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Agbus 435 Lec1 w08
Agbus 435 Lec1 w08
Agbus 435 Lec1 w08
Agenda
Definition of Management Science The Science of Management Science Example of Spreadsheet Modeling/Analysis
Management Science
Hillier and Hillier define it as a discipline that attempts to aid managerial decision making by applying a scientific approach to managerial problems that involve quantitative factors.
Traditionally management science was called operations research.
It is a discipline
There is a body of knowledge that is built upon a scientific foundation. There are professional societies that meet about management science topics.
Institute for Operations Research and the Management Sciences (INFORMS) International Federation of Operational Research Societies (IFORS)
Management science can flush out solutions that management may not have been able to fathom.
Usually, the first task in a management science study is to take a vague and imprecisely defined problem and hone it to a well-defined statement.
This includes identifying the objectives and constraints.
The second task is to gather the relevant data for the study.
This task can take a considerable amount of time, especially when the needed data is nonexistent.
A mathematical model is an approximate representation of the problem that captures the key components of the problem and usually leaves out factors that have negligible effects.
Since a mathematical model is an abstraction of the real problem, there is usually no correct model, only better models.
Assumptions
An assumption is a fact or statement taken for granted. Every mathematical model is built upon some group of assumptions. Assumptions are usually needed to keep the problem tractable.
Decision Variables
These variables are ones that can change in the model in order to optimize the objective function while meeting the various constraints. These variables are the ones that management has the ability to change. Mathematical representation of n decision variables: x1, x2, , xn
Objective Function
It is a function that describes an appropriate measure of performance. Examples include profit functions and cost functions.
w.r .t . x1 , x2 ,..., xn
max
f ( x1 , x2 ,..., xn ) f ( x1 , x2 ,..., xn )
or
w.r .t . x1 , x2 ,..., xn
min
Constraints
These are the restrictions that affect the quantities that the decision variables can take. They define the feasible set of solutions. Examples of these include water constraints, labor constraints, and capital constraints.
Constraints Cont.
Types of constraints
Functional constraints
These constraints will take-on a functional form, e.g., linear, quadratic, logarithmic, etc. Functional constraints can be either binding, i.e., met with equality, or non-binding, i.e., met with strict inequality.
Non-negativity constraints
These constraints restrict a decision variable to either being positive or equal to zero.
Example of Constraints
g 1 ( x1 , x 2 ,..., x n ) ! c1 g 2 ( x1 , x 2 ,..., x n ) e c 2 g 3 ( x1 , x 2 ,..., x n ) u c 3 x1 u 0 c 4 u x 2 u c5
Parameters/Technical Coefficients
These coefficients are usually constants that define what the impact would be on either the objective function or one of the constraints of changing a decision variable.
Example: 5x1 + 7x2 where the numbers 5 and 7 are the parameters.
max
f ( x1 , x 2 , x 3 )
subject to : g 1 ( x1 , x 2 ) ! c1 g 2 ( x1 , x 2 , x 3 ) e c 2 g 3 ( x1 , x 2 , x 3 ) e c 3 x1 u 0 , x 2 u 0 , x 3 u 0
max 5 x1 7 x2 15 x3
In this step the management science team chooses the best software that will solve the problem.
If the current available software is not adequate, the team may need to build its own.
It is crucial to have an understanding of the different solution algorithms that exist to be able to solve the problem efficiently. If the mathematical model is well developed, determining an efficient algorithm should be straightforward.
When working with a large problem with many decision variables and constraints, there will be bugs and flaws in the model that will need to be worked out. In small problems it is easy to check if the model is being simulated correctly through graphical analysis, while with larger models you must depend on intuition.
During this step it is useful to start with a smaller simplified model to begin with and then building it up in steps. Testing and improving a model to increase its validity is commonly referred to as model validation.
Once an acceptable model has been developed the next step is to apply it to the problem at hand and develop recommendations. Usually more than one iteration of the model is run varying the assumptions. If this model is meant to be used on a continual basis, documentation needs to be developed so anyone can understand the model and the computer program used to solve it.
Since change in many organizations is difficult, you may be required as the model builder to provide justification of why this solution will be helpful to the organization.
This may include explaining and justifying the assumptions you made in the model.
In some cases you may be required to assist in implementing the system that may be used on a continual basis.
The Max() returns the maximum number from an array of numbers you select. The Min() returns the minimum number from an array of numbers you select.
The Model
Define Q as the number of clocks produced where Q u 0. Profit = 0 if Q = 0, otherwise Profit = revenue*Q-variable cost*Q-fixed cost BEQ=Fixed cost/(revenue - variable cost)
Example 2 Revisited
Now suppose the maker of grandfather clocks has a limit of s on the amount that he can sell. When s =300, what is the profit at Q=0, Q=50, Q=200, Q=300, Q=400 and what is the breakeven quantity? Is there a problem with how Hillier and Hiller calculate breakeven quantity?
The Model
Define Q as the number of clocks produced where Q u 0 and s u Q. Profit = 0 if Q = 0, otherwise Profit = revenue*Q-variable cost*Q-fixed cost BEQ=Fixed cost/(revenue - variable cost)