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AIN SHAMS UNIVERSITY

Faculty of Commerce
B.A.

Operations Research Models and Methods


BY

Hassan Jassem Al Haj Mohammed

White paper produce to:

Dr. Husien Sharara


Assistant Professor of Business Administration
Faculty of Commerce Ain Shams University

2006

Contents:
1. Linear Programming:
2. Network Optimization Models:
3. Project Management with PERT/CPM
4. Dynamic Programming:
5. Game Theory:
6. Simulation:
7. Queueing Theory:
8. Inventory Theory:
9. Forecasting:
10. Decision analysis:

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1. Linear Programming:
Linear programming is a powerful technique for dealing with the problem
of allocating limited resources among competing activities as well as other
problems having a similar mathematical formulation. It has become a
standard tool of great importance for numerous business and industrial
organizations. Furthermore, almost any social organization is concerned
with allocating resources in some context, and there is a growing
recognition of the extremely wide applicability of this technique.
The simplex method is an efficient and reliable algorithm for solving
linear programming problems. It also provides the basis for performing
the various parts of postoptimality analysis very efficiently.
Every linear programming problem has associated with it a dual linear
programming problem. There are a number of very useful relationships
between the original (primal) problem and its dual problem that enhance
our ability to analyze the primal problem. For example, the economic
interpretation of the dual problem gives shadow prices that measure the
marginal value of the resources in the primal problem and provides an
interpretation of the simplex method. Because the simplex method can be
applied directly to either problem in order to solve both of them
simultaneously, considerable computational effort sometimes can be saved
by dealing directly with the dual problem. Duality theory, including the
dual simplex method for working with superoptimal basic solutions, also
plays a major role in sensitivity analysis.
There are two particularly important (and related) types of linear
programming problems. One type, called the transportation problem,
received this name because many of its applications involve determining
how to optimally transport goods. However, some of its important
applications (e.g., production scheduling) actually have nothing to do with
transportation. The second type, called the assignment problem, involves
such applications as assigning people to tasks.
Applications:

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Product Mix Problem


Resource Allocation Problem
Workforce Scheduling Problem
Blending or Mixing Problem

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Aggregate Planning Problem


Assignment Problem
Transportation Problem
Location Problem

2. Network Optimization Models:


Networks arise in numerous settings and in a variety of guises.
Transportation, electrical, and communication networks pervade our daily
lives. Network representations also are widely used for problems in such
diverse areas as production, distribution, project planning, facilities
location, resource management, and financial planningto name just a
few examples. In fact, a network representation provides such a powerful
visual and conceptual aid for portraying the relationships between the
components of systems that it is used in virtually every field of scientific,
social, and economic endeavor.
Applications:

Distribution Example
Assignment Problem
Transportation Problem
Shortest Path Problem
Maximum Flow Problem
Multiperiod Operation
Transformation of Flow
Restrictions and Costs on Nodes
Convex Costs and Concave Revenues

3. Project Management with PERT/CPM


The application of PERT/CPM begins by breaking the project down
into its individual activities, identifying the immediate predecessors of
each activity, and estimating the duration of each activity. A project
network then is constructed to visually display all this information. The
type of network that is becoming increasingly popular for this purpose is
the activity-on-node (AON) project network, where each activity is
represented by a node. PERT/CPM generates a great deal of useful
scheduling information for the project manager, including the earliest start

