
designated as Vij’s – The pay off resulting from ith event and the jth strategy.
4. Choosing from among the various alternatives on the basis of some criterion,
which may involve the information given in step(c) only or which may require
and incorporate some additional information.
Developing Pay-off and Regret Tables
A pay-off table depicts the economics of the given problem. A pay-off is a
conditional value – a conditional profit, loss, or may be, a conditional cost. It is
conditional in the sense that associated with each course of action is a certain
profit/loss, given that certain event has occurred. Thus, profit or loss resulting by the
adoption of a certain strategy is dependent upon, and is therefore associated with all
the possible combinations of the acts an the events.
To consider how the pay-off table can be constructed for our example, let D denotes
the demand in units for the book, and let Q denote the quantity decided to be
purchased (the course of action). The profit, P, for a total demand equal to, or greater
than, the quantity purchased shall be equal to the difference of the total revenue from
the sale of all the copies that were purchased and the total cost of procuring them.
Thus, when D≥Q, we have P=100Q–80Q or P=20Q. On the other hand, when the
quantity demanded is less than the quantity purchased (i.e. D<Q), the profit shall be
equal to the total revenue obtained from selling D copies plus the revenue from the
unsold copies, equal to 30(Q-D), minus the total cost of buying Q copies. Thus,
P=100D+30(Q-D)-80Q or P=70D-50Q. Alternatively, since each copy sold yields a
profit of Rs20 while every unsold copy involves a loss of Rs50, the profit function,
when D<Q, can be stated as P=20D-50(Q-D) which on simplification reduces to
P=70D-50Q, the same as given above. Thus, we have

P=20Q, when D≥Q,


And P = 70D-50Q, when D<Q

The pay-offs for all combination Aj’s and Ei’s are given in Table below

13 Answers

To stimulate is to imitate. In general terms, simulation involves developing a model of


some real phenomenon and then performing experiments on the model evolved. It is a
Descriptive, and not optimizing, technique. In simulation, a given system is copied and
the variables and constants associated with it are manipulated in that artificial
environment to examine the behavior of the system.

Broadly there are four phases of the simulation process. They are:-

a. Definition of the problem and statement of objectives.


b. Construction of an appropriate model.
c. Experimentation with the model constructed and
d. Evaluation of the results of simulation.
The two major reasons for using simulation to solve a problem are :-

a. Results of taking a particular course of action can be estimated prior to its


implementation in the real world.
b. Instead of using hunches and intuition to determine what may happen, the analyst
using simulation can test and evaluate various alternatives and select the one that
gives the best results.

The advantages and limitations of simulation are:-

Advantages:-

1. Simulation techniques allow experimentation with a model of the system rather


than the actual operating system. Sometimes experimenting with the actual
system itself could prove to be too costly and in many cases too disruptive.
2. The non-technical manager can comprehend simulation more easily than a
complex mathematical model. Simulation does not require simplifications and
assumptions to the extent required in analytical solutions. A simulation model is
easier to explain to management personnel since it is a description of the behavior
of some system or process.
3. Sometimes there is not sufficient time to allow the actual system to operate
extensively. Simulation allows the manager to incorporate time into an analysis.
In a computer simulation of business operation the manager can compress the
result of several years or periods into a few minutes of running time.
4. Simulation allows a user to analyze these large complex problems for which
analytical results are not available. However, when mathematically convenient
distributions are not applicable to the problem, an analytical analysis of the
problem may be impossible. A simulation model is useful solution procedure for
such problems.

Limitations:-

1. However, it must be emphasized that the simulation technique does not represent
a methodology for derivation of optimal solutions to the given problems. This
approach is designed merely to provide a characterization of the behavior of the
system in question for a given set of inputs. Further the simulation approach is not
precise in the sense that it yields only estimates which are subject to sampling
error.
2. Another drawback, associated with the technique, is that it may not prove
economical where large scale simulation, requiring considerable efforts to
develop a suitable model, and computer time, may be required to be done, as s the
case in most of the practical situation. Also Monte Carlo simulation is restricted to
situations that contain element which can be described by random variables.
3. Probably, the most serious limitation of simulation stems from the fact that is it’s
a tool of solution evaluation and thus does not generate problem solution.
Therefore, the analyst has to develop the proposed solution; then simulation can
be used to test the relative desirability of those solutions.

