Quantitative

Decision Making
Linear Programming Optimization
DM Tools for Management
• Engineering managers, middle and senior tiers, use a number a qualitative and
quantitative tools in their planning and decision making process.
• Some important tools for strategic planning are:
• Market research
• SWOT analysis, PEST/PESTLE, Porters 5-forces analysis
• Decision tree
• Risk assessment (Monte Carlo simulation, what-if analysis )
• Failure Mode & Effect Analysis (FMEA), Root Cause Analysis (RCA), ----
• Product life cycle analysis
• Performance benchmarks
• Customer related measures
• Process related measures
• Financial measures
• Employee related measures
• Competition related measures
• Tactical Planning tools include project management tools (CPM, PERT, etc), OR (LP,
simplex method, Integer programing, etc), forecasting, etc
• Operational planning include work study, time study, time-motion study, OR (LP), etc
DM Tools for Management
• Qualitative and Quantitative tools, as required, are used for DM to
find feasible and optimum solution to the problem
• In situations where variables / factors cannot be defined properly
quantitatively, qualitative DM tools are preferred
• Quantitative analysis uses a scientific approach to DM process.
• Both types of DM tools can be used simultaneously for addressing
different aspects of the same problem.
• Quantitative tools include two types of models:
• A model is deterministic if we know all values with certainty.
• Models that involve chance of risk, often measured as probability
value, are called probabilistic models.
Quantitative Tools
for Management
Quantitative DM Approach
Defining the Problem Develop a clear & concise statement of the problem

Model is a representation of a situation. The type of model may be

Developing the Model physical, scale, schematic and/or mathematical.

Acquiring input data Be careful of GIGO. Meticulous effort is required in collecting relevant input
data to solve the problem.

Developing a solution Using engineering-mgt knowledge and mathematics tools

Check consistency & relevance of solution with the problem description.

Testing the solution Review and update input data, mathematical technique used and
appropriateness of developed model to get logical & rational solution

Analyzing the results Workout implications of the obtained solution and check sensitivity of the
model with different input data and mathematical model (sensitivity
analysis)
Implementing results
Advantages of Mathematical Modeling
• Models can accurately represent reality.
• Models help decision maker in formulating problems and visualizing its
effects by changing the input values, by interpolating and extrapolating.
• Models can give us insight and other useful information.
• Models help in saving time, money and other resources in making
accurate decisions and resolving problems.
• Model may be the only way to study, predict and solve large and
complex problems in a timely way without much expense.
• Model used help in communicating problems, related variables and its
solutions to other in a very clear way.
Operational Research
(Linear Programming)
• Operations Research (OR) deals with quantitative modeling of
complex operations and uses these models to support DM in any
industry or public services. It is another name for optimization.
• Its primary aim is optimum utilization of resources in any
undertaking under a given situation so that objective function may
be maximized or minimized.
• profits/services/manufacturing resource utilization strategy, etc
may be maximized
• cost, time, effort, etc may be minimized
• Linear Programming (LP) is an OR tool which helps the
management to find best solution for a given problem
 Optimization by Linear Programming
• Linear Programming is helpful in developing and solving a problem by
mathematical techniques.

• LP Problems is a process of finding a maximum or minimum value of any

variable in a function, also called optimization problem.

• The problem is generally given in a linear function which needs to be optimized

subject to a set of different inequality constraints.

• Main usage of LP is in advising the management to make the most efficient &
effective use of the scarce resources.

• Of course, very few complex real-world problems can be expressed perfectly in

terms of a set of linear functions. Linear programming can provide reasonably
realistic representations of many real-world problems
Optimization by Linear Programming
Decision Variable: Variables which are changeable & going to
impact the decision function. Like the profit function is affected by
both sales and price.
Objective Function: Linear function of the objective, either to
maximize or minimize; like maximize -- Profit, sales, production etc,
and minimize -- cost, loss, energy, consumption, wastage etc.
Constraints: Any kind of limitation or scarcity explained through a
function like limitations of raw materials, time, funds, equipment,
HR, etc. Non-negative Constraints will also be there which will
remain non-negative all the time.
 Operational Research (Linear Programming)
What is Linear Programming?
Linear programming is a process of optimizing the problems which are subjected to certain constraints. It
is the process of maximizing or minimizing the linear functions under linear inequality constraints.

What are the requirements of linear programming?

