Nature, Definition & Characteristics of

Operations research
The term Operation Research (OR) related to military operations during the Second World War. Scientists used
various techniques to deal with strategic and tactical problems during the war. After the war military OR group
scientists tried to apply OR techniques to civilian problems relating to business, industry and research development.
During the 1950s educational institutions introduced OR in their curricula. Today service organizations such as
airlines, railways, hospitals, libraries and banks employ OR to improve their efficiency.

1. According to H.M. Wagner

PLAYVOLUME00:00/00:00TECH4adlogoTRUVIDFULLSCREEN
O.R. is a scientific approach to problem solving for executive management.

2. According to Operations Research Society of America

O.R. is an experimental and applied science devoted to observing, understanding and predicting the behavior of
purposeful man-machine systems and operations research workers are actively engaged in applying this knowledge
to practical problems in business, government and society.

3. According to E.L. Arnoff and M.J. Netzorg

O.R. is the systematic, method oriented study of the basic structure, characteristics, functions and relationships of an
organization to provide the executive with a sound, scientific and quantitative basis for decision making.

4. According to C.W. Churchman

Operation Research is the application of scientific methods, techniques and tools to problems involving the
operation of a system so as to provide those in control of the system with optimum solution to the problem.

5. According to C. Kittel

O.R. is an aid for the executive in making his decision by providing him with the needed quantitative information
based on the scientific method of analysis.

It can be used for solving different types of problems, such as:

1. Problems dealing with the waiting line, the arrival of units or persons requiring service.
2. Problems dealing with the allocation of material or activities among limited facilities.
3. Equipment replacement problems.
4. Problems dealing with production processing i.e., production control and material shipment.

But it may be remembered that operation research never replaces a manager as decision maker. The ultimate and full
responsibility for analysing all factors and making decision will be of the manager.
In the more wide sense, operation research does not deal with the everyday problems such as output by the one
worker or machine capacity; instead it is concerned with the overall aspect of business operation such as something
as the relationship between inventory, sales, production and scheduling. It may also deal with the overall flow of
goods and services from plants to consumers.

The team doing operation research may have statisticians, psychologists, labour specialists, mathematicians and
others depending upon the requirement for the problems.

Nature of Operation Research:

In its recent years of organised development, O.R. has solved successfully many cases of research for military, the
government and industry. The basic problem in most of the developing countries in Asia and Africa is to remove
poverty and hunger as quickly as possible. So there is a great scope for economist, statisticians, administrators,
politicians and technicians working in a team to solve this problem by an O.R. approach.

On the other hand, with the explosion of population and consequent shortage of food, every country is facing the
problem of optimum allocation of land for various crops in accordance with climatic conditions and available
facilities. The problem of optimal distribution of water from a resource like a canal for irrigation purposes is faced
by developing country. Hence a good amount of scientific work can be done in this direction.

In the field of Industrial Engineering, there is a claim of problems, starting from the procurement of material to the
despatch of finished products. Management is always interested in optimizing profits.

Hence in order to provide decision on scientific basis, O.R. study team considers various alternative methods and
their effects on existing system. The O.R. approach is equally useful for the economists, administrators, planners,
irrigation or agricultural experts and statisticians etc.

Operation research approach helps in operation management. Operation management can be defined as the
management of systems for providing goods or services, and is concerned with the design and operation of systems
for the manufacture, transport, supply or service. The operating systems convert the inputs to the satisfaction of
customers need.

Thus the operation management is concerned with the optimum utilisation of resources i.e. effective utilisation of
resources with minimum loss, under utilisation or waste. In other words, it is concerned with the satisfactory
customer service and optimum resource utilisation. Inputs for an operating system may be material, machine and
human resource.

O.R. study is complete only when we also consider human factors to the alternatives made available. Operation
Research is done by a team of scientists or experts from different related disciplines.

