Management Science

MANN11B
 Management Science
 is the adoption of quantitative methods and analytics in
decision-making process.
 is also termed as quantitative techniques in decision making,
decision analysis, and operational research.
Quantitative Factors
Are data that can be accurately
calculated like interest rates,
inventory levels, labor cost, cost of
electricity and demand
Qualitative Factors
Are more difficult to quantify but
affect the decision process like
weather, political will, technological
advancement.
Rationale in using quantitative techniques

 Variables associated with business decision

 The factors that are relevant to the problem they face
 The various alternative that are available to them
 The logical consequences of the possible alternatives
 The best alternative in terms of profits and realization of
objectives
In applying management science tools, a decision-maker
commonly use the following steps:
Step 1: Formulating the problem

 Under this step, a decision maker must state in a clear and concise
manner the issues to be resolve.
 It is said to be the most difficult and important step

EXAMPLE:

You have invested cash to establish a milk-tea store and probably your objective is to
maximize your profit.

Then the next steps of analysis will follow that objective

Step 2: Defining the decision variables and constraint.

 Identifying these variables help the decision-maker to develop what

tool or model is appropriate.

EXAMPLE:

Key decision: How many units of X, Y, and Z are to be produced

Variables:
X is notation for a product, (e.g., taro milktea),
Y is symbol use for another product (e.g., fruitea), and
Z is symbol use for another product (e.g., coffee milktea)
 
Constraint: Limited working hours
 
Objective: Maximize profit
Step 3: Developing a suitable model
 a mathematical model or a mathematical representation of the problem. A
mathematical model is the form of expression and equations that replicate the
problem.

EXAMPLE:

Maximum Profit = 2X + 3Y + 4Z
 
Assuming that each X have 2pesos contribution margin, 3pesos for each product Y, and 4 pesos
in product Z.
 
 Subject to (The constraint)
Working hours = 0.2X + 0.1Y and 0.3Z
Working hours should not be more than 8 hours.
 
Assuming that it would require 0.20 hours to make product X, 0.1 hours to make product Y, and
0.3 hours to make the product Z.
Step 4: Acquiring the Input Data

 The solution for the problem might be formulated and develop from
the previous step
 It cannot provide the optimal or best solution in absence of accurate
data.
 The decision maker must identify, select, and gather data that
represent the variables properly.
 Misinformation and wrong data can lead to a bad decision.
Step 5: Solving the Model
 Is checking the correctness of the equation used and of the model.
The decision maker should take consideration that processes, or
model is properly done.

Step 6: Validating the Model

 refers to determining how good and realistic the solution is. While
validating, the decision maker identifies the fitness of the model
used, its inaccuracies and should take corrective actions to properly
solve the issue.
Step 7: Implementing the
Results or the deployment of
the solution
 These are the actions and the decisions
made by decision-maker.
Advantages of Mathematical Modelling
 The approach is realistic
 Models can help the decision maker formulate and expound the
problem
 Models can provide meaningful insights and information
 The method can save resources, time, money, effort and more.
 The model can communicate the problems and solutions to
decision-makers and others.
Possible Problems in the Quantitative Analysis Approach

1. Defining the problem

 Problems may not be easily identified.
 There may be conflicting viewpoints
 There may be an impact on other departments.
 Beginning assumptions may lead to a particular
conclusion.
 The solution may be outdated.
Possible Problems in the Quantitative Analysis Approach

2. Developing a model There may be conflicting viewpoints

 There may be an impact on other departments.
 Beginning assumptions may lead to a particular
conclusion.
 The solution may be outdated.
Possible Problems in the Quantitative
Analysis Approach

1. Defining the problem

 Problems may not be easily identified.
 conflicting viewpoints; impact on other departments.
 Beginning assumptions may lead to a particular conclusion.
 The solution may be outdated.
2. Developing a model
 Manager’s perception may not fit a textbook model.
 There is a trade-off between complexity and ease of understanding.
Possible Problems in the Quantitative
Analysis Approach

3. Acquiring accurate input data

 Accounting data may not be collected for quantitative problems.
 The validity of the data may be suspect.
4. Developing an appropriate solution
 The mathematics may be hard to understand.
 Having only one answer may be limiting.
Possible Problems in the Quantitative
Analysis Approach

