Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning DECISION MAKING – A QUANTITATIVE APPROACH 1 CHAPTER

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 3 Learning Objectives Decision Making Model Operations Research - Definitions Characteristics of Operations Research Models and Operations Research Operations Research Methodology Operations Research Techniques Typical Applications of Operations Research

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 4 Decision Making Model Quantify and Measure against Objectives Define the problemEstablish Cause-Effect relationship Objective Setting Decide on Strengths and Weaknesses Decide on Boundary Conditions Information Gathering Gather Data Analyse Data Generation of Alternatives Impose Limits Evaluation of Alternatives Look at Short Range Look at long Range Decide on Feasible Alternatives Selection of Alternative Apply Quantitative AidsApply Qualitative Aids Implementation Translate into Action Decide Alternative Monitor and Control Qualitative Approach Quantitative Approach

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 5 The Decision Dilemma Apna Gaon, an ethnic resort, wanted a special dish that will be served to all patrons free on Divali. They held a competition for amateur cooking teams to decide on the dish. Four teams participated in the competition. The competition was not open to professionals. Seven judges were appointed for the competition. Each judge rank ordered the teams according to their performance. The team standing first was awarded 4 points, the second 3, the third 2 and the team standing fourth was awarded 1 point. The points of all judges were totalled up and a score sheet prepared.

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 6 JUDGESJ1J2J3J4J5J6J7TOTAL A RANK SCORE B RANK SCORE C RANK SCORE D RANK SCORE Before result was announced, Team C protested that Team B should be disqualified as it had used a professional. This was true. What would you do as the Chairman of Apna Gaon?

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 7 JUDGESJ1J2J3J4J5J6J7TOTAL A RANK SCORE B RANK SCORE C RANK SCORE D RANK SCORE Disqualify Team B. If scoring is revised as per fresh ranking without altering each judge’s preference; the results alter materially. Method of scoring debatable.

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 8 History of OR Second World War Blackett’s Circus –3 physiologists, 2 mathematical physicists, 1 astrophysicist, 1 army officer, 1 surveyor, 1 general physicist, 2 mathematicians. Depth charge settings Dam busters AA gun layout

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 9 Operations Research - Definitions OR is a scientific method of providing executive departments with a quantitative basis for decisions under their control. Morse & Kimball

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 10 OR is a scientific approach to problem solving for executive management Wagner Operations Research - Definitions

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 11 OR is the art of giving bad answers to problems, which otherwise have worse answers. T.L. Saaty Operations Research - Definitions

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 12 OR is an applied decision theory. It uses scientific, mathematical or logical means to attempt to cope with the problems that confront the executive, when he tries to achieve a thorough-going rationality in dealing with his decision problems. D. W. Miller & M. K. Starr Operations Research - Definitions

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 13 Employment of scientific methods of analysis to provide executives with quantitative basis for making decisions regarding operations under their control. Operations Research - Definitions

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 14 Characteristics of Operations Research Systems Approach Analytical Approach Interdisciplinary Approach Deals with real world problems

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 15 Modelling in Operations Research Physical or Iconic Model – ‘Look alike’ of what it represents. Analogue Models – Substitution of one property for another Mathematical or Analytical Models – Symbolic abstract models. TC = FC + (VC)Q where TC is Total Cost FC is Fixed Cost VC is Variable Cost Q is number of units produced

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 16 Operations Research Methodology Problem Identification Model Construction Experimentation Implementation Evaluation

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 17 Need Analysis Cause and Effect Analysis Problem Identification

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 18 Cause and Effect Diagram Procure Portable Light Design Energy Source Control Efficiency Effectiveness Purchase Date

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 19 Procure Portable Light Design Flashing Regular Combination Energy Source Ni Cd Bty Dry Cells Control On/Off Lens Life Efficiency Cost Convenience Effectiveness Brightness Field Purchase Date Cause and Effect Diagram

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 20 Procure Portable Light Design Flashing Regular Combination Energy Source Ni Cd Bty Dry Cells Control On/OffRed White Lens Wide Angle Point Life Continuous use Intermittent use Efficiency Cost Initial Operating Convenience WeightSize Effectiveness Brightness Lumens Watts Field Range Area Purchase Date Cause and Effect Diagram

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 21 Model Construction Data Collection –Only scarce resources need to be considered. –Only those activities that affect the scarcity of such resources should be considered. Model Design Model Evaluation –Relational Models – C & E diagrams –Precedence Models – C.P.M. & P.E.R.T. –Mathematical Models – Optimisation models –Stochastic Models - Simulation

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 22 Experimentation Feasibility Analysis Optimality Analysis Adaptivity Analysis

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 23 Implementation Management Approval Test Operations Full Implementation

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 24 Evaluation Documentation Performance Audit System Updating Effectiveness of a Decision –Technically Feasible –Administratively Convenient –Politically Expedient –Economically Viable

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 25 Operation Research Techniques Allocation Models –Linear Programming –Nonlinear Programming –Transportation Model –Assignment Model –Integer Programming –Goal Programming –Dynamic Programming

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 26 Operation Research Techniques Inventory Models Replacement Models Networks Queuing Theory Simulation Models Sequencing Models Decision Theory Game Theory Markov Models

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Models – Cost, Revenue and Profit Cost and volume models. Revenue and volume models Profit and volume models Break even analysis Page 27

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 28 Applications Accounting –Cash flow analysis –Credit policy and credit risk –Planning of delinquent accounts strategy Marketing –Selection of product mix –Advertising allocations –Strength of sales force –Product introduction timings

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 29 Applications Purchasing and Procurement –Determination of quantities and timings of purchases –Replacement problems –Bidding policies –Material transfer from sources to destinations

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 30 Applications Production Management –Location of facilities –Number of facilities –Loading and unloading sites and crews –Production scheduling and sequencing –Project scheduling –Allocation of resources –Materials requirement planning

Quantitative Techniques for Decision Making M.P. Gupta & R.B. Khanna © PHI Learning Page 31 Applications Human Resource Management –Manpower planning –Skill balancing –Schedule of training programmes –Recruiting and job assignment Research and Development –Project selection –Project scheduling –Reliability and alternative designs –Control of R & D projects