Program – MBA

Subject – Operations Research

Student Name – Koushik Dutta
Student ID – 3259933

Question – 1: What is operation research? Explain scope of operation research. What are merits and
demerits of operation research?

Ans:
Definition:

Operations research (OR) is a systematic method of problem-solving and decision-making that is

beneficial in the management of organizations. In operations research, problems are broken down into
basic components and then resolved in defined steps by mathematical analysis.

Scope of Operations Research:

Operation Research centrally focuses on streamlining complex business problems into well-defined
mathematical hypotheses and works specifying expected comportment as well as goals. The key
application of Operations Research is that it enables decision making in those facets of a business where
resource allocation is dominant, i.e. capital, labor, time and other business resources. Given that it is rooted
in computer science and analytics, there is an enormous scope of operation research in every business
enterprise.
Here are the key areas of the opportunity and application of operations research:
 Financial Management, Budgeting and Investments
 Government Development / Public Sector Units
 Supply Chain Management
 Energy and Environment
 Marketing and Revenue Management
 Agriculture
 Healthcare Management and Hospital Administration
 Telecommunication Networks
 Defence Forces
 Purchasing / Procurement / Logistics

The field of Operations Research contains robust tools that can be functional in a variety of fields such as
transportation, warehouse, production management, etc. The application of OR tools and techniques helps
in making the best decisions with the available data.

Merits of Operation Research:

Increased productivity
OR helps in increasing the efficiency of organizations to an enormous extent. The use of OR for effective
control of operations allows the managers to take informed decisions. Effective and specific decision-
making leads to improvement in the productivity of an organization

Optimized outcome
Management is responsible for making various important decisions about the organization. OR tools can
be used by the management to find out various alternative solutions to a problem and selecting the best
solution. Selection is based on the profits accrued and cost incurred.

Better Coordination
OR can be used to coordinate the objectives of different departments which results in achieving the goals
of all departments. Managers belonging to different departments become aware of the common objectives
of the organization, which ensures that different departments coordinate towards achievement of the said

Lower Failure Risk

Using OR tools and techniques, managers can find all the different solutions and risks associated with a
given problem. Prior information with respect to all the possible risks helps in reducing the risks of failure

Improved Control on the System

Managers can apply OR to take better control of the work since it provides comprehensive information
about any given course of action. Since OR informs managers about the expected outcome, they can
determine what standards of performance need to be expected from employees

Demerits of Operations Research:

High Cost
High cost is one of the biggest limitations of OR. It not only needs expensive technology to create
mathematical equations but also experts to perform simulations. Therefore, while OR does provide
effective solutions to a particular problem, it comes with a high cost attached

Dependence on Technology:
OR is heavily reliant on technology. Computers are generally needed to model and analyze OR problems.
Since technology is quite costly as well as subject to failure, its use is severely restricted.

Unquantifiable Factors:
It is known that OR tools are based on mathematical models that include various information based on
quantifiable factors. It means that the efficacy of a solution provided by OR tool depends on quantifiable
factors. However, there are certain important unquantifiable factors that cannot be included in the models.
When this happens, solutions can often be inexact, inaccurate and therefore, inefficient.

Question – 2: Explain Vogel’s approximation problem. What is enumeration method of linear

programming? What is a transportation problem?

Ans:
Vogel’s Approximation Problem

Vogel’s Approximation Method (VAM) is one of the methods used to calculate the initial basic feasible
solution to a transportation problem. However, VAM is an iterative procedure such that in each step, we
should find the penalties for each available row and column by taking the least cost and second least cost.
This method is used to reduce the transportation costs by interpreting in a mathematical table the
transportation costs from one place to another. The column represents the demand centers while the row
represents the supply points.

A block represents the transportation cost from i to j if the block is C-ij(i-number of row, j-number of
column). The following steps need to be followed which are:

1. Identify the minimum and next minimum numbers in a column and repeat the same for the row
2. The above step needs to be redone for all other columns and rows
3. Now, subtract the two numbers identified for each column and each row such that the difference is
positive
4. Identify the maximum difference among all the rows and also among all the columns
5. Assign all the demand units for that minimum number in that column which has got the maximum
difference (repeat the same for the row)
6. Remove that column and row completely and repeat the above process until all the demand units are
filled up completely.
Finally jot down all the allotted points in a new table and calculate the transportation cost which will be
optimum.