5. Testing the solution for validity

 lack of commitment and resistance to change
 Management may fear the use of formal analysis processes will reduce their decision-
making power.
 Action-oriented managers may want “quick and dirty” techniques.
6. Management support and user involvement are important.
 There may be a lack of commitment by quantitative analysts.
 Analysts should be involved with the problem and care about the solution.
 Analysts should work with users and take their feelings into account.
Problem Solving
Juan Fox has started her own company, Foxy Jeans, which manufactures imprinted jeans.
Since he just begun this operation, he rents the equipment from a local printing shop when
necessary. The cost of using the equipment is P3,000. The materials used in one jean cost
P200, and he can sell it at 350.
Requirements:
1. Provide for a mathematical model that will show how to maximize the profit.
2. If Juan sells 100 jeans, what will his total revenues, total costs, and profit?
3. How many jeans must Juan sell to have zero profit and zero loss (break-even)?
Problem Solving
Juan Fox has started his own company, Foxy Jeans, which manufactures imprinted
jeans. Since he just begun this operation, he rents the equipment from a local
printing shop when necessary. The cost of using the equipment is P3,000. The
materials used in one jean cost P200, and he can sell it at 350.

1. Provide for a mathematical model that will show how to maximize the profit.

Profit(x) = Revenue(x) – Cost(x)

Profit(x)= 350x – (3000+ 200x)
Problem Solving
2. If Juan sells 100 jeans, what will his total revenues, total costs, and profit?

Cost (x) = 3,000+ 200x

Cost (x) = 3,000+ 200(100) Profit(x) = Revenue(x) – Cost(x)

Cost (x) =3,000+20,000 Profit(x) = 35,000-23,000

Cost (x) = 23,000 Profit(x) =12,000

Revenue(x) = 350x
Revenue(x)=35,000
Problem Solving
3. How many jeans must Juan sell to have zero profit and zero loss (break-even)?

Profit(x) = Revenue(x) – Cost(x)

Revenue(x) = Cost(x)
350x = 3,000 + 200x
150x = 3,000
X= 20 jeans

Profit(x) = Revenue(x) – Cost(x)

Profit(x) = 350(20) – [3,000 + 200(20)]
Profit(x) = 7,000 – 7,000
Profit(x) = 0
Problem Solving
Juan Fox has started her own company, Foxy Jeans, which manufactures imprinted jeans.
Since he just begun this operation, he rents the equipment from a local printing shop when
necessary. The cost of using the equipment is P5,000. The materials used in one jean cost
P250, and he can sell it at 400.
Requirements:
1. Provide for a mathematical model that will show how to maximize the profit.
2. If Juan sells 250 jeans, what will his total revenues, total costs, and profit?
3. How many jeans must Juan sell to have zero profit and zero loss (break-even)?
Problem Solving
Juan Fox has started her own company, Foxy Jeans, which manufactures imprinted
jeans. Since he just begun this operation, he rents the equipment from a local
printing shop when necessary. The cost of using the equipment is P5,000. The
materials used in one jean cost P250, and he can sell it at 400.

1. Provide for a mathematical model that will show how to maximize the profit.

Profit(x) = Revenue(x) – Cost(x)

Profit(x)= 400x – (5,000+ 250x)
Problem Solving
2. If Juan sells 250 jeans, what will his total revenues, total costs, and profit?

Cost (x) = 5,000+ 250x

Cost (x) = 5,000+ 250(250) Profit(x) = Revenue(x) – Cost(x)

Cost (x) = 5,000+ 62,500 Profit(x) = 100,000 - 67,500

Cost (x) = 67,500 Profit(x) = 32,500

Revenue(x) = 400x
Revenue(x)=100,000
Problem Solving
3. How many jeans must Juan sell to have zero profit and zero loss (break-even)?

Profit(x) = Revenue(x) – Cost(x)

Revenue(x) = Cost(x)
            400x = 5,000+ 250x
           150x  = 5,000
     X= 33 1/3

Profit(x) = Revenue(x) – Cost(x)

Profit(x) = 400(33 1/3) – [5,000 + 250(33 1/3)]
       Profit(x) =  13,333.33 – 13,333.33
Profit(x) = 0