ADMAS UNIVERSITY

SCHOOL OF POSTGRADUATE STUDIES

MASTERS OF BUSINESS ADMINISTRATION

SECTION 5

GROUP MEMBERS

NAME ID NO

1. BEREKET ALEMAYHU------------------------------------------------------------------------- PGMGB/4425/21

2. EDEN BOGALE------------------------------------------------------------------------------------ PGMGB/4052/21

3. HANA GETENET---------------------------------------------------------------------------------- PGMGB/4388/21

4. WONGELAWIT DINKU------------------------------------------------------------------------- PGMGB/4419/21

5. SARON TAFESE----------------------------------------------------------------------------------- PGMGB/4442/21

6. SISAY REDA ---------------------------------------------------------------------------------------- PGMGB/4374/21

7. ZELALEM JEMBERU-----------------------------------------------------------------------------PGMGB/4424/21

SUBMITTED TO Dr. M/TekleHaimanot (PHD

JULY, 4, 2022
ADDIS ABABA, ETHIOPIA
1. Explain the fundamental components that the following linear programing model is
formulated.
Max Z = 75x + 95y
s.t 50x + 24y ≤ 2400
30x + 33y ≤ 2100
X, Y ≥ 0
Solution. Structure and components of a LP model formulation.

Formulation of LP is representing of problem situations in a mathematical form. The components

in the model formulation includes

1, decision variable: refers to the aim to optimize (maximize the profit of minimize the cost) or
explain the optimization.

2, Objective function: states the goal (objective) of the decision maker (in any case the manager).
There are two types of objectives.

1. Maximization (e.g., profit)

2. Minimization (e.g., cost)

Max Z = 75x + 95y Objective function

And X, and Y are decision variable

75 And 95 are objective coefficient.

3. Constraints: are thus resources or factors that limits the feasible solution or that limits to
achieve desired objectives. The availability of scares resources may be expressed as equations or
inequalities which rule out certain combinations of variable values as feasible solution.

E.g. Max Z = 75x + 95y

s.t 50x + 24y ≤ 2400
30x + 33y ≤ 2100
X, Y ≥ 0, non-negative constraints.
R H S are numbers (parameters) located on the right hand side of the LP model
_ 50, 24, 30, 33 are technological coefficient.

1|Page
4.Non negative and conditions are special constraints which require all variables to be either zero
or possible negative values of physical quantities are impossible like producing negative
numbers of bicycles, motorbikes, chairs, tables etc. so it is necessary to include the elements of
non-negative as a constraint X, Y, ≥ 0.

5. Canonical form: Refers to on LP with an objective function all of the variable are non-
negative and where all of the variable and their coefficient on LHs of constraints an all of the
parameters are of RHs of constraints.

The model formulation is canonical form

Max Z = 75x + 95y

s.t 50x + 24y ≤ 2400

30x + 33y ≤ 2100

Where X, Y ≥ 0

6. Standard Form: refers to an LP problem in canonical form in addition all of the constraints are
expressed as equalities and every variable is line of linear programing problem.

LP in Standard form

Max Z = 75x + 95y

s.t 50x + 24y ≤ 2400

30x + 33y ≤ 2100

Where X, Y ≥ 0

2|Page
Q 2, Required
1, Formulate the primal (original) linear programing model.

Max Z = 240x1+120x2+60x3

S.t 10x1+8x2+4x3 ≤ 100

7x1+13x2+8x3 ≤ 77

8x1+4x2+2x3 ≤ 80

Where, non-negative constraints.

2, solve the problems using simplex method

Max Z = 240x1+120x2+60x3+0s1+0s2+0s3

10x1+8x2+4x3+s1+0s2+0s3 = 100

7x1+13x2+8x3+0s1+s2+0s3 = 77

8x1+4x2+2x3+0s1+0s2+s3 = 80

Where X1, X2, X3, S1, S2, S3 ≥ 0

Ci 240 120 60 0 0 0
X1 X2 X3 S1 S2 S3 RHS RR
0 s1 10 8 4 1 0 0 100 10
0 s2 7 13 8 0 1 0 77 11
0 s3 8 4 2 0 0 1 80 10
Zi 0 0 0 0 0 0
Ci-Zi 240 120 60 0 0 0
Table.2 X1= enter S1= leaving

