MANAGEMENT SCIENCE

(Introduction to Management Science) Applications:

Applications of management science are abundant in industries such as airlines,
manufacturing companies, service organizations, military branches, and in
Management science (MS)
government. Management science has contributed insights and solutions to a vast
- is the broad interdisciplinary study of problem solving and decision making
range of problems and issues, including:
in human organizations
● scheduling airlines, both planes and crew
Links: ● deciding the appropriate place to site new facilities such as a warehouse or
Business factory
Economics ● managing the flow of water from reservoirs
Engineering ● identifying possible future development paths for parts of the
Management telecommunications industry
Management Consulting ● establishing the information needs of health services and appropriate
systems to supply them
❖ It uses various scientific quantitative techniques to improve an ● identifying and understanding the strategies adopted by companies for their
organization's ability to enact rational and accurate management decisions information systems
by arriving at optimal or near optimal solutions to complex decision
Overview of the Topics
problems.
❖ Management science helps businesses to achieve goals using various
I. Linear Programming
scientific methods.
- is a mathematical procedure of determining linear allocation of
business variables. For constructing linear program following
Overview: factors are essential:
Management science is concerned with a number of different areas of study: ● The objective function needs to be linear.
● The objective must be to either maximize or minimize a
1. One is developing and applying models and concepts that may prove useful linear function.
in helping to illuminate management issues and solve managerial problems. ● The constraints in the program should also be linear.
The models used can often be represented mathematically, but sometimes In formulating a linear program certain variables are integer in nature, such
computer-based, visual or verbal representations are used as well or instead. as a function with integer variable is known as integer programming.
2. Another area is designing and developing new and better models of
organizational excellence. II. Project management
- is the process of leading the work of a team to achieve goals and
History meet success criteria at a specified time. The primary challenge of
Its origins can be traced to operations research, which became influential
project management is to achieve all of the project goals within the
during World War II when the Allied forces recruited scientists of various disciplines
given constraints. This information is usually described in project
to assist with military operations. In these early applications, the scientists used
documentation, created at the beginning of the development
simple mathematical models to make efficient use of limited technologies and
process. The primary constraints are scope, time, quality and
resources. The application of these models to the corporate sector became known as
management science. budget. The secondary challenge is to optimize the allocation of
In 1967 Stafford Beer characterized the field of management science as "the necessary inputs and apply them to meet pre-defined objectives.
business use of operations research".
 Program evaluation and review technique models, Delphi method, exponential smoothing, moving averages,
The program (or project) evaluation and review technique (PERT) regression analysis, and trend projection.
is a statistical tool used in project management, which was designed to
analyze and represent the tasks involved in completing a given project.

Critical path method

The critical path method (CPM), or critical path analysis (CPA), is
an algorithm for scheduling a set of project activities

III. Decision analysis

- can be used to determine an optimal strategy when a decision
maker is faced with several decision alternatives and an uncertain
or risk-filled pattern of future events
Classifying decision-making criteria
● Decision making under certainty.
- The future state-of-nature is assumed known.
● Decision making under risk.
- There is some knowledge of the probability of the states of
nature occurring.
● Decision making under uncertainty.
- There is no knowledge about the probability of the states
of nature occurring.

Decision Tree
- In a certain decision-making process, probability plays an
important role. On the decision model based upon probability is
decision trees.

IV. Forecasting
- is the process of making predictions of the future based on past and
present data and most commonly by analysis of trends. A
commonplace example might be estimation of some variable of
interest at some specified future date. It refers to formal statistical
method employing time series, cross-sectional or longitudinal data,
or alternatively to less formal judgmental methods.
● Forecasting starts with certain assumptions based on the management's
experience, knowledge, and judgment. These estimates are projected into the
coming months or years using one or more techniques such as Box-Jenkins
 INTERMEDIATE ACCOUNTING 1

COST ACCOUNTING AND CONTROL

COST ACCOUNTING AND CONTROL

FINANCIAL MARKETS
COST ACCOUNTING AND CONTROL
BUSINESS LAW

AQUATICS
COST ACCOUNTING AND CONTROL
IT

Cura, Queeny A.
STS
BSA-2B
QUEENY A. CURA
BSA -2B
Yabut, Jed Angela T.
BSA-2B QUEENY A. CURA
BSA -2B

Aguilar, Marianne QUEENY A. CURA

BSA -2B
BSA-2B
QUEENY A. CURA
BSA -2B

MANAGEMENT SCIENCE
QUEENY A. CURA
BSA -2B
ETHICS
MANAGEMENT SCIENCE Parameters are numerical values that are included in the objective functions
(Linear Programming) and constraints.