In spite of its limitations, simulation is a very potent, flexible and, therefore, a


commonly employed quantitative tool for solving decision problems.

Simulation is typically the process of carrying out sampling experiments on the


models of the system rather than system itself. To count a few its uses extends to
areas like policy dispatching and beat design; location of emergency vehicles like
ambulances; making inventory policy decisions; evaluation of operating alternatives
at airports; in financial planning – both portfolio selection and capital budgeting,
scheduling the production processes; large scale military battles as well as individual
weapons systems for aiding in the designing of both the weapon systems and of the
paramount importance where the experimentation with the real situation is risky; thus
simulation carries out sampling experiments on the models of the system rather than
the system itself.

15 answer)
Forecast can be obtained using a variety of techniques/models. The forecasting
models are divided into two categories: qualitative models and quantitative models
The qualitative models use personal judgement and involve qualities like intuition
and experience as the bases of forecasts, and are subjective by their very nature,. On
the other hand, quantitative models are objective in nature and they employ numerical
information as the basis of making forecasts. Quantitative models include time series
models and casual models. The time series models attempt to predict the future
values. They hold the future to be a continuum of the past and are based on the
premise that what would happen in the future is a function of what has happened in
the past. They, therefore, involve predicting for future in keeping with the past
behaviour. On the other hand, the casual models are used where one variable is
related to and, therefore, dependent upon, the values of some other variable(s). The
demand for a product may, for example be seen to be dependent upon the price
charged, amount spent on advertisement incomes of the people and so on. The
analysis is done in terms of what is called as regression analysis.
Qualitative models are more appropriate when the decision are subjective in nature
and they are to be taken based on experience, personal judgements or intuitions etc.

Delphi Method : Perhaps the most important of forecasting involving judgements is


called the Delphi method. The method is an iterative group process and it employs a
group of experts, not an oracle(!), to obtain forecasts. These experts are usually not
known to each other and their interaction takes place through a coordinator. The other
participants in the Delphi process are the staff and respondents. The staff personnel
assist the experts by preparing, distributing, collecting, and summarizing and
tabulating the data, while the respondents are the subjects whose judgements are
being sought and valued. In this method, the coordinator obtains the forecasts from
the experts and then assimilates each of their forecasts. Each of the experts whose
estimate is not included in the middle 50% of the forecasts is asked to explain the
analysis underlying the forecast. The coordinator disseminates to each expert a
summary of all the forecasts and of the explanations of forecasts that lie outside the
middle 50%. Based on this additional information, each of the experts may revise
his/her original forecast. After repeating this process appropriately, the experts tend to
reach a consensus forecast.

Answer 16 a)

Resource Leveling Resource Allocation


It is a network technique used for Resource allocation program is aimed to
reducing the requriment of a particular allocate available resources to activities
resources due to its paucity. of a project in an attempt to determine the
In order to achieve this, Non-critical shortest project duration, consistent with
activities are re-scheduled by utilizing the fixed resource limit.
their floats.
Time :- the use of resource leveling may Time :- Project duration may increase due
lead to enlonging the completion time of to scarcity of resources.
the project. In other words, constraint is
on the limit of the resource availability.

Answer 16 (b)

Budget Overrun :- The PERT/ Cost method of monitoring and controlling costs extends
beyond the ordinary comparisons between actual costs and budgeted costs. Since time
and costs both are considered by this method, actual work done can also be compared
with projected work. With the underlying assumption that time and cost are directly
proportional for each activity, we can usefully compare the work completed and the cost
incurred. This serves as a useful input to cost control. Typically, if a given activity has
incurred 80 percent of its budgeted cost but is only 60 percent complete, then this
situation is called as Budget Overrun.

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