~~MN3032 ZA d0

This paper is not to be removed from the Examination Halls

UNIVERSITY OF LONDON

MN3032 ZA

BSc degrees and Diplomas for Graduates in Economics, Management, Finance

and the Social Sciences, the Diplomas in Economics and Social Sciences and
Access Route

Management Science Methods

Monday, 11 May 2015 : 10:00 to 13:00

Candidates should answer FOUR of the following EIGHT questions. All questions carry
equal marks.
Graph paper is provided at the end of this question paper. If used, it must be detached
and fastened securely inside the answer book.
A calculator may be used when answering questions on this paper and it must comply
in all respects with the specification given with your Admission Notice. The make and
type of machine must be clearly stated on the front cover of the answer book.

PLEASE TURN OVER

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1.

Discuss what is meant by an OR approach to decision problems and outline its benefits.
Illustrate your answer by reference to any problem with which you are familiar.
(25 marks)

2.

(a)

Clearly explain what the JOURNEY (JOintly Understanding, Reflecting, and Negotiating
strategY) Making methodology involves.
(13 marks)

(b)

Apply the methodology to two problems with which you are familiar.

3.

(12 marks)

Briefly explain each of the following topics from the viewpoint of Operational
Research/Management Science:
(a)

MIP

(9 marks)

(b)

Value judgements in DEA

(9 marks)

(c)

MCDA

(7 marks)

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4.

An organisation selling small household items to the general public is reviewing the
performance of its branches. The data they have collected for these branches for the last full
financial year is shown below.
Branch

Number of

Revenue (m)

Number of employees

20.8
18.2
14.2
18.5
12.4
15

14
20
11
18
22
23

customers (000)
A
B
C
D
E
F

26.6
48.6
53.9
45.7
31.4
15.6

For example branch D (in the last full financial year) had 45700 customers, generated
revenue of 18.5 million and employed 18 people.

(a)

Apply data envelopment analysis to compare the relative performance of these

branches. Copy the table shown below into your answer book and fill in the efficiencies
and reference sets (where appropriate).
(12 marks)
Branch
A
B
C
D
E
F

(b)

Efficiency

Reference set

A colleague has argued that either branch A or branch C should be closed, since this
would increase the efficiencies of the other branches. They are unsure as to which of
these two branches it might be better to close and have asked you for advice as to
which one to close. Is it true that closing A or C will increase efficiency and if so by how
much? What would you advise and why?
(13 marks)

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5.

An OR consultant is using Markov theory to analyse customers switching between various

bus companies. These bus companies have adopted a very dynamic pricing structure (much
as airlines do) so that the price for exactly the same bus journey from bus stop A to bus stop
B can vary widely from week to week. Because of this customers often switch the bus
company that they use, such switching occurs at the start of every week when customers
purchase a new weekly bus pass.

An analysis of data has estimated that the transition matrix shown below applies for the
probability of switching between two companies at the start of every week.

To
company

X
Y
Z

From company
X
Y
Z
0.04
0.25
0.51
0.41
0.26
0.40
0.55
0.49
0.09

In this transition matrix, for example, there is a probability of 0.41 of a customer switching to
bus company Y from bus company X at the start of a week. The current market shares for
the three bus companies are 25%, 26% and 49% for companies X,Y,Z respectively.

(a)

What will be the market share for company X after two weeks?

(b)

What is the long-run prediction for the market shares for each of the three companies?
(16 marks)

(c)

Outline the underlying assumptions of Markov theory in making long-term predictions

and give your opinion as to whether in the situation described in this question using
Markov theory is a good idea or not. Give your reasons.
(6 marks)

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(3 marks)

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6.

The payoff table below shows for a company the final year end profits expected (m) from
four possible choices (A, B, C and D) with respect to three possible scenarios (S1 to S3
respectively) for the forthcoming year.

A
B
C
D

S1
-1
-4
1
3

S2
1
-9
5
-6

S3
3
1
-7
-1

Here, for example, if the company makes choice C (and it can only choose one of A, B, C or
D) and the scenario for the forthcoming year turns out to be S3 then it makes a loss of 7m.
Scenario S1 is believed to have probability 0.15 and scenario S2 is believed to have
probability 0.30. The scenarios considered have been produced by an external consultant
who has never worked for the company before. The financial values given have been
produced by company personnel of great experience working from the scenarios produced
by the external consultant.

(a)

Copy the following table into your answer book and fill in the choice that should be
made under each criterion and the associated value.
Criteria
Optimistic
Conservative
Regret
Equally likely
Expected monetary value

Choice

Associated value

If these criteria suggest different choices how can the company choose amongst them
to make a single choice?
(13 marks)

(b)

One colleague has argued that sensitivity analysis needs to be conducted with respect
to the financial values used, since these are critical in determining the values you have
used in the table given above. Another colleague has argued that it is of greater
importance to vary the scenarios, since three scenarios are insufficient to capture the
future possibilities the company faces next year. How might you respond to these
arguments and which colleague would you choose to support?
(4 marks)

(c)

If, taking just the three scenarios considered above, all financial values could vary by
10% discuss how, with the aid of Excel, you could investigate what choice the
company should make.
(8 marks)

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7.

8.

A company requires a part X at the rate of 950 units per week and to meet this demand it
currently orders every four weeks from its external supplier. Each unit of X costs 44.50
when purchased from the current supplier and the ordering cost associated with placing an
order is estimated to be 100. The current interest rate is 2% per year and the warehousing
costs associated with storage and maintenance are 5 per unit per year. The company
operates 52 weeks a year, with a five day working week.
(a)

How much of X should the company order when it places an order and what would be
the associated total cost per year?
(4 marks)

(b)

Can you suggest a better order quantity for X? If so what is it and what is the associated
total cost per year?
(6 marks)

(c)

The current supplier has stated that as the company is a long-standing and loyal
customer they are prepared to give the company a discount of 1% on each unit ordered
if they order more than 2000 units at a time. Moreover the current order policy of
ordering every four weeks fits in well with the suppliers production planning system and
hence they are prepared to increase this discount to 3% on each unit ordered, but only
if the company still order every four weeks (and order more than 2000 units at a time).
What would you advise the company to do?
(9 marks)

(d)

A colleague has examined the calculations you have carried out in (a), (b) and (c)
above and commented that the cost savings you estimate from any changes in order
policy seem small and it would be better to move to a JIT policy, with daily deliveries
from the supplier. How would you respond to this?
(6 marks)

(a)

Solve the following linear program graphically using an iso-cost/iso-profit line.

Minimise
Subject to

3x + 7y
2x + y 13
2x 5y 7
x,y 0

Constraint 1
Constraint 2
(11

marks)
(b)

What is the opportunity cost for x and the reduced cost for y?

(2 marks)

(c)

What is the shadow price for constraint 1 and the dual value for constraint 2?
(6
marks)

(d)

Discuss three areas where large linear programs arise.

(6 marks)

END OF PAPER

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