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Name : ///DEEP SINGH

Registration / Roll No. : 331630152

Course : Master of Business Administration


Subject : Operation Research

Semester : Sem II

Subject Number : MB0048 ( SET-I )

_______________ _______________ ______________

Sign of Center Head Sign of Evaluator Sign of Coordinator
Q1. a. Explain how and why Operation Research methods have been valuable in
aiding executive decisions. b. Discuss the usefulness of Operation Research in
decision making process and the role of computers in this field.

Churchman, Aackoff and Aruoff defined Operations Research as:
“the application of scientific methods, techniques and tools to operation of a system
with optimum solutions to the problems”, where ‘optimum’ refers to the best possible

The objective of Operations Research is to provide a scientific basis to the decision-

makers for solving problems involving interaction of various components of the
organization. You can achieve this by employing a team of scientists from different
disciplines, to work together for finding the best possible solution in the interest of the
organization as a whole. The solution thus obtained is known as an optimal decision.
You can also define Operations Research as

“ The use of scientific methods to provide criteria for decisions regarding man,
machine, and systems involving repetitive operations”.


“Operation Techniques is a bunch of mathematical techniques.”

b. “Operation Research is an aid for the executive in making his decisions based on
scientific methods analysis”. Discuss the above statement in brief.

“Operation Research is an aid for the executive in making his decisions based on
scientific methods analysis”.

Discussion:-Any problem, simple or complicated, can use OR techniques to find the

best possible solution. This section will explain the scope of OR by seeing its
application in various fields of everyday life.

i) In Defense Operations:
In modern warfare, the defense operations are carried out by three major independent
components namely Air Force, Army and Navy. The activities in each of these
components can be further divided in four sub-components namely: administration,
intelligence, operations and training and supply. The applications of modern warfare
techniques in each of the components of military organizations require expertise
knowledge in respective fields. Furthermore, each component works to drive maximum
gains from its operations and there is always a possibility that the strategy beneficial to
one component may be unfeasible for another component. Thus in defense operations,
there is a requirement to co-ordinate the activities of various components, which gives
maximum benefit to the organization as a whole, having maximum use of the individual
components. A team of scientists from various disciplines come together to study the
strategies of different components. After appropriate analysis of the various courses of
actions, the team selects the best course of action, known as the ‘optimum strategy’.

ii) In Industry: The system of modern industries is so complex that the optimum point
of operation in its various components cannot be intuitively judged by an individual.
The business environment is always changing and any decision useful at one time may
not be so good sometime later. There is always a need to check the validity of decisions
continuously against the situations. The industrial revolution with increased division of
labor and introduction of management responsibilities has made each component an
independent unit having their own goals. For example: production department
minimizes the cost of production but maximise output. Marketing department
maximizes the output, but minimizes cost of unit sales. Finance department tries to
optimize the capital investment and personnel department appoints good people at
minimum cost. Thus each department plans its own objectives and all these objectives
of various department or components come to conflict with one another and may not
agree to the overall objectives of the organization. The application of OR techniques
helps in overcoming this difficulty by integrating the diversified activities of various
components to serve the interest of the organization as a whole efficiently. OR methods
in industry can be applied in the fields of production, inventory controls and marketing,
purchasing, transportation and competitive strategies.

In modern times, it has become necessary for every government to have
careful planning, for economic development of the country. OR techniques can be
fruitfully applied to maximise the per capita income, with minimum sacrifice and time.
A government can thus use OR for framing future economic and social policies.

iv) Agriculture:
With increase in population, there is a need to increase agriculture output. But this
cannot be done arbitrarily. There are several restrictions. Hence the need to determine a
course of action serving the best under the given restrictions. You can solve this
problem by applying OR techniques

v) In Hospitals:
OR methods can solve waiting problems in out-patient department of big hospitals and
administrative problems of the hospital organizations.

vi) In Transport:
You can apply different OR methods to regulate the arrival of trains and processing
times minimize the passengers waiting time and reduce congestion, formulate suitable
transportation policy, thereby reducing the costs and time of trans-shipment.

vii) Research and Development:

You can apply OR methodologies in the field of R&D for several purposes, such as to
control and plan product introductions.
Q2. Explain how the linear programming technique can be helpful in decision-
making inthe areas of Marketing and Finance.