❖ Objectives of a business frequently are to maximize profit or minimize cost Steps in LP Model Formulation:
subject to the restrictions placed on the manager by the operating Step 1: Define the decision variables
environment Step 2: Define the objective function
❖ These restrictions can take the form of limited resources, such as time, labor, Step 3: Define the constraints
energy, material, or money; or they can be in the form of restrictive
guidelines, such as a recipe for making cereal or engineering specifications Sample Problem: (Maximization Model Example)
❖ When a manager attempts to solve a general type of problem by seeking an A company produces two types of tables, Coffee Table and Side Table. It
objective that is subject to restrictions, the management science technique takes 2 hours to produce the parts of one unit of Coffee Table, 1 hour to assemble and
called linear programming is frequently used. 2 hours to polish. It takes 4 hours to produce the parts of one unit of Side Table, 2.5
❖ Linear programming is a model that consists of linear relationships hour to assemble and 1.5 hours to polish. Per month, 700 hours are available for
representing a firm’s decision(s), given an objective and resource constraints. producing the parts, 400 hours for assembling the parts and 550 hours for polishing
the tables. The profit per unit of Coffee Table is 4,500 pesos and per unit of Side Table
Steps in applying the linear programming technique is 5,500 pesos. How many of each type of tables should be produced in order to
maximize the total monthly profit?
FIRST, the problem must be identified as being solvable by linear
programming. Summary of LP Model Formulation Steps (Maximization Problem)
SECOND, the unstructured problem must be formulated as a mathematical Step 1: Define the decision variables
model. - How many Coffee Tables and Side Tables to produce
THIRD, the model must be solved by using established mathematical Step 2: Define the objective function
techniques. - Maximize profit
Step 3: Define the constraints
What to do? - The resources (hours) available
:Formulation of the mathematical model that represents the problem a. Parts production
:Solving the mathematical model using the graphical method or solver b. Assembly
application c. Polishing

