Chapter 1

Introduction
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1.1 What Is Management Science?

Management Science is the discipline that adapts the scientific approach for problem solving to help managers make informed decisions. The goal of management science is to recommend the course of action that is expected to yield the best outcome with what is available.

1.1 What Is Management Science?

The basic steps in the management science problem solving process involves

Analyzing business situations and building mathematical models to describe them; Solving the mathematical models; Communicating/implementing recommendations based on the models and their solutions.

The Management Science Approach

A scientific method of providing executive departments with a quantitative basis for decisions regarding operations (Philip McCord Morse). Logic and common sense are basic components in supporting the decision making process. The use of techniques such as (US army pamphlet 660-3):

Statistical inference Mathematical programming Probabilistic models Network and computer science

Management Science Applications

Linear Programming was used by Burger King to find how to best blend cuts of meat to minimize costs.

Integer Linear Programming model was used by American Air Lines to determine an optimal flight schedule.

The Shortest Route Algorithm was implemented by the Sony Corporation to developed an onboard car navigation system.

Management Science Applications

Project Scheduling Techniques were used by a contractor to rebuild Interstate 10 damaged in the 1994 earthquake in the Los Angeles area. Decision Analysis approach was the basis for the development of a comprehensive framework for planning environmental policy in Finland. Queuing models are incorporated into the overall design plans for Disneyland and Disney World, which lead to the development of waiting line entertainment in order to improve customer satisfaction.

1.3 Mathematical Modeling

Many managerial decision situations lend themselves to quantitative analyses. A constrained mathematical model consists of

An objective One or more constraints

Mathematical Modeling
Mathematical Modeling

This is a procedure that recognizes and verbalizes a problem and then quantifies it using mathematical expressions. Steps to be taken

Identify decision variables Quantify the objective and constraints Construct a model shell Data gathering consider time/cost issues

1.3 Mathematical Modeling

Example

NewOffice Furniture produces three products

Desks (D) Chairs (C) Molded steel (M) $50 per desk $30 per chair $6 per pound of molded steel sold

Raw material required

Net profit is

7 pounds of per desk 3 pounds of per chair 1.5 pounds per one pound of molded steel produced.

Raw material available

2000 pounds

1.3 Mathematical Modeling

Objective: Determine production mix that maximizes the profit under the raw material constraint and other production requirements (detailed next). Maximize 50D + 30C + 6 M Subject to 7D + 3C + 1.5M 2000 (raw steel) D 100 (contract ) C 500 (cushions available) D, C, M 0 (Non-negativity) D and C are integers

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Classification of Mathematical Models

Classification by the model purpose

Optimization models Prediction models

Classification by the degree of certainty of the data in the model

Deterministic models Probabilistic (stochastic) models

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The Management Science Process

Management Science is a discipline that adopts the scientific method to provide management with key information needed in making informed decisions. The team concept calls for the formation of (consulting) teams consisting of members who come from various areas of expertise.

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The Management Science Process

The four-step management science process (for details click on each button)
Problem definition

Mathematical modeling Solution of the model Communication/implementation of results

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DELTA HARDWARE STORES

Read the problem statement on Page 13&14 Define the Decision Variables Construct the Model Shell Consider the Gathering of Data Solve the Model as a Transportation Model using Excel Solver

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1.6 Using Spreadsheets in Management Science Models

Spreadsheets have become a powerful tool in management science modeling. Several reasons for the popularity of spreadsheets:

Data are submitted to the modeler in spreadsheets Data can be analyzed easily using statistical and mathematical tools readily available in the spreadsheet. Data and information can easily be displayed using graphical tools.

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Basic Excel functions and operators

Arithmetic Operations

Addition of cells A1and B1: Subtracting cell B1 from A1: Multiplication of cell A1 by B1: Division of cell A1 by B1: Cell A1xraised to the power in cell B1:

= A1 + B1 = A1 - B1 = A1 * B1 = A1 / B1

= A1^ B1

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Basic Excel functions and operators

Relative and absolute addresses

All row and column references are considered relative unless preceded by a $ sign When copied, relative addresses change relative to the original cell position.