Ans. Linear programming problems are a special class of mathematical programming

problems for which the objective functions and all constraints are linear. A classic
example of the application of linear programming is the maximization of profits given
various production or cost constraints. Linear programming can be applied to a variety
of business problems, such as marketing mix determination, financial decision making,
production scheduling, workforce assignment, and resource blending. Such problems
are generally solved using the “simplex method.”. The local Chamber of Commerce
periodically sponsors public service seminars and programs. Promotional plans are
under way for this year’s program. Advertising alternatives include television, radio,
and newspaper. Audience estimates, costs, and maximum media usage limitations are
shown in Exhibit 1.If the promotional budget is limited to $18,200, how many
commercial messages should be run on each medium to maximize total audience
contact? Linear programming can find the answer.

Q3. a. How do you recognise optimality in the simplex method?

b. Write the role of pivot element in simplex table?

Simplex method is used for solving Linear programming problem especially when more
than two variables are involved

1. Set up the problem.

That is, write the objective function and the constraints.
2. Convert the inequalities into equations.
This is done by adding one slack variable for each inequality.
3. Construct the initial simplex tableau.
Write the objective function as the bottom row.
4. The most negative entry in the bottom row identifies a column.5. Calculate the
quotients. The smallest quotient identifies a row. The element in the intersection of the
column identified in step 4 and the row identified in this step is identified as the pivot

Z = 40×1 + 30×2
Subject to:
x1 + x2 ≤ 122×1 + x2 ≤ 16x1 ≥ 0; x2 ≥ 0
2. Convert the inequalities into equations.
This is done by adding one slack variable for eachi n equality.For
example to convert the inequality x1 + x2 ≤ 12 into an equation, we
add a non-negativevariable y1, and we getx1 + x2 + y1 = 12Here the
variable y1 picks up the slack, and it represents the amount by which
x1 + x2 fallsshort of 12. In this problem, if Niki works fewer that 12
hours, say 10, then y1 is 2. Later whenwe read off the final solution
from the simplex table, the values of the slack variables willidentify
the unused amounts.We can even rewrite the objective function Z =
40×1 + 30×2 as – 40×1 – 30×2 + Z = 0.After adding the slack
variables, our problem reads

Objective function: – 40×1 – 30×2 + Z = 0Subject to constraints: x1

+ x2 + y1 = 122×1 + x2 + y2 = 16x1 ≥ 0; x2 ≥ 0
3. Construct the initial simplex tableau.
Write the objective function as the bottom row. Now that the
inequalities are converted into equations, we can represent the
problem into an augmented matrix called the initial simplex tableau
as follows

Here the vertical line separates the left hand side of the equations
from the right side. The horizontal line separates the constraints from
the objective function. The right side of the equation is represented
by the column C

The reader needs to observe that the last four columns of this matrix
look like the final matrix for the solution of a system of equations. If
we arbitrarily choose

x1 = 0 and x2 = 0, we get Which reads y1 = 12 y2 = 16 Z=


The solution obtained by arbitrarily assigning values to some

variables and then solving for the remaining variables is called the
basic solution associated with the tableau. So the above solution is the
basic solution associated with the initial simplex tableau. We can label
the basic solution variable in the right of the last column as shown in
the table below.

The most negative entry in the bottom row identifies a column.

The most negative entry in the bottom row is –40, therefore the
column 1 is identified

Q.4 What is the significance of duality theory of linear

Describe the general rules for writing the dual of a linear
programming problem.

Ans. Linear programming

(LP) is a mathematical method for determining a way to achieve
the best outcome (such as maximum profit or lowest cost) in a given
mathematical model for some list of requirements represented as
linear relationships. Linear programming is a specific case
of mathematical programming. More formally, linear programming is
a technique for the optimization of a linear objective function, subject
to linear equality and linear inequality constraints. Given a polytope
and a real- value daffine function defined on this polytope, a linear
programming method will find a point on the polytope where this
function has the smallest (or largest) value if such point exists, by
searching through the polytope vertices Linear programs are
problems that can be expressed in canonical form: where x
represents the vector of variables (to be determined), c and b
are vectors of (known) coefficients and A is a (known)matrix of
coefficients. The expression to be maximized or minimized is called
the objective function (c Tx in this case).

