decision making – a quantitative approach
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DECISION MAKING – A QUANTITATIVE APPROACH. CHAPTER. 1. Learning Objectives. Decision Making Model Operations Research - Definitions Characteristics of Operations Research Models and Operations Research Operations Research Methodology Operations Research Techniques - PowerPoint PPT PresentationTRANSCRIPT
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
DECISION MAKING – A QUANTITATIVE APPROACH
1CHAPTER
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 2
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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 3
Decision Making Model
Quantify and Measure against Objectives
Define the problem Establish 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 AlternativeApply Quantitative AidsApply Qualitative Aids
Implementation
Translate into ActionDecide Alternative
Monitor and ControlQualitative Approach
Quantitative Approach
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 4
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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 5
JUDGES J1 J2 J3 J4 J5 J6 J7 TOTAL
ARANK 2 1 3 4 2 3 1 1
SCORE 3 4 2 1 3 2 4 19
BRANK 3 2 4 1 3 4 2 4
SCORE 2 3 1 4 2 1 3 16
CRANK 4 3 1 2 4 1 3 3
SCORE 1 2 4 3 1 4 2 17
D
RANK 1 4 2 3 1 2 4 2
SCORE 4 1 3 2 4 3 1 18
• 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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 6
JUDGES J1 J2 J3 J4 J5 J6 J7 TOTAL
ARANK 2 1 3 3 2 3 1 3
SCORE 2 3 1 1 2 1 3 13
BRANK
SCORE
CRANK 3 2 1 1 3 1 2 1
SCORE 1 2 3 3 1 3 2 15
DRANK 1 3 2 2 1 2 3 2
SCORE 3 1 2 2 3 2 1 14
• 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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 7
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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 8
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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 9
• OR is a scientific approach to problem solving for executive management
Wagner
Operations Research - Definitions
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 10
• 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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 11
• 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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 12
• 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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 13
Characteristics of Operations Research
• Systems Approach
• Analytical Approach
• Interdisciplinary Approach
• Deals with real world problems
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 14
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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 15
Operations Research Methodology
• Problem Identification
• Model Construction
• Experimentation
• Implementation
• Evaluation
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 16
• Need Analysis
• Cause and Effect Analysis
Problem Identification
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 17
Cause and Effect Diagram
Procure Portable
Light
Design
EnergySource
Control
Efficiency
Effectiveness
PurchaseDate
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 18
Procure Portable
Light
Design
Flashing
Regular
Combination
EnergySource
Ni Cd Bty
Dry Cells
Control
On/Off
Lens
LifeEfficiency
Cost
Convenience
EffectivenessBrightness
FieldPurchaseDate
Cause and Effect Diagram
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 19
Procure Portable
Light
Design
Flashing
Regular
Combination
EnergySource
Ni Cd Bty
Dry Cells
1
2
4
Control
On/OffRed
WhiteLens
Wide Angle
PointLife
Continuous use
Intermittentuse Efficiency
Cost
Initial
OperatingConvenience
Weight Size
EffectivenessBrightness
Lumens
Watts
Field
Range
AreaPurchase
Date
Cause and Effect Diagram
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 20
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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 21
Experimentation
• Feasibility Analysis
• Optimality Analysis
• Adaptivity Analysis
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 22
Implementation
• Management Approval
• Test Operations
• Full Implementation
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 23
Evaluation
• Documentation• Performance Audit• System Updating• Effectiveness of a Decision
– Technically Feasible– Administratively Convenient– Politically Expedient– Economically Viable
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 24
Operation Research Techniques
• Allocation Models– Linear Programming– Nonlinear Programming– Transportation Model– Assignment Model– Integer Programming– Goal Programming– Dynamic Programming
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 25
Operation Research Techniques
• Inventory Models• Replacement Models• Networks• Queuing Theory• Simulation Models• Sequencing Models• Decision Theory• Game Theory• Markov Models
Quantitative Techniques for Decision MakingM.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 26
Quantitative Techniques for Decision MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 27
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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 28
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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 29
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 MakingM.P. Gupta & R.B. Khanna© PHI Learning
Page 30
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