For example, for solving a problem related to the inventory management, O.R. team must include an engineer who
knows about stores and material management, a cost accountant a mathematician-cum-statistician. For large and
complicated problems, the team must include a mathematician, a statistician, one or two engineers, an economist,
computer programmer, psychologist etc.

1. Finance, Budgeting and Investment:

 Cash flow analysis, long range capital requirement, investment portfolios, dividend policies,
 Claim procedure, and
  Credit policies.

2. Marketing:

 Product selection, competitive actions

 Number of salesmen, frequencies of calling on
 Advertising strategies with respect to cost and time

3. Purchasing:

 Buying policies, varying prices

 Determination of quantities and timing of purchases
 Bidding policies
 Replacement policies
 Exploitation of new material resources

4. Production Management:

 Physical distribution: Location and size of warehouses, distribution centres and retail outlets,
distribution policies.
 Facilities Planning: Number and location of factories, warehouses etc. Loading and
unloading facilities.
 Manufacturing: Production scheduling and sequencing stabilisation of production,
employment, layoffs, and optimum product mix.
 Maintenance policies, crew size.
 Project scheduling and allocation of resources.

5. Personnel Management:

 Mixes of age and skills

 Recruiting policies
 Job assignments

6. Research and Development:

 Areas of concentration for R&D.

 Reliability and alternate decisions.
 Determination of time-cost trade off and control of development projects.

Characteristics of Operations research

1. Decision making

OR is a decision science which helps management to make better decisions.

2. Use of Information Technology (IT)

O.R. often requires a computer to solve the complex mathematical model or to perform a large number of
computations that ae involved. Use of digital computer has become an integral part of the operations research
approach to decision making.

3. Quantitative solution

Operations research provides the managers with a quantitative basis for decision making. OR attempts to provide a
systematic and rational approach for quantitative solution to the various managerial problems.

4. Human factors

In deriving quantitative solution we do not consider human factors, which doubtlessly plays a great role in the
problems. So study of the OR is incomplete without a study of human factors.

5. System orientation

O.R. study the situation or problem as a whole. This means that an activity by any part of an organization has some
effect on the activity of every other part. The optimum result of one part of a system may not be the optimum for
some other part. Therefore, to evaluate a decision, one must identify all possible interactions and determine their
impact on the organization as a whole.

6. Scientific approach

O.R. uses scientific methods to solve the problems. Most of the scientific studies such as chemistry, physics, biolog y
etc. can be carried out in the laboratories, without much interference form the outside world. Bust same is not true in
the systems under study by OR teams. So, OR is an formalized process of reasoning. Under OR the problem is to be
analysed ad defined clearly. Observations are made under different conditions to study the behavior of the system.
On the basis of these observations a hypothesis describing how the various factors involved are believed to interact
and the best solution to the problem is formulated. To test the hypothesis experiment is designed and executed.
Observations are made and measurement s are recorded. Finally results of the experiments are studied and the
hypothesis is accepted or rejected. So, OR is the use of scientific method to solve the problem under study.

7. Inter-disciplinary team approach

O.R. is performed by a team of scientists whose individual members have been drawn from different scientific and
engineering disciplines. For example, one may find a mathematician, statistician, physicist, psychologist, economist
and an engineer working together on an OR problem.

8. Uncovering new problems

Solution of an OR problem may uncover a number of new problems. In order to derive the maximum benefit each
one of them must be solved. OR is not effectively used if It is restricted to one shot problems only. In order to derive
full benefits, continuity of research must be maintained.

Methodology of Operation Research

Quantitative basis for decision making is provided to managers by O.R. it enhances a manager’s ability to make long
range plans and to solve the routine problems of running a enterprise/concern OR is a systematic and logical
approach to provide a rational footing for taking decisions. Operation research, like scientific research is based on
scientific methodology which involves following steps.

1. Formulating the Problem:

PLAYVOLUME00:00/00:43TECH4adlogoTRUVIDFULLSCREE

OR is a research into the operation of a man machine organisation and must consider the economics of the operation
in formulating a problem for O.R. study analysis must be made of the following major components:

(i) The environment.