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time, the latest start time, and the slack for each activity. It also identifies
the critical path of activities such that any delay along this path will delay
project completion. Since the critical path is the longest path through the
project network, its length determines the duration of the project,
assuming all activities remain on schedule.
However, it is difficult for all activities to remain on schedule because
there frequently is considerable uncertainty about what the duration of an
activity will turn out to be. The PERT three-estimate approach addresses
this situation by obtaining three different kinds of estimates (most likely,
optimistic, and pessimistic) for the duration of each activity.
This information is used to approximate the mean and variance of the
probability distribution of this duration. It then is possible to approximate
the probability that the project will be completed by the deadline.
The CPM method of time-cost trade-offs enables the project manager to
investigate the effect on total cost of changing the estimated duration of
the project to various alternative values. The data needed for this activity
are the time and cost for each activity when it is done in the normal way
and then when it is fully crashed (expedited). Either marginal cost analysis
or linear programming can be used to determine how much (if any) to
crash each activity in order to minimize the total cost of meeting any
specified deadline for the project.
The PERT/CPM technique called PERT/Cost provides the project
manager with a systematic procedure for planning, scheduling, and
controlling project costs. It generates a complete schedule for what the
project costs should be in each time period when activities begin at either
their earliest start times or latest start times. It also generates periodic
reports that evaluate the cost performance of the individual activities,
including identifying those where cost overruns are occurring.
4. Dynamic Programming:
Dynamic programming is a very useful technique for making a
sequence of interrelated decisions. It requires formulating an appropriate
recursive relationship for each individual problem. However, it provides a
great computational savings over using exhaustive enumeration to find
the best combination of decisions, especially for large problems. For
example, if a problem has 10 stages with 10 states and 10 possible
decisions at each stage, then exhaustive enumeration must consider up to
10 billion combinations, whereas dynamic programming need make no
more than a thousand calculations (10 for each state at each stage).
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Applications:

Knapsack Problem
Binary Knapsack Problem
Line Partitioning
Unbounded Knapsack Problem
Shortest Path on Grid
Shortest Path on Network
Sequencing
Traveling Salesman

5. Game Theory:
The general problem of how to make decisions in a competitive
environment is a very common and important one. The fundamental
contribution of game theory is that it provides a basic conceptual
framework for formulating and analyzing such problems in simple
situations. However, there is a considerable gap between what the theory
can handle and the complexity of most competitive situations arising in
practice. Therefore, the conceptual tools of game theory usually play just a
supplementary role in dealing with these situations.
6. Decision analysis:
Decision analysis has become an important technique for decision
making in the face of uncertainty. It is characterized by enumerating all the
available courses of action, identifying the payoffs for all possible
outcomes, and quantifying the subjective probabilities for all the possible
random events. When these data are available, decision analysis becomes a
powerful tool for determining an optimal course of action. One option
that can be readily incorporated into the analysis is to perform
experimentation to obtain better estimates of the probabilities of the
possible states of nature. Decision trees are a useful visual tool for
analyzing this option or any series of decisions.
7. Queueing Theory:
Queueing theory studies queueing systems by formulating
mathematical models of their operation and then using these models to
derive measures of performance. This analysis provides vital information

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for effectively designing queueing systems that achieve an appropriate


balance between the cost of providing a service and the cost associated
with waiting for that service.
8. Inventory Theory:
How do companies use operations research to improve their inventory
policy for when and how much to replenish their inventory? They use
scientific inventory management comprising the following steps:
1. Formulate a mathematical model describing the behavior of the
inventory system.
2. Seek an optimal inventory policy with respect to this model.
3. Use a computerized information processing system to maintain a record
of the current inventory levels.
4. Using this record of current inventory levels, apply the optimal
inventory policy to signal when and how much to replenish inventory.
9. Forecasting:
The future success of any business depends heavily on the ability of its
management to forecast well. Judgmental forecasting methods often play
an important role in this process. However, the ability to forecast well is
greatly enhanced if historical data are available to help guide the
development of a statistical forecasting method. By studying these data, an
appropriate model can be structured.
10.Simulation:
Simulation is a widely used tool for estimating the performance of
complex stochastic systems if contemplated designs or operating policies
are to be used. Simulation is one of the most popular techniques of
operations research because it is such a flexible, powerful, and intuitive
tool. In a matter of seconds or minutes, it can simulate even years of
operation of a typical system while generating a series of statistical
observations about the performance of the system over this period.
Because of its exceptional versatility, simulation has been applied to a
wide variety of areas. Furthermore, its horizons continue to broaden
because of the great progress being made in simulation software, including
software for performing simulations on spreadsheets.

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References:

1. Paul A. Jensen, Jonathan F. Bard, Operations Research Models and Methods,


John Wiley and Sons Inc., 2003.
2. Frederick S. Hillier, Gerald J. Lieberman, Introduction to Operations Research,
McGraw Hill Inc., 2001.
3. Jay Hiezer, Barry Render, Principles of Operations Management, Prentice Hall
International, Inc., 2001.
4. Lynwood A. Johnson, Douglas C. Montgomery, Operations Research in
Production Planning, Scheduling, and Inventory Control, John Wiley & Sons
Inc., 1974.

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