R1= 1/10R1 R2= R2-7R1 R3= R3-8R1

Ci 240 120 60 0 0 0
X1 X2 X3 S1 S2 S3 RHR RR
240 x1 1 0.8 0.4 0.1 0 0 10
0s2 0 7.4 5.2 -0.7 1 0 7
0s3 0 -2.4 -1.2 -0.8 0 1 0
Zi 240 192 96 24 0 0
Ci-Zi 0 -72 -36 -24 0 0

3|Page
X1=10, X2=7, X3=0

Z = 240x1+120X2+60X3

= 240x10+120X7+60X0

=2400+840+0

= 3240

Table – 3 X1= enter S3= Leaving

R3= 1/8 R3 R2= R2-7R3 R1= R1-10R3

Ci 240 120 60 0 0 0
X1 X2 X3 S1 S2 S3 RHS RH
0 s1 0 3 1.5 1 0 -1.25 0
0 s2 0 9.5 6.25 0 0 -0.875 -23
240xi 1 0.5 0.25 0 0 0.125 10
Zi
Ci-Zi

Hence: X2 cannot be negative b/s production cannot be Negative.

3. Formulate the dual Linear Programing model.

Duality (Transpose)

The Max Z changes into Min Z

Min z = 100x1 +77x2 + 80x3

s.t = 10x1+7x2+8x3≥240

= 8x1+13x2+4x3≥120

=4x1+8x2+2x3 ≥60

The Variable X1, X2, X3 are dual variable

X1, X2, X3 ≥ 0

4|Page
Meaning and Definition of Simulation:
A simulated model may be defined as one which depicts the working of a large scale system of
man, machines, materials and information operating over a period of time in a simulated
environment of the real world conditions.

Simulation is a numerical solution method that seeks optimal alternatives (strategies) through a
trial and error process. The simulation approach can be used too study almost any problem that
involves uncertainty, i.e., one or more decision variables can be represented a probability
distribution, like decision making under risk.

According to Shannon:

"Simulation is the process of designing a model of a real system and conducting experiments with
this model for the purpose of understanding the behavior (with the limits imposed by a criterion
or set of criteria) for the operation of the system".

According to Levin & Kirk Patrick:

"Simulation is an appropriate substitute for mathematical evaluation of a model in many situations.

Although it too involves assumptions, they are manageable. The use of simulation enables us to
provide insights into certain management problem where mathematical evaluation of a model is
not possible."

Types of Simulation Models

1. Monte Carlo / Risk Analysis Simulation
In simple terms, a Monte Carlo simulation is a method of risk analysis. Businesses use it prior to
implementing a major project or change in a process, such as a manufacturing assembly line.

Built on mathematical models, Monte Carlo analyses use the empirical data of the real system’s
inputs and outputs (e.g., supply intake and production yield). It then identifies uncertainties and
potential risks through probability distributions.

The advantage of a Monte Carlo-based simulation is that it provides awareness and a thorough
understanding of potential threats to your bottom-line and time-to-market.

5|Page
You can implement Monte Carlo simulations to practically any industry or field, including oil and
gas, manufacturing, engineering, supply chain management, and many others.

2. Agent-Based Modeling & Simulation

An agent-based simulation is a model that examines the impact of an ‘agent’ on the ‘system’ or
‘environment.’ In simple terms, just think of the impact a new laser-cutter or some other factory
equipment has on your overall manufacturing line.

The ‘agent’ in agent-based models could be people, equipment, and practically anything else. The
simulation includes the agent’s ‘behavior,’ which serve as rules of how those agents must act in
the system. You then look at how the system responds to those rules.

However, you must draw your rules from real-world data — otherwise, you will not generate
accurate insights. In a way, it serves as a means to examine a proposed change and identify
potential risks and opportunities.

3. Discrete Event Simulation

A discrete event simulation model enables you to observe the specific events that result in your
business processes. For example, the typical technical support process involves the end-user
calling you, your system receiving and assigning the call, and your agent picking up the call.

You would use a discrete event simulation model to examine that technical support process. You
can use discrete event simulation models to study many types of systems (e.g., healthcare,
manufacturing, etc), and for a diverse range of outcomes.

For example, the Nebraska Medical Center had used discrete event simulation models

To see how it could remove workflow bottlenecks, increase the utilization of its operating rooms,
and lower patient/surgeon travel distance and time.