Model Formulation LINEAR PROGRAMMING

Terms to remember: Optimization is an important and fascinating area of management
Decision variables are mathematical symbols that represent levels of science and operations research. It helps to do less work, but gain more.
activity Linear programming (LP) is a central topic in optimization. It provides a powerful
The objective function is a linear relationship that reflects the objective of an tool in modeling many applications. LP has attracted most of its attention in
operation optimization during the last six decades for two main reasons:
A model constraint is a linear relationship that represents a restriction on
decision making.
 ● Applicability:
- There are many real- world applications that can be modeled as
linear programming;
● Solvability:
- There are theoretically and practically efficient techniques for
solving large-scale problems.
BASIC COMPONENTS OF AN LP:
Each optimization problem consists of three elements:
● decision variables:
- describe our choices that are under our control;
● objective function:
- describes a criterion that we wish to minimize (e.g., cost) or
maximize (e.g., profit);
● constraints:
- describe the limitations that restrict our choices for decision
variables.
Formally, we use the term “linear programming (LP)” to refer to an optimization
problem in which the objective function is linear and each constraint is a linear
inequality or equality.
AN INTRODUCTORY EXAMPLE:
Problem Statement: A manufacturing firm makes two products ( J and M)
using two machines (say, C and B). Each unit of J that is produced requires 50
minutes processing time on machine C and 30 minutes processing time on machine B.
Each unit of M that is produced requires 24 minutes processing time on machine C
and 33 minutes processing time on machine B.
Machine C is going to be available for 40 hours and machine B is available
for 35 hours. The profit per unit of J is 25 pesos and the profit per unit of M is 30
pesos. Company policy is to determine the production quantity of each product in
such a way as to maximize the total profit given that the available resources should
not be exceeded
Task: The aim is to formulate the problem of deciding how much of each product to
make in the current week as an LP.
STEP 1: DEFINING THE DECISION VARIABLES
We often start with identifying decision variables (i.e., what we want to
determine among those things which are under our control). Tom! Can you identify
the decision variables for our example?
The company wants to determine the optimal product to make in the current
week. So there are two decision variables :x: the number of units of J y: the
number of units of M
STEP 2: CHOOSING AN OBJECTIVE FUNCTION
We usually seek a criterion (or a measure) to compare alternative solutions.
This yields the objective function.
It is now your turn to identify the objective function.
We want to maximize the total profit. The profit per each unit of product J is
25 pesos and profit per each unit of product M is 30 pesos. Therefore, the total profit
is 25x+30y if we produce x units of J and y units of M.This leads to the following
objective function:
max 40x+35y
Note that:
1. The objective function is linear in terms of decision variables x and y (i.e., it
is of the form ax + by, where a and b are constant).
2. We typically use the variable z to denote the value of the objective. So the
objective function can be stated as:
STEP 3: IDENTIFYING THE CONSTRAINTS
In many practical problems, there are limitations (such as resource / physical
/ strategic /economical) that restrict our decision. We describe these limitations using
mathematical constraints.
What are the constraints in our example?
The amount of time that machine C is available restricts the quantities to be
manufactured. If we produce x units of J and y units of M, machine C should
be used for 50x+24y minutes since each unit of J requires 50 minutes
processing time on machine C and each unit of M requires 24 minutes
processing time on machine C. On the other hand, machine C is available for
 40 hours or equivalently for 2400 minutes. This imposes the following ACTIVITY PROBLEM: Linear Programming
constraint:
Activity Problem #1
50x + 24y ≤ 2400.
A calculator company produces a scientific calculator and a graphing calculator.
Similarly, the amount of time that machine B is available imposes the
Long-term projections indicate an expected demand of at least 100 scientific and 80
following constraint:
graphing calculators each day. Because of limitations on production capacity, no
30x + 33y ≤ 2100.
more than 200 scientific and 170 graphing calculators can be made daily. To satisfy a
shipping contract, a total of at least 200 calculators must be shipped each day.
These constraints are linear inequalities since in each constraint the left-hand
side of the inequality sign is a linear function in terms of the decision variables x and
If each scientific calculator sold results in a Php 20 loss, but each graphing calculator
y and the right hand side is constant.
produces a Php 50 profit, how many of each type should be made daily to maximize
net profits?
Note: In an LP problem, the decision variables are required to be nonnegative, and
this should be explicitly included in the formulation. This is the case here. So you
Activity Problem #2
need to include the following two non- negativity constraints as well:
At a certain refinery, the refining process requires the production of at least two
x ≥0 and y ≥0 gallons of gasoline for each gallon of fuel oil. To meet the anticipated demands of
winter, at least three million gallons of fuel oil a day will need to be produced. The
So the constraints we are subject to (s.t.) are :
demand for gasoline, on the other hand, is not more than 6.4 million gallons a day.
50x + 24y ≤ 2400, (machine C time)
30x + 33y ≤ 2100, (machine B time)
If gasoline is selling for Php 1.90 per gallon and fuel oil sells for Php 1.50/gal, how
x ≥ 0,
much of each should be produced in order to maximize revenue?
y ≥ 0.

LP FOR THE EXAMPLE

Now, write the LP by putting all the LP elements together.

Here is the LP:

max z = 25x + 30y
s.t. 50x + 24y ≤ 2400,
30x + 33y ≤ 2100,
x ≥ 0,
y ≥ 0.
ACTIVITY PROBLEM: Linear Programming

CURA, QUEENY A. MANAGEMENT SCIENCE

BSA-2B OCT. 14, 2022

Activity Problem #1
A calculator company produces a scientific calculator and a graphing calculator.
Long-term projections indicate an expected demand of at least 100 scientific and 80
graphing calculators each day. Because of limitations on production capacity, no
more than 200 scientific and 170 graphing calculators can be made daily. To satisfy a
shipping contract, a total of at least 200 calculators must be shipped each day.

If each scientific calculator sold results in a Php 20 loss, but each graphing calculator
produces a Php 50 profit, how many of each type should be made daily to maximize
net profits?
Activity Problem #2
At a certain refinery, the refining process requires the production of at least two
gallons of gasoline for each gallon of fuel oil. To meet the anticipated demands of
winter, at least three million gallons of fuel oil a day will need to be produced. The
demand for gasoline, on the other hand, is not more than 6.4 million gallons a day.

If gasoline is selling for Php 1.90 per gallon and fuel oil sells for Php 1.50/gal, how
much of each should be produced in order to maximize revenue?