Enumeration Method of Linear Programming

Enumeration methods are used to solve combinatorial optimization problems. Combinatorial optimization
problems are problems where decision variables are binary, expressing that an object (e.g. graph, edge,
node) is chosen or is not chosen. This leads to a lot of possible solutions with the difficulty of selecting
and finding solutions that are more optimal than others. When modelled in a formal way, these problems
are sub-problems of either allocation problems, permutation problems, selection problems or clustering
problems. The number of existing possible alternative solutions of a combinatorial optimization problem
can be very large. It is determined by the computational complexity.
For example, for an allocation or sequence problem, there are n(n-1)(n-2)...1 = n!, alternative solutions,
meaning it has a computational complexity of "n factorial”. Therefore the goal of most enumeration
methods is to cut down the complexity with certain algorithms.

Transportation Problem

Transportation problem is a special kind of Linear Programming Problem (LPP) in which goods are
transported from a set of sources to a set of destinations subject to the supply and demand of the sources
and destination respectively such that the total cost of transportation is minimized. It is also sometimes
called as Hitchcock problem.
Types of Transportation problems:
Balanced: When both supplies and demands are equal then the problem is said to be a balanced
transportation problem.
Unbalanced: When the supply and demand are not equal then it is said to be an unbalanced transportation
problem. In this type of problem, either a dummy row or a dummy column is added according to the
requirement to make it a balanced problem. Then it can be solved similar to the balanced problem.

Question – 3: What is PERT? Explain with real life examples. What is network analysis and what
are its objectives? Explain drawing of arrow diagram

Ans:

Program Evaluation Review Technique (PERT):

Program Evaluation and Review Technique (PERT) is a method used to examine the tasks in a schedule
and determine a Critical Path Method variation (CPM). It analyzes the time required to complete each task
and its associated dependencies to determine the minimum time to complete a project. It estimates the
shortest possible time each activity will take, the most likely length of time, and the longest time that
might be taken if the activity takes longer than expected.
A project manager creates a PERT chart in order to analyze all of a project's tasks while estimating the
amount of time required to complete each one. Using this information, the project manager can estimate
the minimum amount of time required to complete the entire project. This information also helps the
manager to develop a project budget and determine the resources needed to accomplish the project. A
PERT chart uses circles or rectangles, called nodes, to represent project events or milestones. The nodes
are linked by vectors or lines that represent various tasks. Dependent tasks are items that must be
performed in a specific manner. For example, if an arrow is drawn from Task No. 1 to Task No. 2 on a
PERT chart, Task No. 1 must be completed before work on Task No. 2 begins. Items at the same stage of
production but on different task lines within a project are referred to as parallel tasks. They're independent
of each other, and occur at the same time.
Network Analysis:

Network analysis involves a group of techniques which are used for presenting information about the time
and resources involved in the project so as to assist in the planning, scheduling and controlling of the
project. The information usually represented by a network includes the sequences, interdependencies,
interrelationships and critical activity of various activities of the project.

Objective of Network Analysis:

1. Minimize Production Delay, Interruptions and Conflicts : This is achieved by identifying all
activities involved in the project, their precedence constraints, etc.
2. Minimization of Total Project Cost: After calculating the total cost of the project the next step is to
minimize the total cost. It is done through the calculation of cost of delay in the completion of an
activity of the project and calculating the cost of the resources which are required to complete the
project in a given time period.
3. Trade-off between Time and Cost of Project: The duration of same activity can be reduced if
additional sources are employed and this is the main idea on which the trade-off between time and
cost of project is based. Due to technical reasons, the duration can be reduced in a specific limit.
Similarly, there is also a most cost efficient duration called 'normal point' stretching the activity
beyond it may lead to a rise in direct cost
4. Minimization of Total Project Duration: After checking the actual performance against the plan
the project duration can be controlled and minimized. If any major difference is found then apply
 the necessary reschedule process by updating and revising the uncompleted portion of the project
5. Minimization of Idle Resources: If there is any variation in the use of scars resources then it can
disturb the entire plan and hence it is required that efforts should be made to avoid any increase in
cost due to idle resources

Arrow Diagram:

Arrow Diagram (also known as, activity network diagram, or arrow programming method) is used to
determine the optimal sequence of events and their interconnectivity. It is often considered as a variation of
PERT (Program Evaluation and Review Technique) chart. An arrow diagram is an effective way to
represent the required order of tasks in a project or process, the best schedule for the entire project, and
potential scheduling and resource problems and their solutions.
An arrow diagram is often used for scheduling and to determine the critical path through nodes that
represents a work plan for identifying critical operations visually; it also lets you calculate the “critical
path” of the project that can affect the timing of the entire project and where the addition of resources can
speed up the project.
Arrow Diagram is used for scheduling activities in a project plan. Precedence relationships between
activities are represented by circles connected by one or more arrows. The length of the arrow may be used
to represent the duration of the relevant activity, or with a figure. Arrow Diagram only shows finish-to-start
relationships, meaning that each activity is completed before the successor activity starts.