(ii) The objectives.

(iii) The decision maker.

(iv) The alternative courses of action and constraints out of the above four component, environment is most
comprehensive as it provides a setting for the remaining three. The operation researcher shall attend conferences,
pay visits, send observation and perform research work thus succeeds in getting sufficient date to formulate the
problems.

2. Constructing a Model to Represent the System under Study:

Once the project is approved by the management, the next step is to construct a model for the system under study.
The operation researcher can now construct the model to show the relations and interrelations between a cause and
effect or between an action and a reaction.

Now the aim of operation researcher is to develop a model which enables him to forecast the effect of factors crucial
to the solution of given problem. The proposed model may be tested and modified in order to work under stated
environmental constraints. A model may also be modified if the management is not satisfied by its performance.

3. Deriving Solution from the Model:

A solution may be extracted from a model either by conducting experiments on it i.e., by simulation or by
mathematical analysis. No model will work appropriately if the data is not appropriate. Such information may be
available from the results of experiments or from hunches based on experience.

The data collection can clearly effect the models output significantly. Operation researcher should not assume that
once he has defined his objective and model, he has achieved his aim of solving the problem. The required data
collection consumes time to prepare if date collection errors are to be minimized

4. Testing the Model and the Solution Derived from it:

As has been pointed out earlier a model is never a perfect representation of reality. But if properly formulated and
correctly manipulated, it may be useful in providing/predicting the effect of changes in control variables on overall
system effectiveness.
The usefulness or utility of a model is checked by finding out how well it predicts the effect of these changes. Such
an analyse is usually known as sensitivity analysis. The utility or validity of the solution can be verified by
comparing the results obtained without applying the solution with the results obtained when it is used.

5. Establishing Controls over the Solution:

The next phase for the operation researcher is to explain his findings to the management. It may be pointed out that
he should specify those conditions under which the solution can be utilized.

He should also point out weaknesses if any so that management will know what risks they are taking while
employing the model to generate results. Thus he should also specify the limits with in which the results obtained
from using the model are valid. He should also define those conditions under which the model will not work.

6. Implementation of the Solution:

The last phase of the operation research methodology is implementation of solutions obtained in the previous steps.
In operation research though decision making is scientific but its implementation involves so many behavioural
issues. Therefore the implementing authority has to resolve the behavioural issues. He has to sell the idea of utility
of O.R not only to the workers but also to superiors.

The distance between O.R scientist and management may create huddles thus the gap between one who provides a
solution and the other who wants to utilize it must be eliminated. To achieve this both the management and O.R
scientist should play positive role A properly implemented solution obtained through application of O.R techniques
results in improved working conditions and gains the management support.

Types of Operations Research Models

Operation Research model is an idealised representation of the real life situation and represents one or more aspects
of reality. Examples of operation research models are: a map, activity charts balance sheets, PERT network, break-
even equation, economic ordering quantity equation etc. Objective of the model is to provide a means for analysing
the behaviour of the system for improving its performance.

Classification of Models:

Models can be classified on the basis of following factors:

(I) By degree of Abstraction:

1. Mathematical models.
2. Language models.

(II) By Function:

1. Descriptive models.
2. Predictive models.
3. Normative models for repetitive problems.
(III) By Structure:

1. Physical models.
2. Analogue (graphical) models.
3. Symbolic or mathematical models.

(IV) By Nature of Environment:

1. Deterministic models.
2. Probabilistic models.

(V) By the Time Horizon:

1. Static models.
2. Dynamic models.

Characteristics of a Good Model:

1. Assumptions should be simple and few.

2. Variables should be as less as possible.
3. It should be able to asscimilate the system environmental changes without change in its
framework.
4. It should be easy to construct.

Constructing the Model:

A mathematical model is a set of equations in which the system or problem is described. The equations represent
objective function and constraints. Objective function is a mathematical expressions of objectives (cost or profit of
the operation), while constraints are mathematical expressions of the limitations on the fulfillment of the objectives.