Example:

Cell E5 =A1+B$3+$C4+$D$6

Cell G9 = C5+D$3+$C8+$D$6

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Basic Excel functions and operators

The F4 key

Pressing F4 will automatically put a $ sign in highlighted portions of formulas. Specific operations:

Press the F4 key once: The sign $ appears in front of all rows and columns of the highlighted area of the formula. Press the F4 key twice: The $ sign appears in front of only the row references of the highlighted area of the formula. Press the F4 key third time: The $ sign appears in front of only the column references of the highlighted area of the formula. Press the F4 key forth time: All the $ signs are eliminated.

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Basic Excel functions and operators

Arithmetic functions

Sum

=SUM(A1:A3) =Average(A1:A3) =SUMPRODUCT(A1:A3,B1:B3) =ABS(A3)

Returns the sum A1+A2+A3 Returns the arithmetic average of cells A1, A2, A3

Average

SUMPRODUCT

Returns the sum of products A1B1+A2B2+A3B3

Returns the absolute value of the entry in cell A3.

ABS

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Basic Excel functions and operators

Arithmetic functions continued

SQRT

=SQRT(A3) =MAX(A1:A9) =MIN(A1:A9)

Returns A3 Returns the Maximum of the entries in cells A1 through A9.

MAX

MIN

Returns the Minimum of the entries in cells A1 through A9.

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Basic Excel functions and operators

Statistical functions

RAND()

=RAND()

Generate a random number between 0 and 1 from a uniform distribution. NORMDIST =NORMDIST(25,20,3,TRUE) Returns P(X<25) when m = 20 and s = 3 NORMSDIST =NORMSDIST(1.78) Returns P(Z<1.78) NORMINV =NORMINV(.55,20,3) Returns x0,, such that P(X<x0)=.55 when m = 20 and s = 3 NORMSMINV =NORMSINV(.55) Returns z0, such that P(Z<z0)=.55

Probabilities and variable values under the normal distribution

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Basic Excel functions and operators

Statistical functions

Probabilities and variable values under the t- distribution

TDIST =TDIST(1.5,12,1) Returns P(t>1.5) when n=12 Note: =TDIST(1.5,12,2) returns P(t<-1.5) + P(t>1.5) when n=12.

TINV =TINV(.05,15) Returns t0,, such that P(t<-t0)=.025 and P(t>t0)=.025 when n=15.

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Basic Excel functions and operators

Statistical functions Other probability distributions

Poisson

=POISSON(7,5,TRUE) =EXPONDIST(40,1/20,TRUE)

Returns P(X<7) for Poisson with l = 5. Note: false returns the probability density P(X = 7) Returns P(X<40) for the exponential distribution with 1/m=20 Note: false returns the probability density f(40)=20exp(-20(40))

EXPONDIST

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Basic Excel functions and operators

Conditional functions:

IF

=IF(A4>4,B1+B2, B1 B2)
Returns B1+B2 if A4>4, and B1 B2 if A4

SUMIF

=SUMIF(F1:F12, >60,G1:G12)

Returns G1+G2++G12 only if F1+F2++F12>60

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Basic Excel functions and operators

VLOOKUP

=VLOOKUP(6.6,A1:E6,4)

If the values in column A of a given table [A1:E6] are sorted (in an ascending order), VLOOKUP finds the largest value in column A that is less than or equal to 6.6, identifies the row it belongs to, and returns the value in the fourth column that correspond to this row. Note: If the values in column A are not sorted, =VLOOKUP(6.6,A1:E6,4,FALSE) finds the value 6.6 in column A, identifies the row it belongs to, and returns the value in the fourth column that corresponds to this row.

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Basic Excel functions and operators

Statistical/Optimization

Data Analysis [Selected from the Tools menu]. Useful entries:

Descriptive Statistics Regression Exponential Smoothing Anova

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