The equations A x ≤ b are the constraints which specify a convex

polytope over which the objective function is to be optimized. (In this
context, two vectors are comparable when every entry in one is less-
than or equal-to the corresponding entry in the other. Otherwise, they
are incomparable.)Linear programming can be applied to various
fields of study. It is used most extensively in business and economics,
but can also be utilized for some engineering problems. Industries
that use linear programming models include transportation, energy,
telecommunications, and manufacturing. It has proved useful in
modeling diverse types of problems in planning, routing, scheduling,
assignment, and design.
Every linear programming problem, referred to as a
problem, can be convertedinto adual problem, which provides an
upper bound to the optimal value of the primal problem.In matrix
form, we can express the
problem as:Maximize
c T x subject to A x ≤ b , x
≥ 0;with the corresponding
symmetric dual problem,Minimize
b T y subject to A T y ≥ c ,
y ≥ 0.An alternative primal formulation is:
c T x subject to
;with the corresponding
dual problem,
b T y subject to A T y = c, y ≥ 0.

There are two ideas fundamental to duality theory. One is the fact
that (for the symmetric dual) the dual of a dual linear program is the
original primal linear program. Additionally, every feasible solution for
a linear program gives a bound on the optimal value of the objective
function of its dual.

The weak duality theorem states that the objective function value of
the dual at any feasible solution is always greater than or equal to the
objective function value of the primal at any feasible solution. The
strong duality theorem states that if the primal has an optimal
x*, then the dual also has an optimal solution, y*, such that
cTx*=bTy* . A linear program can also be unbounded or infeasible.
Duality theory tells us that if the primal isunbounded then the dual is
infeasible by the weak duality theorem. Likewise, if the dual
isunbounded, then the primal must be infeasible. However, it is
possible for both the dual and the primal to be infeasible
Name : ///DEEP SINGH

Registration / Roll No. : 331630152

Course : Master of Business Administration


Subject : Operation Research

Semester : Sem II

Subject Number : MB0048 ( SET-II )

_______________ _______________ ______________
Sign of Center Head Sign of Evaluator Sign of Coordinator

Q1. What are the essential characteristics of Operation

Research? Mention different phases in an Operation Research
study. Point out some limitations of O.R

Ans. Characteristics of Operations Research

Operations research, an interdisciplinary division of mathematics and
science, uses statistics, algorithms and mathematical modeling
techniques to solve complex problems for the best possible solutions.
This science is basically concerned with optimizing maxima and
minima of the objective functions involved. Examples of maxima
could be profit, performance and yield. Minima could be loss and risk.
The management of various companies has benefited immensely
from operations research.

Operations research is also known as OR. It has basic characteristics

such as systems orientation, using interdisciplinary groups, applying
scientific methodology, providing quantitative answers, revelation of
newer problems and the consideration of human factors in relation to
the state under which research is being conducted.

Systems Orientation
o This approach recognizes the fact that the behavior of any part of
the system has an effect on the system as a whole. This stresses the
idea that the interaction between parts of the system is what
determines the functioning of the system. No single part of the
system can have a bearing effect on the whole. OR attempts appraise
the effect the changes of any single part would have on the
performance of the system as a whole. It then searches for the causes
of the problem that has arisen either in one part of the system or in
the interrelation parts.
Interdisciplinary groups
o The team performing the operational research is drawn from
different disciplines. The disciplines could include mathematics,
psychology, statistics, physics, economics and engineering. The
knowledge of all the people involved aids the research and
preparation of the scientific model.

Application of Scientific Methodology

o OR extensively uses scientific means and methods to solve
problems. Most OR studies cannot be conducted in laboratories, and
the findings cannot be applied to natural environments. Therefore,
scientific and mathematical models are used for studies. Simulation of
these models is carried out, and the findings are then studied with
respect to the real environment.

New Problems Revealed

o Finding a solution to a problem in OR uncovers additional problems.