4. System Dynamics Simulation Solutions

This is a very abstract form of simulation modeling. Unlike agent-based modeling and discrete
event modeling, system dynamics does not include specific details about the system. So for a
manufacturing facility, this model will not factor in data about the machinery and labor.

6|Page
Rather, businesses would use system dynamics models to simulate for a long-term, strategic-level
view of the overall system.

In other words, the priority is to get aggregate-level insights about the entire system in response to
an action — e.g., a reduction in CAPEX, ending a product line, etc.

More on How to Use Simulation to Cut Costs & Boost Profit:

Ÿ 7 Key Advantages of Simulation for Business

Ÿ Better Staffing Through Simulation

Ÿ Case Study: Crude-By-Rail Transload Terminal Simulation

As you can see, each simulation model has its advantages and, as a result, serves a specific purpose.
Selecting the right model for your needs — which is a challenge for some — is only the first step,
you also require a specific set of tools and expertise.

Scope of Simulation Techniques:

Scope of Simulation in different area is as follows:
1) Healthcare (Clinical) Simulators:
Medical health simulators are developed and deployed to teach healing and diagnostic procedures.
It is also used to teach medical concepts and decision making to personnel who are involved in the
professions.

2) Computer Simulators:
Simulators have been proposed as an ideal tool for assessment of students for clinical skills.
Programmed patients and simulated clinical situations, including mock disaster drills, have been
used extensively for education and evaluation. These "lifelike" simulations are expensive, and lack
reproducibility. A fully functional "3Pi" simulator would be the most specific tool available for
teaching and measurement of clinical skills. Such a simulator meets the goals of an objective and
standardized examination for clinical competence. This system is superior to examinations that
use "standard patients because it permits the quantitative measurement or competence, as well as
reproducing the same objective findings.

7|Page
3) Military Simulations:
Military simulations are e models in which theories of warfare can be tested and advanced without
the need for actual hostilities. It is also known as war games. They exist in different forms with
various degree of realism.

4) Finance Simulations:
In financing computer simulation are often used for scenario planning.

5) Flight Simulators:
A flight simulator is used for the training of the pilots on the ground. A pilot gets permission by
this technique to crash his simulated "aircraft" without being hurt. Pilots are trained with the use
of flight simulators to operate aircraft in extremely dangerous situations, such as landing with no
engines, or complete electrical or hydraulic failures. High-fidelity visual systems and hydraulic
motion systems are included in most advanced simulators. The simulator is normally cheaper to
operate than a real trainer aircraft.

6) Engineering, Technology or Process Simulation:

Simulation is an important feature in engineering systems or any system that involves many
processes, For example, in electrical engineering, delay lines may be used to simulate propagation
delay and phase shift caused by an actual transmission line. Similarly, dummy loads may be used
to simulate impedance without simulating propagation, and is used in situations where propagation
is unwanted. A simulator may imitate only a few of the operations and functions of the unit it
simulates.

Phases of Simulation:

Step 1: Identify the Problem:

If an inventory system is being simulated, then the problem may concern the determination of the
size of order (number of units to be ordered) when inventory level falls up to recorder level (point).

Step 2: i) Identify the Decision Variables

ii) Decide the Performance Criterion (Objective) & Decision Rules

8|Page
For example, demand (consumption rate), lead time and safety stock are identified as decision
variables in inventory problem. These variables shall be liable to measure the performance of the
system in terms of total inventory cost under the decision rule - when to order.

Step 3: Construct a Numerical Model:

Construct a model which is possible to be analyzed on the computer. Sometimes the model is
written in a specific simulation language which is suitable for the given problem under analysis.

Step 4: Validate the Model:

It is ensuring that the model should be representing the system truly which is analyzed and the
result will be reliable.

Step 5: Design the Experiments:

Design the experiments with the, help of simulation model by listing particular values of variables
to be tested (i.e. list of courses of action for testing) at each trial (run).

Step 6: Run Simulation Model:

For obtaining the results in the form of operating characteristics run the model on

The computer.

Step 7: Examine the Results in Terms of Problem Solution :

Results are examined as well as their reliability and correctness. Best course of action is selected
after completing the simulation process otherwise desired changes are done in model decision
variables parameters or design, and return to step 3.

