DECISION SCIENCE

LECTURE #1
MODELS AND MODELING

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WHAT IS DECISION SCIENCE?
 An approach to decision-making based on
the scientific method
 Makes extensive use of quantitative analysis
 Other names – Management Science &
Operations Research
 Fredrick W. Taylor – scientific management
revolution of the early 1900’s provided the
foundation for the use of quantitative methods
in management

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RECALL: WHAT IS DECISION
SCIENCE
 Modern management science research
originated during WWII when teams were
formed to deal with strategic & tactical
problems of the military
o Teams consisted of mathematicians,
engineers & behavioural scientists
 Many continued their research after the war
 Many methodological developments
 Use of computers

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DECISION SCIENCE
TECHNIQUES
 Linear Programming *
 Network Models (including transportation & transshipment models ) *
 Project Scheduling: PERT/CPM
 Inventory Models
 Waiting-Line or Queuing Models
 Simulation *
 Decision Analysis
 Goal Programming
 Forecasting

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THE MODELING PROCESS
For the Manager the general approach
is:
 
Implementation Pay-off
Management  Decision  
Situation

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 DECISION MAKING & PROBLEM SOLVING

DEFINE THE PROBLEM

IDENTIFY THE ALTERNATIVES

DECISION
MAKING
DETERMINE THE CRITERIA

Problem
Solving EVALUATE THE ALTERNATIVES

CHOOSE AN ALTERNATIVE
<= DECISION

IMPLEMENT THE DECISION

EVALUATE THE RESULTS

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 DECISION MAKING & PROBLEM SOLVING

*THE ROLE OF QUALITATIVE & QUANTITATIVE ANALYSIS

STRUCTURING THE PROBLEM ANALYZING THE PROBLEM

Qualitative
Analysis

Make the
Define the Identify the Determine Summary &
Decision
problem the Criteria Evaluation
alternatives

Quantitative
Analysis

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 DECISION MAKING & PROBLEM SOLVING
=> Models provide a framework for logical and consistent analysis
 =>7 reasons for using models

MODELS …
• force
 
you to be explicit about your objectives
• force you to identify and record the types of decisions that
influence those objectives
• force you to identify and record interactions and trade-offs
among those decisions
• force you to think carefully about variables to include and their
definitions in terms that are quantifiable
• force you to consider what data are pertinent for quantification
of those variables and determining their interactions 8
 DECISION MAKING & PROBLEM SOLVING

MODELS …

6. force you to recognize constraints (limitations) on the values

that those quantified variables may assume

7. allow communication of your ideas and understanding to

facilitate teamwork

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MODEL CLASSIFICATION
 Def’n: Models are representations of
real objects or situations and can be
represented in various forms:

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MODEL CLASSIFICATION
 Scale/Physical Models e.g. a model
airplane
 Analog Models e.g. a thermometer
 Mathematical/Symbolic/Quantitative
Models

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 MODEL CLASSIFICATION
E.g. Profit from the sale of bread can be determined by
•

multiplying the profit /unit by the number of units sold.

i.e.  P = 10 x
  P  profit
        x  number of units sold
      10  $10 profit / unit sold

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MODEL CLASSIFICATION
 DECISION MODELS
 Mathematical models in which some of the
variables represent decisions that
must/could be made
 Decisions are usually made to achieve a
particular objective
 E.g. Profit maximization, minimize cost
 NB. Mathematical models can be
 Deterministic or Probabilistic

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MODEL CLASSIFICATION
 Deterministic Models
 All the relevant data are assumed to be known
with certainty

 Probabilistic Models
 Some inputs are not known
 Value of important variables have to be
incorporated into the model before a decision can
be made.

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MODEL BUILDING
 THREE (3) STEPS

 Environmental Scan
 Studying the environment to frame the managerial
situation
 Formulation
 Formulate a selective representation
 Construction
 Construct a symbolic (quantitative/Mathematical)
model

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 MODEL BUILDING
 
 
TRANSFORMING INPUTS INTO OUTPUT
 
 
 
  
 
Uncontrollable Inputs
 
 
 
 
 

 
Controllable Inputs Output
(Decision MODEL
Variables (Projected Results)

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MODEL BUILDING
 Modeling vs the Real World
 Concepts – important components of Models
 Decision Variables
 
 Parameters
 Constraints
 Objectives
 Performance Measures
 Iterative Model Building – refining and improving
the model.

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BUILDING SPREADSHEET
MODELS – THE ART OF
MODELING
■ Attention should be paid to the layout of
the Model on the Excel Worksheet to
ensure that it is:
■ Logical
■ Presents major alternatives for comparisons
■ Suitable for the manipulation necessary to do
analyses;
■ Easily understood by others, and
■ Pleasing to the eyes.
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 BUILDING SPREADSHEET MODELS
– THE ART OF MODELING
■ Basic Rules for creating a good speadsheet
■ Clearly define and label all variables
■ Clearly identify model inputs, decisions and parameters
■ Clearly identify the model output, performance measures
and consequence variables
■ Separate variables w.r.t. physical quantities from those
reflecting accounting or financial results
■ Use Excel formatting options to improve the appearance
of your worksheet.
■ ====================
END OF LECTURE #1
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The END

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