Baumol’s model is based on the basic assumption that the size

and timing of cash flows are known with certainty. This usually
does not happen in practice. The cash flows of a firm are neither
uniform nor certain. The Miller and Orr model overcomes the
shortcomings of Baumol model.

Miller and Orr expanded on the Baumol model and developed

Stochastic Model for firms with uncertain cash inflows and cash
outflows.
The Miller and Orr model provides two control limits the
upper control limit and the lower control limit along with a
return point as shown in the figure below
When the cash balance touches the upper
control limit (h), markable securities are
purchased to the extent of hz to return back to
the normal cash balance of z. In the same
manner when the cash balance touches lower
control limit (o), the firm will sell the
marketable securities to the extent of oz to
again return to the normal cash balance.