• Objective function
• Constraints
• Linearity
• Non-negativity
• Finiteness

Mention the advantages of Linear programming

• Linear programming provides insights to the industrial / business problems
• It helps to solve multi-dimensional problems
• According to the condition change, LP helps in making the adjustments
• By calculating value of the objective function (cost, profit, man-hours, machine hours, production
scheduling, etc), LP helps to identify the optimal solution
LPP – Machine utilization case study
A manufacturing firm identifies that it has surplus machine time
available per week to undertake additional manufacturing
workload. It receives an order to manufacture part 1 and 2 which
requires lathe machine, milling machine and grinder for
manufacturing. Part 1 requires 12 minutes on lathe, 4 minutes on
Milling machine and 2 minutes grinding work to complete the
manufacturing process. Part 2 requires 6 minutes on lathe, 10 minutes
on Milling machine and 3 minutes grinding work to complete the
manufacturing process. In the workshop, a max of 3000 minutes are
available on lathe machine, 2000 minutes are available on Milling
Machine and 900 minutes are available on Grinding machine. Profit
of Rs/40 and Rs/100 per part 1 and 2 respectively is calculated. Find
the number of part 1 and 2 to be manufactured per week to maximize
the profit.
LPP – Machine utilization case study
❑ A manufacturing firm identifies that it has surplus machine time available per
week to undertake additional manufacturing workload.
❑ It receives an order to manufacture part 1 and 2 which requires lathe machine,
milling machine and grinder for manufacturing.
❑ Part 1 requires 12 minutes on lathe, 4 minutes on Milling machine and 2 minutes
grinding work to complete the manufacturing process.
❑ Part 2 requires 6 minutes on lathe, 10 minutes on Milling machine and 3 minutes
grinding work to complete the manufacturing process.
❑ In the workshop, a max of 3000 minutes are available on Lathe machine, 2000
minutes are available on Milling Machine and 900 minutes are available on
Grinding machine.
❑ Profit of Rs/40 and Rs/100 per part 1 and 2 respectively is calculated.
❑ Find the number of part 1 and 2 to be manufactured per week to maximize the
profit.
 LPP – Machine utilization case study
1. Maximize profit from mfg mix Type of machine Machining time Machine time
required for the available/week
parts (mts) (mts)
2. x1 and x2 are # of parts P1 and P2
Define Objective function;
Part1 Part2
• Maximum Profit = P = 40 . x1 + 100 . x2
Lathe Machine 12 6 Max 3000
• 3. Identify resources & constraints;
Milling Machine 4 10 Max 2000
• lathe: 12 . x1 + 6 . x2 ≤ 3000
• Milling: 4 . x1 + 10 . x2 ≤ 2000 Grinding Machine 2 3 Max 900

• Grinding: 2 . x1 + 3 . x2 ≤ 900
Profit/part Rs/40 Rs/100
• x1 ≥ 0 ; x2 ≥ 0
 LPP – Solution by Graphical Method

Maximize Profit : P = 40 . x1 + 100 . x2

Subject to resources & constraints
For lathe : 12 . x1 + 6 . x2 ≤ 3000
For Milling: 4 . x1 + 10 . x2 ≤ 2000
For Grinding: 2 . x1 + 3 . x2 ≤ 900
x1 ≥ 0 , x2 ≥ 0

some important definitions:

• Feasible Region: The common region determined by all the constraints and non-negativity limitations of LPP.
• Corner point: A point in the feasible region that is the intersection of two boundary lines
• Solution: A set of decision variables values which satisfy all the constraints of an LPP.
• Feasible solution: Any solution which also satisfies the non-negative limitations of the problem.
• Optimal feasible solution: Any feasible solution which maximizes or minimizes the objective function.
LPP – Machine utilization case study
A manufacturing firm uses lathe, milling
machine and grinder to make two machine
parts. The table below represents the
machining time required for each part,
machine time available on different machines
and the profit on each machined part. Find the
number of part 1 and 2 to be manufactured
per week to maximize the profit.
1. Maximum profit from mfg mix
2. Objective function;
Maximum Profit = P = 40 . x1 + 100 . x2
3. Resources & constraints;
lathe: 12 . x1 + 6 . x2 ≤ 3000
Milling: 4 . x1 + 10 . x2 ≤ 2000
Grinding: 2 . x1 + 3 . x2 ≤ 900
x1 ≥ 0 ; x2 ≥ 0

• Solution space is bounded by an area OABCO

• Profit = P = 40 . x1 + 100 . x2
• Calculate profit at corner points
Point O (0,0); P = Rs/0
Point A (0,200); P = Rs/20000
Point B (187.5,125); P = Rs/20000
Point C (250,0); P = Rs/10000
• It is a case of multiple optima on line AB (Points A
& B)
• Here you can see a redundant constraint (FJ)
 LPP – Mfg mix case study
A company ABC makes two products, P1 and P2. Each P1 requires 5 kg of material M and 3 kg of
material N. Each P2 requires 3 kg of material M and 3 kg of material N. In the warehouse, 350 kg of
M and 270 kg on N are available. The profit is $50 for each P1 and $40 for each P2. What mix of P1
and P2 should the company manufactures in order to maximize profit.