To obtain maximum benefits from the study, ongoing and continuous
research is necessary. New problems must be pursued immediately to
be resolved. A company looking to reduce costs in manufacturing
might discover in the process that it needs to buy one more
component to manufacture the end product. Such a scenario would
result in unexpected costs and budget overruns. Ensuring flexibility
for such contingencies is a key characteristic of OR.

Provides Quantitative Answers

o The solutions found by using operations research are always
quantitative. OR considers two or more options and emphasizes the
best one. The company must decide which option is the best
alternative for it.

Human Factors
o In other forms of quantitative research, human factors are not
considered, but in OR, human factors are a prime consideration.
People involved in the process may become sick, which would affect
the company’s output.


·Formulate the problem:
This is the most important process, it is generally lengthy and time
consuming. The activities that constitute this step are visits,
observations, research, etc. With the help of such activities, the O.R.
scientist gets sufficient information and support to proceed and
is better prepared to formulate the problem. This process starts with
understanding of the organizational climate, its objectives and
expectations. Further, the alternative courses of action are discovered
in this step.
• Develop a model:
Once a problem is formulated, the next step is to express the problem
into a mathematical model that represents systems, processes or
environment in the form of equations, relationships or formulas. We
have to identify both the static and dynamic structural elements, and
device mathematical formulas to represent the interrelationships
among elements. The proposed model may be field tested and
modified in order to work under stated environmental constraints. A
model may also be modified if the management is not satisfied with
the answer that it gives.
• Select appropriate data input:
Garbage in and garbage out is a famous saying. No model will work
appropriately if data input is not appropriate. The purpose of this step
is to have sufficient input to operate and test the model.
• Solution of the model:
After selecting the appropriate data input, the next step is to find a
solution. If the model is not behaving properly, then updating and
modification is considered at this stage.
• Validation of the model:
A model is said to be valid if it can provide a reliable prediction of the
system’s performance. A model must be applicable for a longer time
and can be updated from time to time taking into consideration the
past, present and future aspects of the problem.
• Implement the solution:
The implementation of the solution involves so many behavioural
issues and the implementing authority is responsible for resolving
these issues. The gap between one who provides a solution and one
who wishes to use it should be eliminated. To achieve this, O.R.
scientist as well as management should play a positive role. A
properly implemented solution obtained through O.R. techniques
results in improved working and wins the management support.


• Dependence on an Electronic Computer:

O.R. techniques try to find out an optimal solution taking into account
all the factors. In the modern society, these factors are enormous and
expressing them in quantity and establishing relationships among
these require voluminous calculations that can only be handled by
• Non-Quantifiable Factors:
O.R. techniques provide a solution only when all the elements related
to a problem can be quantified. All relevant variables do not lend
themselves to quantification. Factors that cannot be quantified find no
place in O.R. models.
• Distance between Manager and Operations Researcher:
O.R. being specialist’s job requires a mathematician or a statistician,
who might not be aware of the business problems. Similarly, a
manager fails to understand the complex working of O.R. Thus, there
is a gap between the two.
• Money and Time Costs:
When the basic data are subjected to frequent changes, incorporating
them into the O.R. models is a costly affair. Moreover, a fairly good
solution at present may be more desirable than a perfect O.R.
solution available after sometime.
• Implementation:
Implementation of decisions is a delicate task. It must take into
account the complexities of human relations and behaviour.

Q2. What are the common methods to obtain an initial basic

feasible solution for a transportation problem whose cost and
requirement table is given? Give a stepwise procedure for one
of them?
Transportation Problem & its basic assumption
This model studies the minimization of the cost of transporting a
commodity from a number of sources to several destinations. The
supply at each source and the demand at each destination are known.
The transportation problem involves m sources, each of which has
available. i (i = 1, 2, …..,m) units of homogeneous product and n
destinations, each of which requires bj (j = 1, 2…., n) units of
products. Here a i and bj are positive integers. The cost cij of
transporting one unit of the product from the ith source to the jth
destination is given for each i and j. The objective is to develop an
integral transportation schedule that meets all demands from the
inventory at a minimum total transportation cost. It is assumed that
the total supply and the total demand are equal.i.e.Condition (1)The
condition (1) is guaranteed by creating either a fictitious destination
with ademand equal to the surplus if total demand is less than the
total supply or a (dummy)source with a supply equal to the shortage
if total demand exceeds total supply. The cost of transportation from
the fictitious destination to all sources and from all destinations to the
fictitious sources are assumed to be zero so that total cost of
transportation will remain the same.
Formulation of Transportation Problem
The standard mathematical model for the transportation problem is
as follows. Let xij be number of units of the homogenous product to
be transported from source i to the destination j Then objective is to
A necessary and sufficient condition for the existence of a feasible
solution to the transportation problem (2) is that