These expressions consist of controllable and uncontrollable variables.

The general form of a mathematical model is:

O = f (xi, yi)

where O = Objective function

xi = Controllable variables

yi = Uncontrollable variables

f = Relationship between O, and xi, yi.

Since model is only an approximation of the real situation, hence it may not include all the variables.
Simplification in Operation Research Models:

While constructing the model, efforts should be made to simplify them, but only up to the extent so that there is no
significant loss of accuracy.

Some of the common simplifications are:

1. Omitting certain variables.

2. Aggregating (or grouping) variables.
3. Changing the nature of variables e.g., considering variables as constant or continuous.
4. Changing relationship between variables i.e., considering them as linear or straight line.
5. Modify constraints.

Techniques of Operation Research:

Important techniques of Operation Research are being described hereunder:

(i) Inventory Control Models:

Operation Research study involves balancing inventory costs against one or more of the following costs:

1. Shortage costs.
2. Ordering costs.
3. Storage costs.
4. Interest costs.

This study helps in taking decisions about:

1. How much to purchase.

2. When to order.
3. Whether to manufacture or to purchase i.e., make and buy decisions.

The most well-known use is in the form of Economic Order Quantity equation for finding economic lot size.

(ii) Waiting Line Models:

These models are used for minimising the waiting time and idle time together with the costs associated therewith.

Waiting line models are of two types:

(a) Queuing theory, which is applicable for determining the number of service facilities and/or the timing of arrivals
for servicing.

(b) Sequencing theory which is applicable for determining the sequence of the servicing.
(iii) Replacement Models:

These models are used for determining the time of replacement or maintenance of item, which may either:

(i) Become obsolete, or

(ii) Become inefficient for use, and

(iii) Become beyond economical to repair or maintain.

(iv) Allocation Models:

These models are used to solve the problems arising when:

(a) There are number of activities which are to be performed and there are number of alternative ways of doing
them,

(b) The resources or facilities are limited, which do not allow each activity to be performed in best possible way.
Thus these models help to combine activities and available resources so as to optimise and get a solution to obtain
an overall effectiveness.

(v) Competitive Strategies:

Such type of strategies are adopted where, efficiency of decision of one agency is dependent on the decision of
another agency. Examples of such strategies are game of cards or chess, fixing of prices in a competitive market
where these strategies are termed as “theory”.

(vi) Linear Programming Technique:

These techniques are used for solving operation problems having many variables subject to certain restrictions. In
such problems, objectives are—profit, costs, quantities manufactured etc. whereas restrictions may be e.g. policies
of government, capacity of the plant, demand of the product, availability of raw materials, water or power and
storage capacity etc.

(vii) Sequencing Models:

These are concerned with the selection of an appropriate sequence of performing a series of jobs to be done on a
service facility or machine so as to optimise some efficiency measure of performance of the system.

(viii) Simulation Models:

Simulation is an experimental method used to study behaviour over time.

(ix) Network Models:

This is an approach to planning, scheduling and controlling complex projects.

Applications of Operation Research:

These techniques are applied to a very wide range of problems.

Here only some of the common applications are being mentioned:

(i) Distribution or Transportation Problems:

In such problems, various centres with their demands are given and various warehouses with their stock positions
are also known, then by using linear programming technique, we can find out most economical distribution of the
products to various centres from various warehouses.

(ii) Product Mix:

These techniques can be applied to determine best mix of the products for a plant with available resources, so as to
get maximum profit or minimum cost of production.

(iii) Production Planning:

These techniques can also be applied to allocate various jobs to different machines so as to get maximum profit or to
maximise production or to minimise total production time.

(iv) Assignment of Personnel:

Similarly, this technique can be applied for assignment of different personnel with different aptitude to different jobs
so as to complete the task within a minimum time.

(v) Agricultural Production:

We can also apply this technique to maximise cultivator’s profit, involving cultivation of number of items with
different returns and cropping time in different type of lands having variable fertility.