Formulation of LP Problem Formulation of LP Problem

1. Find the key decision to be made for the
problem in hand.
2. Identify the variables and assume variables x1,
x2, x3, … for variable quantities
3. Mention the objective quantitatively and
express it as a linear function of variables
4. Express the possible alternatives and
constraints mathematically as linear
quantities/inequalities in terms of variables
1. Maximization of profit from product mix
2. Let x1 and x2 are # of products P1 and P2 to be
manufactured respectively
3. Define Objective function;
Maximum Profit = 50 . x1 + 40 . x2
4. Identify alternatives and constraints;
5 . x1 + 3 . x2 ≤ 350
3 . x1 + 3 . x2 ≤ 270
x1 ≥ 0
x2 ≥ 0
 LPP – Mfg mix case study
A company ABC makes two products, P1 and P2. Each P1 requires 5 kg of material M and 3 kg of
material N. Each P2 requires 3 kg of material M and 3 kg of material N. In the warehouse, 350 kg
of M and 270 kg on N are available. The profit is $50 for each P1 and $40 for each P2. What mix of
P1 and P2 should the company manufactures in order to maximize profit.

Formulation of LP Problem
1. Maximization of profit from product mix
2. Let x1 and x2 are # of products P1 and P2
respectively
3. Define Objective function;
Maximum Profit = 50 . x1 + 40 . x2
4. Identify resources and constraints;
5 . x1 + 3 . x2 ≤ 350
3 . x1 + 3 . x2 ≤ 270
x1 ≥ 0
x2 ≥ 0
 LPP – Mfg mix case study
A company ABC makes two products, P1 and P2. Each P1 requires 5 kg of material M and 3 kg
of material N. Each P2 requires 3 kg of material M and 3 kg of material N. In the warehouse,
350 kg of M and 270 kg on N are available. The profit is $50 for each P1 and $40 for each P2.
What mix of P1 and P2 should the company manufactures in order to maximize profit.

• Solution space is bounded by an

area OABCO
• Profit = P = 50 . x1 + 40 . x2
• Calculate profit at corner points
of feasible region
Point O (0,0); P = $0
Point A (0,90); P = $3600
Point B (40,50); P = $4000
Point C (70,0); P = $3500
• Optimum profit is at Point B
 LPP – Mfg mix case study
• Solution space is bounded by an area OABCO
• Profit = P = 50 . x1 + 40 . x2
• Calculate profit at corner points of feasible region
Point O (0,0); P = $0
Point A (0,90); P = $3600
Point B (40,50); P = $4000
Point C (70,0); P = $3500

What is Profit line or Iso Profit line??

• This method assigns a value to objective function, profit in this case, let say profit = $1000
• P = 1000 = 50.x1 + 40.x2 , and calculate values for decision variables x1 and x2
• For x1=0, x2 = 1000/40 = 25 and for x2=0, x1 = 1000/50=20. Iso profit line is drawn between points (0,25) and (20,0)
• The process is repeated until we get to profit value which corresponds to a corner point that yields optimum value within the
feasible region
• Conceptually this method is similar to corner points method of feasible region but requires more steps/calculations to get to
the solution.
Special cases in LPP
There are four special cases when using graphical method to solve
LPP;
• Infeasibility - lack of feasible solution region can occur if
constraints conflict with one another
• Unboundedness - open ended feasible region can occur without
violating any constraints, leading to very high value of objective
function
• Redundancy - A redundant constraint is one that does not affect
the feasible solution region
• Alternate optimal solutions - multiple optimal solutions are
possible when the objective function isoprofit or isocost line runs
perfectly parallel to one of the constraint of the problem
 Infeasibility Unboundedness

Unboundedness -- open ended feasible region

Infeasibility-- lack of feasible solution region can can occur without violating any constraints,
occur if constraints conflict with one another leading to very high value of objective function
 Redundancy Alternate Optimal
Solutions

Alternate optimal solutions – are possible when

Redundancy – A redundant constraint is one objective function isoprofit or isocost line runs
that does not affect the feasible solution region parallel to one of the constraint of the problem
Larger size LP Problem
• LP graphical method finds optimal solution that lies at a corner point of
the feasible region for problems involving two decision variables
• For LP problem having large number of decision variables, the feasible
region cannot be graphed because it has many dimensions.
• Most real life problems have more than two variables; may be dozens,
hundreds, thousands-- and constraints may go as high as hundreds,
thousands, etc-- requiring numerical algorithms to solve.
• Even in this case, the optimal solution would still lie at a corner point of many
sided, many-dimensional figure (n-dimension polyhedron) that represents the
area of the feasible solutions.
• Simplex Method examines the corner points in a systematic fashion, using
algebraic concepts in an iterative manner.