Q3. a. What are the properties of a game? Explain the “best

strategy” on the basis of minmax criterion of optimality.

b. State the assumptions underlying game theory. Discuss its

importance to business decisions.

Ans. a) Minimax (sometimes minmax) is a decision rule used

indecision theory, game theory, statistics and philosophy for
minimizing the possible loss while maximizing the potential gain.
Alternatively, it can be thought of as maximizing the minimum gain
(maxim in). Originally formulated for two-player zero-sum game
theory, covering both the cases where players take alternate moves
and those where they make simultaneous moves, it has also been
extended to more complex games and to general decision making in
the presence of uncertainty.

Game theory
In the theory of simultaneous games, a minima strategy is a mixed
strategy which is part of the solution to a zero-sum game. In zero-sum
games, the minima solution is the same as the
Nashequilibrium.Minimax theorem The minimax theorem states: For
every two-person, zero-sum game with finitely many strategies, there
exists a value V and a mixed strategy for each player, such that (a)
Given player 2′s strategy, the best payoff possible for player 1 is V,
and (b) Given player 1′s strategy, the best payoff possible for player 2
is −V.Equivalently, Player 1′s strategy guarantees him a payoff of V
regardless of Player 2′s strategy, and similarly Player 2 can guarantee
himself a payoff of −V. The name minimax arises because each
player minimizes the maximum payoff possible for the other—since
the game is zero-sum, he also maximizes his own minimum payoff.
This theorem was established by John von Neumann,
[1]who is quoted as saying “As far as I can see, there could be no
theory of games … without that theorem … I thought there was
nothing worth publishing until the Minimax Theorem was proved”.
[2]See Scion’s minimax theorem and Parthasarathy’s theorem for
generalizations; see also example of a game without a value. Example
The following example of a zero-sum game, whereAand Bmake
simultaneous moves,illustratesminimaxsolutions. Suppose each
player has three choices and consider the payoff matrixfor
Adisplayed at right.Assume the payoff matrix for Bis thesame matrix
with the signs reversed(i.e. if the choices are A1 and B1 thenBpays 3
toA). Then, the minimaxchoice for Ais A2 since the worst possible
result is then having to pay 1, while the simpleminimax choice for Bis
B2 since the worst possible result is then no payment. However, this
solution is not stable, since if BbelievesAwill choose A2 then will
choose B1 to gain 1; then if AbelievesBwill choose B1 then will choose
A1 to gain 3; and then will choose B2; and eventually both players will
realize the difficulty of making a choice. So a more stable strategy
isneeded.Some choices are dominated by others and can be
eliminated: will not choose A3 since either A1 or A2 will produce a
better result, no matter whatBchooses;Bwill not choose B3 since
some mixtures of B1 and B2 will produce a better result, no matter
whatAchooses.Acan avoid having to make an expected payment of
more than 1/3 by choosing A1 with probability 1/6 and A2 with
probability 5/6, no matter whatBchooses.Bcan ensure an expectedB
chooses B1B chooses B2B chooses B3A chooses A1+3 −2 +2A
chooses A2−1 0 +4A chooses A3−4 −3 +1 wouldn’t have to pay as
much to license these characters. Changing the rules is another way
in which companies can benefit. The authors introduce the idea of
judo economics, where a large company may be willing to allow a
smaller company to capture a small market share rather than
compete by lowering its prices. As long as it does not become too
powerful or greedy, a small company can often participate in the
same market without having to compete with larger companies on
unfavorable terms. Kiwi International Air Lines introduced services on
its carriers that were of lower prices to get market share, but made
sure that the competitors understood that they had no intention of
capturing more than 10% of any market. Companies can also change
perceptions to make themselves better off. This can be accomplished
either by making things clearer or more uncertain. In 1994, the New
York Post attempted to make radical price changes in order to get the
Daily News to raise its price to regain subscribers. However, the Daily
News misunderstood and both newspapers were headed for a price
war. The New York Post had to make its intentions clear, and both
papers were able to raise their prices and not lose revenue. The
authors also show an example of how investment banks can maintain
ambiguity to benefit themselves. If the client is more optimistic than
the investment bank, the bank can try to charge a higher commission
as long as the client does not develop a more realistic appraisal of the
company’s value. Finally, companies can change the boundaries
within which they compete. For example, when Sega was unable to
gain market share from Nintendo’s 8-bit systems, it changed the
game by introducing a new 16-bit system. It took Nintendo 2 years to
respond with its own 16-bit system, which gave Sega the opportunity
to capture market share and build a strong brand image. This
example shows how companies can think outside the box to change
the way competition takes place in their industry.Brandenburger and
Nalebuff have illustrated how companies that recognize they can
change the rules of competition can vastly improve their odds of
success, and sometimes respond in a way that benefits both
themselves and the competition. If companies are able to develop a
system where they can make both themselves and their competitors
better off, then they do not have to worry so much about their
competitors trying to counter their moves. Also, because companies
can easily copy each other’s ideas, it is to a firm’s advantage if they
can benefit when their competitors copy their idea, which is not
usually possible under the traditional win-losestructure.This article
has some parallels with the article “Competing on Analytics” by ().
The biggest factor that both of these articles have in common is how
crucial it is for managers to understand everything they can about
their business and the environment in which they work. In“Competing
on Analytics”, the authors say that it is important to be familiar with
this information so that managers can change the way they compete
to improve their chances of success. At the end of “The Right Game:
Use Game Theory to Shape Strategy”, the authors discuss how in
order for companies to be able to change the environment or rules
under which they compete they need to understand everything they
can about the constructs under which they are competing. Whether a
manager intends to use analytics or game theory to be successful, he
or she must first have all available information and use that
information to understand how to make the company better off.
However, the work shown in “Competing on Analytics” tends to place
an emphasis almost exclusively on the use of quantitative data to
improve efficiency or market share of the company. “The Right
Game”, however focuses more on using information to find creative
ways of changing the constructs or rules applied between companies,
often yielding a much broader impact.

