IMPORTANCE OF

OPERATIONS
RESEARCH IN
BUSINESS

OPERATIONS
The activities carried out in an organization.
RESEARCH
The process of observation and testing characterized by the
scientific method. Situation, problem statement, model
construction, validation, experimentation, candidate solutions.
OPERATIONS RESEARCH: is a quantitative approach to decision
making based on the scientific method of problem solving.
Operation research is the application of advanced analytical
methods to help make better decisions.

OPERATIONS RESEARCH
The British/Europeans refer to Operational Research", the Americans to
Operations Research" - but both are often shortened to just "OR".
Another term used for this field is Management Science" ("MS"). In U.S. OR
and MS are combined together to form "OR/MS" or "ORMS".
Yet other terms sometimes used are Industrial Engineering" ("IE") and
Decision Science" ("DS").
Operational Research (OR) is the use of advanced analytical techniques to
improve decision making.
Operational research (OR) encompasses a wide range of problem-solving
techniques and methods applied in the pursuit of improved decision-making
and efficiency.
It is sometimes known as Operations Research, Management Science or
Industrial Engineering.
The OR starts when mathematical and quantitative techniques are used to
substantiate the decision being taken

OPERATIONS RESEARCH
Analytical methods used in OR include mathematical logic,
simulation, network analysis, queuing theory , and game
theory . The process can be broadly broken down into three
steps.
Operations Research tools are not from any one discipline.
Operations Research takes tools from different discipline such
as mathematics, statistics, economics, psychology,
engineering etc
Operations Research can also be treated as science in the
sense it describing, understanding and predicting the systems
behaviour, especially man-machine system.

CHARACTERISTICS OF OPERATION
RESEARCH
o Its system (or executive) orientation
o The use of interdisciplinary teams
o Application of scientific method
o Uncovering of few problem
o Improvement in the quality of decisions
o Use of computer
o Quantitative solutions, and
o Human factor.

OPERATIONS RESEARCH
In Industry
Business
Governme
nt
Defense
fields

People
Machine
Material
Money
manageme
nt first in
is a word that comes to mind

Optimization
operations research.

HISTORY OF OPERATIONS RESEARCH

Operation Research is a relatively new discipline.
Whereas 70 years ago it would have been possible to study
mathematics, physics or engineering (for example) at
university it would not have been possible to study Operation
Research, indeed the term O.R. did not exist then
It was really only in the late 1930's that operational research
began in a systematic fashion, and it started in the UK. As
such it would be interesting to give a short history of O.R

PROBLEM SOLVING AND DECISION MAKING

7 Steps of Problem Solving
(First 5 steps are the process of decision making)
Identify and define the problem.
Determine the set of alternative solutions.
Determine the criteria for evaluating the alternatives.
Evaluate the alternatives.
Choose an alternative.
Implement the chosen alternative.
Evaluate the results.

MANAGEMENT SCIENCE
APPROACH

Observation:
Identification of a problem that exists in the system or
organization.

IDENTIFICATION OF THE PROBLEM

Right solution can not be obtained from the wrong problem

The first and most important stage of the work is defining the problem well.
This phase helps examine the problem at hand quantitatively.

THE ESTABLISHMENT OF
THE MODEL
Development of the functional mathematical relationships that
describe Decision variables
Objective function
Constraints of the problem and
Non negativity condition

ADVANTAGES OF MODELS
Generally, experimenting with models (compared to
experimenting with the real situation):
requires less time
is less expensive
involves less risk

THE OPERATIONS RESEARCH

APPROACH

STAGES OF DEVELOPMENT OF OPERATIONS

RESEARCH
The stages of development of O.R. are also known as phases and process of O.R,
which has six important steps. These six steps are arranged in the following order:
Observe the problem environment
Analyze and define the problem Step
Develop a model Step
Select appropriate data input Step
Provide a solution and test its reasonableness Step
Implement the solution

SCOPE OF OPERATION RESEARCH

In Industry
In Defiance
Planning
Agriculture
Public Utilities

SCOPE OF OPERATION RESEARCH IN MANAGEMENT

ACCOUNTING:
Assigning audit teams effectively
Credit policy analysis
Cash flow planning
Developing standard costs
Establishing costs for byproducts
Planning of delinquent account strategy
CONSTRUCTION:
Project scheduling, monitoring and control
Determination of proper work force
Deployment of work force
Allocation of resources to projects
FACILITIES PLANNING:
Factory location and size decision
Estimation of number of facilities required Hospital planning

 International logistic system design

Transportation loading and unloading
Warehouse location decision
FINANCE:
Building cash management models
Allocating capital among various alternatives
Building financial planning models
Investment analysis Portfolio analysis
Dividend policy making
Manufacturing:
Inventory control
Marketing balance projection

 Production scheduling
Production smoothing
MARKETING:
Advertising budget allocation
Product introduction timing
Selection of Product mix
Deciding most effective packaging alternative
ORGANIZATIONAL BEHAVIOR / HUMAN RESOURCES:
Personnel planning
Recruitment of employees
Skill balancing
Training program scheduling
Designing organizational structure more effectively

PURCHASING:
Optimal buying
Optimal reordering
Materials transfer
RESEARCH AND DEVELOPMENT:
R & D Projects control
R & D Budget allocation
Planning of Product introduction

SCOPE OF OPERATION RESEARCH IN

FINANCIAL MANAGEMENT

Cash Management
Inventory Control
Simulation Technique
Capital Budgeting


LINEAR PROGRAMMING:
This TECHNIQUES
is a constrained optimization
APPLICATION
OF OR
technique, which optimize some criterion within some
constraints. In Linear programming the objective function
(profit, loss or return on investment) and constraints are linear.
There are different methods available to solve linear
programming.
QUEUING THEORY: This is used in situations where the queue
is formed (for example customers waiting for service, aircrafts
waiting for landing, jobs waiting for processing in the
computer system, etc). The objective here is minimizing the
cost of waiting without increasing the cost of servicing.
INVENTORY MODELS: Inventory model make a decisions that
minimize total inventory cost. This model successfully reduces
the total cost of purchasing, carrying, and out of stock
inventory

 DYNAMIC PROGRAMMING: Dynamic programming is a method

of analyzing multistage decision processes. In this each
elementary decision depends on those preceding decisions
and as well as external factors.
SIMULATION: Simulation is a procedure that studies a problem
by creating a model of the process involved in the problem
and then through a series of organized trials and error
solutions attempt to determine the best solution. Some times
this is a difficult/time consuming procedure. Simulation is used
when actual experimentation is not feasible or solution of
model is not possible.

LIMITATIONS OF OPERATIONS RESEARCH

Distance between O.R. specialist and Manager

Magnitude of Calculations
Money and Time Costs
Non-quantifiable Factors
Implementation

IMPLEMENTATION

A solution to a problem usually implies changes for some

individuals in the organization
Implementation of the solution obtained from a validated
model is a reliable solution to the real-life problems