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# AIDS FOR PLANNING AND PROBLEM SOLVING

You need both hard skills such as logical intelligence and soft skills such as emotional intelligence. Just as the skilled potter needs soft ways to mould the clay and hard ways to fire it.1

## OBJECTIVES: At the end of the topic, students should be able to:

1. Define Management Science 2. Discuss the different characteristics of Management Science 3. Apply the different steps in Management Science 4. Identify the different Management Science Models and their uses.

## WHAT IS MANAGEMENT SCIENCE (MS)

Management Science seeks to describe, understand, and predict the behavior of complex systems of human beings and equipment. It provides accurate information on which decisions can be based. Mathematical and scientific techniques are used to construct models that forecast changes in the environment, predict the outcomes of various actions, and evaluate those outcomes.

The term management science (MS) and operations research (OR) are, in general, used interchangeably. According to Michael L. Daft, management science is defined as "a set of quantitatively based decision models used to assist management decision makers". This approach is also called 'management science approach or 'operations research' or 'mathematical approach.2

## 2 Ryszard Barnat, LLM., DBA, Ph.D. (Strat. Mgmt) http://www.introduction-to-management.24xls.com/en242

There are three key components in this definition: - management science is a set of quantitative tools; - management science uses decision models; - quantitative models assist decision makers; they cannot substitute for or replace a manager.

Management science views the application of computational methods to organizational decision making in terms of four key organizing questions: 3

1. "What's best?" (optimization) 2. "What's next?" (forecasting) 3. "What if ...?" (modeling and simulation) 4. "What's my best bet?" (decision analysis)

The process of problem solving using management science tools is often presented in an idealized, linear manner: first identify the problem, then formulate it precisely. After this is completed, then select the appropriate tool to solve the problem. Most authors admit that the process can be iterative and cyclical. However, it is still not uncommon to encounter views of management science as a purely top-down process, where tools and techniques for problem solving can only be picked after formulation of the problem.

## CHARACTERISTICS OF MANAGEMENT SCIENCE

a. A decision-making focus b. Use of the scientific method c. Economic effectiveness d. Use of a mathematical model e. Reliance on computer f. A team approach g. A systems orientation
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http://www2.gsu.edu/~dscthw/8140/modeltxt.htm

## Kuldeep, identified the following as essential characteristics of Management Science approach:

(i) Management is essentially decision-making and an organization is a decision-making unit. (ii) Organizational efficiency depends upon the quality of managerial decisions. (iii) A problem is expressed in the form of a quantitative or mathematical model containing mathematical symbols and relationships. (iv)The different variables in management can be quantified and, expressed in the form of an equation.

## STEPS IN A MANAGEMENT SCIENCE PROJECT

DIAGNOSIS OF THE PROBLEM

## FORMULATION OF THE PROBLEM

MODEL BUILDING

ANALYSIS OF MODEL

IMPLEMENTATION OF FINDINGS

A more realistic view of the process recognizes that the "problems" solved by management science techniques arise from the convergence between a concern for a more-or-less amorphous sea of "troubles" on the one hand and a collection of puzzles" that management science techniques can solve.4

http://www2.gsu.edu/~dscthw/8140/modeltxt.htm

Troubles:

## In this view, the management science approach begins by recognizing a "trouble"

in the real world. A trouble is a gap between what is perceived and what is desired. One form of trouble is a failure or disturbance, in which current performance is perceived to be below a usual or normal level. Thus, there is a drive to remove the trouble and return the performance of the system to normal. Puzzles: The distinguishing characteristic of management science is the mating of a

problem to a puzzle to form a model that can be solved. A "puzzle" is an artificial structure with a starting point (such as the pieces of a jigsaw puzzle jumbled in the box or a crossword puzzle with the squares blank), a well-defined goal point (the completed picture or crossword), and a set of allowable procedures for moving from the starting point to the goal. Models: The process of management science model building involves choosing a problem