(vi) Financial Applications:

Many financial decision making problems can be solved by using linear programming technique.

Some of them are:

(i) To select best portfolio in order to maximise return on investment out of alternative investment opportunities like
bonds, stocks etc. Such problems are generally faced by the managers of mutual funds, banks and insurance
companies.
(ii) In deciding financial mix strategies, involving the selection of means for financing firm, projects, inventories etc.

Operation Research & Managerial Decision

Making
4 Jan 2020
Business managers face an endless list of complex issues every day. They must make decisions about financing,
where to build a plant, how much of a product to manufacture, how many people to hire, and so on. Often, the
factors that make up business issues are complicated, and they may be difficult to comprehend. Operations research
is a way to deal with these thorny problems.

These mathematical techniques used in operations research help managers do their jobs more effectively:

PLAYVOLUME00:00/00:43TECH4adlogoTRUVIDFULLSCREEN

Maintaining Better Control

Managers use techniques of operations research to maintain better control over their subordinates. This is possible
because operations research provides a basis in which to establish standards of performance and ways to measure
productivity. Reporting deviations from standards enables managers to identify problem areas and to take corrective
action.

Better Decision Making

The mathematical models of operations research allow people to analyze a greater number of alternatives and
constraints than would usually be possible, if they were to use only an intuitive approach. Using operations research,
it is easier to analyze multiple alternatives, which results in greater confidence in the optimal choice.

Better Coordination of Departments

Operations research analysis blends together the objectives of different departments. For example, operations
research coordinates the aims of the marketing department with the schedules of the production department.

Increased Business Productivity

The mathematical formulas used in operations research can increase productivity, as they offer a greater number of
optimal choices of inventory mix, plant machine utilization, factory size, manpower planning and implementing new
technologies.

Operational objectives differ from strategic objectives in that they focus more on “how” than “what.” For example, a
business might decide it needs to improve profits by improving its margins, rather than increasing sales. It would
pursue this strategic goal using operational objectives targeted at reducing overhead or manufacturing costs,
changing the way the business operates in those areas.

Improved Staffing
Operational objectives in the human resources department help meet strategic goals such as improved recruiting,
retention and labor cost management. An example of an operational objective to reduce labor costs is to improve
scheduling. This helps reduce labor costs by avoiding overtime, decreasing the use of more expensive contract labor,
reducing turnover and avoiding the need to add a shift. HR would work with the production and sales departments to
learn when large orders might occur and when there will be slow times. This allows production to schedule higher
output during slow periods to ensure there is product on hand during busy periods, avoiding extra labor costs during
those times.

Improved Production
Improving the operations of a production area is a common operational objective. Production areas include the
factory of a manufacturer, kitchen of a restaurant or service area of an auto repair shop. Improving production
includes increasing output, decreasing costs and raising quality. Improving quality as an operational objective helps
improve sales, strengthen a brand and decrease returns and the costs associated with repairs and make-goods.
Improved scheduling, new equipment and worker training are operational objectives that increase productivity and
reduce costs.

Better Debt Management

A finance department does more than simply set budgets and record numbers as they occur. Finance sets strategies
that help maximize profits through optimal billing, collections, debt-service management and investing. An
operational objective of a finance department might include decreasing interest payments. It can do this
operationally by shopping for better lines of credit, reducing the credit terms it offers customers so it can get cash in
quicker to pay down debt, using excess cash to reduce principal balances on loans and reducing receivables
collection times.

Increased Use of Information Technology

If a business relies on its website and social media to sell its products, operational objectives will target ways to
make it easier for customers to buy online and share information about the business at the best possible costs. One
operational objective might include adding or upgrading online sales capabilities, which includes optimizing a
shopping cart and checkout process. This would require IT to evaluate different carts and credit card payment
processing systems. An operational objective to enhance social media strategies might include increasing the data
the company gets from its website and social media pages and performing more analysis of that data.