Question – 4: Explain Games theory and its pure strategy with help of an example. Explain expected
money value criterion

Ans:

Definition of Game Theory:

 Game theory is said to be the science of strategies which comes under the probability distribution. It
determines logical as well as mathematical actions that should be taken by the players in order to obtain
the best possible outcomes for themselves in the games. Game theory explains how a strategic game is
played. It determines the way or order in which the players should make moves. It considers the
information for the players at each decision point.

Pure Strategy of Game Theory:

In a pure strategy, players adopt a strategy that provides the best payoffs. In other words, a pure strategy is
the one that provides maximum profit or the best outcome to players. Therefore, it is regarded as the best
strategy for every player of the game. Let’s consider the following example for optimal plan for Player A
and Player B.

Using the Maxmin (Minimax) principle to analyze the game:

Select minimum from the maximum of columns.

Minimax = 1
Player A will choose II strategy, which yields the maximum payoff of 1.

Select maximum from the minimum of rows.

Maximin = 1
Similarly, player B will choose III strategy.

Since the value of maximin coincides with the value of the minimax, therefore, saddle point (equilibrium
point) = 1.

The amount of payoff at an equilibrium point is also known as value of the game.
The optimal strategies for both players are: Player A must select II strategy and player B must select III
strategy. The value of game is 1, which indicates that player A will gain 1 unit and player B will sacrifice 1
unit.

Expected Money Value (EMV):

Expected monetary value (EMV) analysis is a statistical concept that calculates the average outcome when
the future includes scenarios that may or may not happen. An EMV analysis is usually mapped out using a
decision tree to represent the different options or scenarios. EMV for a project is calculated by multiplying
the value of each possible outcome by its probability of occurrence and adding the products together.
Example:

For a sensitivity analysis, the project risks are evaluated based on the potential financial impact of each
individual risk and then placed in rank order.
For an EMV analysis, you are evaluating two vendors:
Vendor A has a 50% probability of being on-time, a 30% probability of being late at an additional cost of
40,000 and a 20% probability of delivering early at a savings of 20,000.

EMV: (30% x 40,000) + (20% x -20,000) = 12,000 + (4,000) = 8,000

Vendor B has a 30% probability of being on-time, a 40% probability of being late at an additional cost of
40,000 and a 30% probability of delivering early at a savings of 20,000.
EMV: (40% x 40,000) + (30% x -20,000) = 16,000 + (6,000) = 10,000

Based on the EMV, Vendor A would be a better choice as the potential cost is lower.
Question – 5: Explain M/M/1 model of queuing. What do you mean by FIFO? What is queuing
theory?

Ans:

M/M/1 model of queuing:

The M/M/1 queuing model is a queuing model where the arrivals follow a Poisson process, service times
are exponentially distributed and there is one server.
The assumption of M/M/1 queuing model are as follows:

 The number of customers arriving in a time interval t follows a Poisson Process with parameter λ.
 The interval between any two successive arrivals is exponentially distributed with parameter λ.
 The time taken to complete a single service is exponentially distributed with parameter μ.
 The number of server is one.
 Although not explicitly stated both the population and the queue size can be infinity.
 The order of service is assumed to be FIFO.

First-In, First-Out (FIFO):

A FIFO queue is a queue that operates on a first-in, first-out (FIFO) principle. This means that the request
(like a customer in a store or a print job sent to a printer) is processed in the order in which it arrives. A
first-come, first-served line is the most common type of queue that joins in everyday lives and is generally
accepted as the fairest way to operate a queue.

Queuing Theory:

Queuing theory is an area of mathematics that analyses and models the act of queueing. It is essentially the
study of how people act when they have to wait in line to make a purchase or receive a service, as well as
what sorts of queue structure move people through lines the most efficiently, and how many people can a
specific queuing arrangement process through the line in a particular time frame. The queuing models have
two aspects at its core:
 The customer, job, or request are all terms used to describe someone or something who demands a
service.
 The server refers to the person or thing that completes or provides the services.