DMO CLASS PROCEEDINGS

Date: 05.01.2015
Session: 1
Group No: 1
Members: Section: A
Aishwarya Balasubramaneyam (14008)
Nimamachettla Dileep Kumar Reddy (14090)
Pradyumna Ramachandran Pillai (14101)

SUMMARY
Fundamentals of the course: to identify and formulate a decision strategy and to obtain a solution to
a model.
Linear Programming Eg: used in Burger King to minimize costs
Integer Programming Eg: used by American Airlines for optimal flight services
Shortest Route Algorithm Eg; used by Sony Corporation for car navigation
Optimization: the goal of management science Is to recommend the course of action that is
expected to yield the best outcome. The management Science approach is a scientific method of
providing a quantitative base for decision making. And the basic components are logic and
common sense. Techniques are statistical inference, mathematical programming etc.
The 7 step methodology model was explained: They are 1. Identify the problem. 2. Understand the
system 3. Formulate a mathematical model 4. Verify the model 5. Select the best alternative 6.
Present - -- analysis 7. Implement and evaluate. Examples: HP, Taco Bell, At&T etc.
What is a model? A model is an invention of the mind, with a limited degree of reality which
constitute a formal approach to decision making. 5 sub models that compromise a complete model
and they are Physical/analog, mathematical, statistical, conceptual, visualization.
Major benefits of models is a five step process and they are: 1. Statement of the purpose of the
model, 2. Formulation of the theory or model 3. Initial verification by comparison with available
observations 4. Use of the model to predict future behaviour 5. Refinement of the model.

VALUE ADDITION
SUMMARY OF THE CASE
Although China produces 1.1 billion tons of coal per year, demand is projected at almost 1.6 billion
tons in 2000. Transport bottlenecks, coal and electricity shortages, and worsening air pollution
threaten the country's double-digit GNP growth. To address these problems, the World Bank and
the Chinese State Planning Commission developed a decision support system consisting of a
mixed-integer program, a geographic information system, and related sub models. The Coal
Transport Study (CTS) model covers coal mining, washing, and transport; thermal, hydro, and
nuclear power generation; electricity transmission; pollution levels; and scrubbers; which together
will require at least $240 billion in new investments over a 15-year horizon. The analysis results
influenced several government policies concerning GNP growth, coal imports, and various capital
investments, with a potential benefit of about $6.4 billion from 1991 to 2005.

China produces 1.1 billion tons of coal every year.

Defining the Problem

However, in 1995 demand was estimated to be about 1.6

billion tons. In addition, China faced air pollution that
could threaten its national product growth rate (GNP).
These problems were identified by the Chinese State
Planning Commission and the World Bank as important to
the continued growth of Chinas GNP.
To analyse some of the problems associated with the

Developing a
model

delivery of coal and electricity, the Chinese State Planning

Commission developed a comprehensive model called the
Coal Transport Study (CTS) model. The model specified
key components in the generation, transmission, and
demand for electricity.

Acquiring Input Data

In addition to historical data, the model required forecasts of

future demand and the potential environmental impact of
various energy slurs and uses, In addition, specific data
concerning the various stages of coal and electricity
production were needed.

Instead of developing and reporting one solution, the

Developing a
Solution

decision modelling team analysed 16 different solutions or

possibilities. These solutions revealed that the investment
in new coal electricity systems could be as high as $250
billion over 10 year period. The new system would have
to deliver 2 billion tonnes of coal.

Testing the solution

Assumptions of the model and the solutions were

carefully tested. About half a year was spent in testing the
data, the model and the solutions. This included running a
series of tests on the model and the data, using known data
to make sure that the data and the model produced results
consistent with the correct situation. This testing resulted
in fine tuning the data to make them more accurate. After
testing, corrections and adjustments were made to make
sure that the results were as accurate as possible.
The solutions also resulted in major findings. First, the
government should plan on an 8%-9% growth in power

Analysing the results

and

needs. Second, railways would continue to be the

Sensitivity Analysis

distribution could be greatly increased by increasing the

dominant transportation system for coal. Next, coal

volume and length of coastal and inland waterways. The
chance of building and slurry pipelines was slim. In
addition, there were number of specific findings on how
coal should be handled and processed into energy to
reduce

pollution

and

negative

environmental

consequences.
Implementation of the CTS model resulted in a new steam
coal-washing procedure, the construction of improved
railway system and a new port, and the use of coal
imports. In addition, the planning commission developed
a sophisticated model for strategic level investment

planning. The model was expected to be extended to form

Implementing the
results

energy planning of the year 2010.

CONCLUSION
It is very important to realise that before an actual implementation, one should cycle through the
first four steps a number of times so as to ensure that a reasonably valid model has been achieved.
The benefits are as follows:
1.
2.
3.

Time efficient thereby increasing accuracy.

Reduces the chances of errors, assumptions, and poor judgements.
Promotes high quality decisions and reduces risks.

Thereby, decision modelling addresses the complex issues by breaking down into simple steps
which enables the decision maker to arrive at the optimal decision.

BIBLIOGRAPHY
(2011, 7 22). Retrieved from brighthubpm.com:
http://www.brighthubpm.com/methods-strategies/121817-is-using-therational-decision-making-approach-a-rational-choice/
al, M. K. (Jan-February 1995). Planning China's Coal and Electricity Delivery
System. 41-68.
Dermott, D. M. (n.d.). Retrieved from http://www.decision-makingconfidence.com: http://www.decision-making-confidence.com/decisionmaking-models.html
Frederick S Hillier, G. J. (2007). Introduction to Operation Research. Tata McGraw
Hill.
Leavengood, J. R. (2002, June). Retrieved from http://ir.library.oregonstate.edu:
http://ir.library.oregonstate.edu/xmlui/bitstream/handle/1957/20201/em87
79-e.pdf