Simulation Models:
Simulation models are mainly of two types
1) Continuous Models:
Continuous models are used for the system whose behavior changes continuously with time.
Difference differential equations are used by this model to describe the interactions among the
different elements of the system. A typical example deals with the study of world population
dynamics.

9|Page
2) Discrete Models:
Discrete models are used for the study of waiting lines, with the objective of determining average
waiting time and the length of the queue. When a customer enter or leaves the system then these
measures would be changed. At all other instants, nothing from the standpoint of collecting
statistics occurs in the system. The instants at which changes take place occur at discrete points in
time, giving rise to the name discrete event simulation.

Broadly simulation models can be classified into following four categories:

i) Deterministic Models:
In these models, input and output variables should not be random variables and exact functional
relationship is used to describe the models.

ii) Stochastic Models:

In these models, probability functions are used to describe at least one of the variables or functional
relationship.

iii) Static Models:

Representation of a system at a particular time or representation of a system in which time does
not play any role is known as static simulation model. Monte Carlo Models is an example of static
simulation.

iv) Dynamic Models:

A system which changes over the time is represented by a dynamic simulation model such as
conveyor system in a factory.

Benefits of Simulation:
Ÿ in various cases, mathematical programming and experimentation with the actual system
are unable to solve various complex important managerial decision problems and if it is possible
then it will be costly. In simulation solution is obtained by experimentation with a model of the
system with affecting the real system.

Ÿ with the help of simulation management can predict the occurrence of difficulties and
bottlenecks due to the introduction of new machines, equipment or process.

10 | P a g e
Thus, simulation eliminates the requirement of costly trial and error method of trying out the new
concept on real methods and equipment.

Ÿ Operating personnel and non-technical managers can easily understand the simulation
technique because it is relatively free from mathematics. This helps in getting the propose plans
accepted and implemented.

Ÿ Simulation models are comparatively flexible and can be changed according to the
changing environments of the real situation.

Ÿ Computer simulation can increase the performance of a system over several years and large
calculations are done in few minutes of computer running time.

Ÿ In comparison to mathematical model

Simulation technique is easier to use and it is superior technique to the mathematical analysis.

Ÿ in the operations of complex plans, simulation is used for training the operating and
managerial staff. It is very important technique to train the people before putting into their hands
in the real system. Simulated exercises have been developed to teach the trainee for gaining
sufficient exercise and experience.

Limitations of Simulation:
Ÿ Simulation does not produce optimum results. When the model deals with uncertainties,
the results of simulation are only reliable approximations subject to statistical errors.

Ÿ Quantification of the variables is another difficulty. In a number of situations it is not

possible to quantify all the variables that affect the behavior of the system.

Ÿ in very large and complex problems, the large number of variables and the inter-
relationships between them make the problem very unwieldy and hard to program. The number of
variables may be too large and may exceed the capacity of the available computer.

Ÿ Simulation is, by no means a cheap method of analysis. In a number of situations,

simulation is comparatively costlier and time consuming.

11 | P a g e
 3.2 What is Monte Carlo simulation?
Monte Carlo Simulation, also known as the Monte Carlo Method or a multiple probability
simulation, is a mathematical technique, which is used to estimate the possible outcomes of an
uncertain event. The Monte Carlo Method was invented by John von Neumann and Stanislaw
Ulam during World War II to improve decision making under uncertain conditions. It was named
after a well-known casino town, called Monaco, since the element of chance is core to the modeling
approach, similar to a game of roulette.

Since its introduction, Monte Carlo Simulations have assessed the impact of risk in many real-life
scenarios, such as in artificial intelligence, stock prices, sales forecasting, project management,
and pricing. They also provide a number of advantages over predictive models with fixed inputs,
such as the ability to conduct sensitivity analysis or calculate the correlation of inputs. Sensitivity
analysis allows decision-makers to see the impact of individual inputs on a given outcome and
correlation allows them to understand relationships between any input variables.

How does Monte Carlo Simulation work?