or puzzle from the management scientist's bag of tricks in order to mirror a trouble that has been perceived in the real world. The puzzle is then crafted into as close a representation of the trouble as possible, inevitably with the help of some selective perceptions and simplifying assumptions about the real world trouble. The result is a management science model of the situation, with an initial state resembling what is perceived to be the current situation, a set of operations resembling what it might be possible to really do about the trouble, and a goal state that corresponds to the cure of a disturbance or the successful exploitation of an opportunity. Solutions: The reason for the management science modeling exercise is that a puzzle, by

definition, has a solution. Using today's powerful and plentiful computers, finding the solution to a management science problem is almost always the quickest and easiest step of the whole process, though in the early days of management science in the 1940's it consumed tremendous amounts of expensive labor over slide rules and adding machines. Application: The all-important stage of application is the inverse operation to model building. Model building is a move from the real world of troubles into the world of unsolved but solvable puzzles. Application is a move from the world of solved puzzles into the world of troubles and real actions to deal with them. In some instances, application can be very simple and straightforward: the optimal output numbers of mathematical programming or the most successful input numbers of simulation become volts, hours, or dollars in the real world, the

optimal choice in decision analysis becomes a signature on a contract, and the projection of a forecasting model is treated as a peek into the future. 5 Relationship Between MS Proposals Implemented And Managers Participation In Problem Definition

PERCENT IMPLEMENTED

Column1

## Manager Did Not Participated 40

By an empirical analysis based on several real life case studies, we identify the key drivers to maximize the changes of successful implementation of management science models. Choice of (technique) methodology used, model sophistication, top management involvement, training and orientation of middle management cadre in the organization, intensity of competition, perceived fear and anxiety in implementing the new solution procedure by the front line staff, and the involvement of an implementation agency in the organization emerge as some key elements that influence the effectiveness of the implementation process. Based on the experience of these situations, a broad framework for an effective implementation of management science model is proposed.6

http://www.preservearticles.com/201106168037/essential-characteristics-of-quantitative-or-management-scienceapproach.html 6 Models in Management Science: Issues in Implementation N. Ravichandran Indian Institute of Management Ahmedabad 380 015, India Abstract

TYPES OF MS MODELS

Queueing Theory

Queueing theory is the study of "the phenomena of standing, waiting, and serving" (definition given by Leonard Kleinrock in the introduction to his two-volume work, Queueing Systems). As a mathematical discipline, queueing theory draws on the work of many famous mathematicians of the past: Euler, Gauss, Poisson, etc., but the systematic application of queueing theory to telecommunications begins with the work of the great Danish telephone engineer Agner Erlang in the early 20th century.7 In other contexts the word "queueing" is often spelled "queuing", but practioners of queueing theory prefer to place two e's in the word. To use queueing theory, you need three things:8 a. an abstract, idealized mathematical system representing "standing, waiting, and serving", which we call here a queueing model; b. a real-world system, such as a call center; and c. a mapping or correspondence between the queueing model and the real world system.

Simulation Models A simulation model is a mathematical model that calculates the impact of uncertain inputs and decisions we make on outcomes that we care about, such as profit and loss, investment returns, environmental consequences, and the like. Such a model can be created by writing code in a programming language, statements in a simulation modeling language, or formulas in a Microsoft Excel spreadsheet. Regardless of how it is expressed, a simulation model will include:9 a. Model inputs that are uncertain numbers -- we'll call these uncertain variables b. Intermediate calculations as required
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c. Model outputs that depend on the inputs -- we'll call these uncertain functions

It's essential to realize that model outputs that depend on uncertain inputs are uncertain themselves -- hence we talk about uncertain variables and uncertain functions. When we perform a simulation with this model, we will test many different numeric values for the uncertain variables, and we'll obtain many different numeric values for the uncertain functions. An example model in Excel might look like this, where cell B6 contains a formula =PsiTriangular(E9,G9,F9) to sample values for the uncertain variable Unit Cost, and cell B10 contains a formula =PsiMean(B9) to obtain the mean value of Net Profit across all trials of the simulation.10