Q4. a. Compare CPM and PERT explaining similarities and

mentioning where they mainly differ.

Ans. The Major Differences and Similarities between CPM and

PERTCPM (Critical Path Method) & PERT(Program Evaluation and
Review Technique)

1PERT is a probabilistic tool used with three

CPM is a deterministic tool, with only single Estimating the duration
for completion of estimate of duration.

This tool is basically a tool for planning

CPM also allows and explicit estimate of and control of time. costs in
addition to time, therefore CPM can control both time and cost.

PERT is more suitable for R&D related

CPM is best suited for routine and those projects where the project is
performed for projects where time and cost estimates can the first
time and the estimate of duration be accurately calculated are

The probability factor I major in PERT

The deterministic factor is more so values or so outcomes may not be
exact. outcomes are generally accurate and realistic. Extensions of
both PERT and CPM allow the user to manage other resources in
addition to time and money, to trade off resources, to analyze
different types of schedules, and to balance the use of resources.

Tensions of both PERT and CPM allow the user to manage other
resources in addition to time and money, to trade off resources, to
analyze different types of schedules, and to balance the use of

Graphs _ In mathematics, networks are called graphs, the entities are

nodes, and the links are edges _ Graph theory starts in the 18th
century, with Leonhard Euler _ The problem of Königsberg bridges _
Since then graphs have been studied extensively. Graph Theory

_ Graph G=(V,E) _ V = set of vertices _ E = set of edges 2 _ An edge

is defined by the two vertices which it connects _ optionally: 1 3A
direction and/or a weight _ Two vertices are adjacent if they are
connected by an edge 4 5 _ A vertex’s degree is the number of its
Graph G=(V,E)
2V = set of vertices E = set of edges Each edge is now an 1 3arrow,
not just a line ->direction The in degree of a vertex is the number of
5incoming edges 4The out degree of a vertex is the number of
outgoing edges.