Unlike a normal forecasting model, Monte Carlo Simulation predicts a set of outcomes based on
an estimated range of values versus a set of fixed input values. In other words, a Monte Carlo
Simulation builds a model of possible results by leveraging a probability distribution, such as a
uniform or normal distribution, for any variable that has inherent uncertainty. It, then, recalculates
the results over and over, each time using a different set of random numbers between the minimum
and maximum values. In a typical Monte Carlo experiment, this exercise can be repeated thousands
of times to produce a large number of likely outcomes.

Monte Carlo Simulations are also utilized for long-term predictions due to their accuracy. As the
number of inputs increase, the number of forecasts also grows, allowing you to project outcomes
farther out in time with more accuracy. When a Monte Carlo Simulation is complete, it yields a
range of possible outcomes with the probability of each result occurring. One simple example of
a Monte Carlo Simulation is to consider calculating the probability of rolling two standard dice.
There are 36 combinations of dice rolls. Based on this, you can manually compute the probability
of a particular outcome. Using a Monte Carlo Simulation, you can simulate rolling the dice 10,000
times (or more) to achieve more accurate predictions.

12 | P a g e
 How to use Monte Carlo methods
Regardless of what tool you use, Monte Carlo techniques involves three basic steps:

Ÿ set up the predictive model, identifying both the dependent variable to be predicted
and the independent variables (also known as the input, risk or predictor variables) that
will drive the prediction.

Ÿ Specify probability distributions of the independent variables. Use historical data

and/or the analyst’s subjective judgment to define a range of likely values and assign
probability weights for each.

Ÿ Run simulations repeatedly, generating random values of the independent

variables. Do this until enough results are gathered to make up a representative sample of
the near infinite number of possible combinations.

You can run as many Monte Carlo Simulations as you wish by modifying the underlying
parameters you use to simulate the data. However, you’ll also want to compute the range of
variation within a sample by calculating the variance and standard deviation, which are commonly
used measures of spread. Variance of given variable is the expected value of the squared difference
between the variable and its expected value. Standard deviation is the square root of variance.
Typically, smaller variances are considered better.

One simple example of Monte Carlo simulation is to consider calculating the probability of rolling
two standard dice. There are 36 combination of dice rolls. Based this you can manually compute
the probability of a particular outcome. Using a Monte Carlo simulation, you can simulate rolling
the dice 10000 times or more to achieve more accurate prediction.

Monte Carlo simulation and IBM

Although, you can perform Monte Carlo simulation with a number of tools like Microsoft excel.
It is best to have a sophisticated statical software program such as IBM, SPSS statistics which is
optimize for that delivery a robut set of features that lets your Organization extract actionable
insights from its data.

13 | P a g e
What is macro chain simulation?
A stochastic process Xn: n≥0 is called marcove chain if for all times n≥0 and all states 0, i, j, es,
p, (Xn+1=j, xn=1, Xn-1=n -1, X0=i0) = P (Xn+1=i) (1) =Pij

Keeping this into consideration what is marcove chain used for?

Marcove chains are used to compute the probability events occurring by viewing them as states
translating in to other states as before. We can take weather as an example, if we arbitraly pick
probabilities a prediction regarding the furthermore. What is homogeneus markove chain?
Markove chain graphical model graph theory.

Marcove chain is a graph that describes how the state changes over time and homogenous.
Markovchain is such a group that its system dynamic doesn’t change.

4. What is the different between Monte Carlo and marcove chain simulation?
Traditional Monte Carlo is really just a fancy application of the law of large numbers (LLN) for
approximating expectations/integrals/probabilities (all the same thing really). LLN requires
independent and identically distributed (IID) samples to work. So traditional Monte Carlo relies
on an IID sampling assumption to make the integration or expectation approximation work.

Markov Chains are just a specific type of random process; a process for which the distribution any
point in time depends only on the distribution in the process’ most recent history. Most recent
history can be defined in different ways. But Markov chains are largely just about modeling local
dependence.

The two are fundamentally different things. One (Monte Carlo simulation) is a approximation
technique. The other (Markov Chains) is a specific random model.

You were probably thinking of Markov Chain Monte Carlo (MCMC) simulations when you asked
this question. MCMC relaxes the IID sampling assumption in traditional Monte Carlo routines. In
MCMC routines, we use samples of an (ergodic) Markov chain process, instead of samples from
an IID process. Approximation guarantees now come from a Markov Chain version of the law of
large numbers (MC-LLN) instead of the regular LLN.

14 | P a g e
15 | P a g e