Game Theory What economists call game theory psychologists call the theory of social situations, which is an accurate description of what game theory is about. Although game theory is relevant to parlor games such as poker or bridge, most research in game theory focuses on how groups of people interact. There are two main branches of game theory: cooperative and noncooperative game theory. Non-cooperative game theory deals largely with how intelligent individuals interact with one another in an effort to achieve their own goals. That is the branch of game theory I will discuss here.11

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http://www.solver.com/simulation-models David K. Levine, Department of Economics, UCLA: Economic and Game Theory

In addition to game theory, economic theory has three other main branches: decision theory, general equilibrium theory and mechanism design theory. All are closely connected to game theory.

Decision theory can be viewed as a theory of one person games, or a game of a single player against nature. The focus is on preferences and the formation of beliefs. The most widely used form of decision theory argues that preferences among risky alternatives can be described by the maximization of the expected value of a numerical utility function, where utility may depend on a number of things, but in situations of interest to economists often depends on money income. Probability theory is heavily used in order to represent the uncertainty of outcomes, and Bayes Law is frequently used to model the way in which new information is used to revise beliefs. Decision theory is often used in the form of decision analysis, which shows how best to acquire information before making a decision. General equilibrium theory can be viewed as a specialized branch of game theory that deals with trade and production, and typically with a relatively large number of individual consumers and producers. It is widely used in the macroeconomic analysis of broad based economic policies such as monetary or tax policy, in finance to analyze stock markets, to study interest and exchange rates and other prices. In recent years, political economy has emerged as a combination of general equilibrium theory and game theory in which the private sector of the economy is modeled by general equilibrium theory, while voting behavior and the incentive of governments is analyzed using game theory. Issues studied include tax policy, trade policy, and the role of international trade agreements such as the European Union. Mechanism design theory differs from game theory in that game theory takes the rules of the game as given, while mechanism design theory asks about the consequences of different types of rules. Naturally this relies heavily on game theory. Questions addressed by mechanism design theory include the design of compensation and wage agreements that effectively spread risk while maintaining incentives, and the design of auctions to maximize revenue, or achieve other goals.12

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http://levine.sscnet.ucla.edu/general/whatis.htm

Linear Programming Models It widely used to determine the best way to allocate limited resources to achieve some desired end. Linear programming can be applied to those business and industrial operations where some maximum or minimum value can be derived- establishing machine output, ideal inventory levels, best product-mix and the like. Linear programming or Linear optimisation is a field of mathematics that deals with finding optimal values or solutions that can be described with linear equations and inequalities. Very often this involves finding the minimal or maximal values, given some conditions, or constraints. Linear programming is often used for problems where no exact solution is known, for example for planning traffic flows. Linear programming is one of the main methods used in Operations research. Linear optimization is a special case of Convex optimization. It forms the basis for several methods of solving problems of Integer programming. In many cases, the solutions of linear programs can be mapped to Polyhedra, which allows to solve and model certain problems geometrically. In the case of linear programming, the word programming should be seen as planning; George Dantzig coined the term in the 1940s, long beforecomputers were used to solve such problems. Looking at the information theory complexity, linear programming problems are simple, and can be solved efficiently using algorithms such as the interior point method. In many cases, the Simplex algorithm developed by Dantzig has proven to be very fast, even though its complexity is exponential, in the worst case.13 Limitations of linear programming14

Linear programming is applicable only to problems where the constraints and objective function are linear i.e., where they can be expressed as equations which represent straight lines. In real life situations, when constraints or objective functions are not linear, this technique cannot be used. Factors such as uncertainty, weather conditions etc. are not taken into consideration.

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http://simple.wikipedia.org/wiki/Linear_programming) http://math.tutorvista.com/algebra/linear-programing.html

There may not be an integer as the solution, e.g., the number of men required may be a fraction and the nearest integer may not be the optimal solution i.e., Linear programming technique may give practical valued answer which is not desirable. Only one single objective is dealt with while in real life situations, problems come with multiobjectives. Parameters are assumed to be constants but in reality they may not be so.