Operation Research Techniques

Important techniques of Operation Research are being described hereunder:

(i) Inventory Control Models:

PLAYVOLUME00:00/00:43TECH4adlogoTRUVIDFULLSCREEN

Operation Research study involves balancing inventory costs against one or more of the following costs:

1. Shortage costs.
2. Ordering costs.
 3. Storage costs.
4. Interest costs.

This study helps in taking decisions about:

1. How much to purchase.

2. When to order.
3. Whether to manufacture or to purchase i.e., make and buy decisions.

The most well-known use is in the form of Economic Order Quantity equation for finding economic lot size.

(ii) Waiting Line Models:

These models are used for minimising the waiting time and idle time together with the costs associated therewith.

Waiting line models are of two types:

(a) Queuing theory, which is applicable for determining the number of service facilities and/or the timing of arrivals
for servicing.

(b) Sequencing theory which is applicable for determining the sequence of the servicing.

(iii) Replacement Models:

These models are used for determining the time of replacement or maintenance of item, which may either:

(i) Become obsolete, or

(ii) Become inefficient for use, and

(iii) Become beyond economical to repair or maintain.

(iv) Allocation Models:

(a) There are number of activities which are to be performed and there are number of alternative ways of doing
them,

(b) The resources or facilities are limited, which do not allow each activity to be performed in best possible way.
Thus these models help to combine activities and available resources so as to optimise and get a solution to obtain
an overall effectiveness.

(v) Competitive Strategies:

Such type of strategies are adopted where, efficiency of decision of one agency is dependent on the decision of
another agency. Examples of such strategies are game of cards or chess, fixing of prices in a competitive market
where these strategies are termed as “theory”.
(vi) Linear Programming Technique:

These techniques are used for solving operation problems having many variables subject to certain restrictions. In
such problems, objectives are—profit, costs, quantities manufactured etc. whereas restrictions may be e.g. policies
of government, capacity of the plant, demand of the product, availability of raw materials, water or power and
storage capacity etc.

(vii) Sequencing Models:

These are concerned with the selection of an appropriate sequence of performing a series of jobs to be done on a
service facility or machine so as to optimise some efficiency measure of performance of the system.

(viii) Simulation Models:

Simulation is an experimental method used to study behaviour over time.

(ix) Network Models:

This is an approach to planning, scheduling and controlling complex projects.

Applications of Operation Research:

These techniques are applied to a very wide range of problems.

(i) Distribution or Transportation Problems:

In such problems, various centres with their demands are given and various warehouses with their stock positions
are also known, then by using linear programming technique, we can find out most economical distribution of the
products to various centres from various warehouses.

(ii) Product Mix:

These techniques can be applied to determine best mix of the products for a plant with available resources, so as to
get maximum profit or minimum cost of production.

(iii) Production Planning:

These techniques can also be applied to allocate various jobs to different machines so as to get maximum profit or to
maximise production or to minimise total production time.

(iv) Assignment of Personnel:

Similarly, this technique can be applied for assignment of different personnel with different aptitude to different jobs
so as to complete the task within a minimum time.
(v) Agricultural Production:

We can also apply this technique to maximise cultivator’s profit, involving cultivation of number of items with
different returns and cropping time in different type of lands having variable fertility.

(vi) Financial Applications:

Many financial decision making problems can be solved by using linear programming technique.

Some of them are:

(i) To select best portfolio in order to maximise return on investment out of alternative investment opportunities like
bonds, stocks etc. Such problems are generally faced by the managers of mutual funds, banks and insurance
companies.

(ii) In deciding financial mix strategies, involving the selection of means for financing firm, projects, inventories etc.

Limitations of Operations Research:

1. These do not take into account qualitative and emotional factors.

2. These are applicable to only specific categories of decision-making problems.
3. These are required to be interpreted correctly.
4. Due to conventional thinking, changes face lot of resistance from workers and sometimes
even from employer.
5. Models are only idealised representation of reality and not be regarded as absolute.