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INTRODUCTION Managerial activities have become complex and it is necessary to make right decisions to avoid heavy losses. Whether it is a manufacturing unit, or a service organization, the resources have to be utilized to its maximum in an efficient manner. The future is clouded with uncertainty and fast changing, and decision-making a crucial activity cannot be made on a trial-and-error basis or by using a thumb rule approach. In such situations, there is a greater need for applying scientific methods to decision-making to increase the probability of coming up with good decisions. Quantitative Technique is a scientific approach to managerial decision-making. The successful use of Quantitative Technique for management would help the organization in solving complex problems on time, with greater accuracy and in the most economical way. Today, several scientific management techniques are available to solve managerial problems and use of these techniques helps managers become explicit about their objectives and provides additional information to select an optimal decision. This study material is presented with variety of these techniques with real life problem areas. ABOUT QUANTITATIVE TECHNIQUE Quantitative Techniques adopt a scientific approach to decisionmaking. In this approach, past data is used in determining decisions that would prove most valuable in the future. The use of past data in a systematic manner and constructing it into a suitable model for future use comprises a major part of scientific management. For example, consider a person investing in fixed deposit in a bank, or in shares of a company, or mutual funds, or in Life Insurance Corporation. The expected return on investments will vary depending upon the interest and time period. We can use the scientific management analysis to find out how much the investments made will be worth in the future. There are many scientific method software packages that have been developed to determine and analyze the problems. Quantitative Technique is the scientific way to managerial decisionmaking, while emotion and guess work are not part of the scientific management approach. This approach starts with data. Like raw material for a factory, this data is manipulated or processed into information that is valuable to people making decision. This processing and manipulating of raw data into meaningful information is the heart of scientific management analysis.

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METHODOLOGY OF QUANTITATIVE TECHNIQUES The methodology adopted in solving problems is as follows:

Figure: Methods of Quantitative techniques

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SCOPE OF QUANTITATIVE TECHNIQUE

The scope and areas of application of scientific management are very wide in engineering and management studies. Today, there are a number at quantitative software packages available to solve the problems using computers. This helps the analysts and researchers to take accurate and timely decisions. This book is brought out with computer based problem solving. A few specific areas are mentioned below.

Finance and Accounting: Cash flow analysis, Capital budgeting, Dividend and Portfolio management, Financial planning. Marketing Management: Selection of product mix, Sales resources allocation and Assignments. Production Management: Facilities planning, Manufacturing, Aggregate planning, Inventory control, Quality control, Work scheduling, Job sequencing, Maintenance and Project planning and scheduling. Personnel Management: Manpower planning, allocation, Staffing, Scheduling of training programmes. Resource

General Management: Decision Support System and Management of Information Systems, MIS, Organizational design and control, Software Process Management and Knowledge Management.

LINEAR PROGRAMMING
INTRODUCTION
Linear programming is a widely used mathematical modeling technique to determine the optimum allocation of scarce resources among competing demands. Resources typically include raw materials, manpower, machinery, time, money and space. The technique is very powerful and found especially useful because of its application to many different types of real business problems in areas like finance, production, sales and distribution, personnel, marketing and many more areas of management. As its name

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implies, the linear programming model consists of linear objectives and linear constraints, which means that the variables in a model have a proportionate relationship. For example, an increase in manpower resource will result in an increase in work output.

DEFINITION
Linear programming is a mathematical technique for determining the optimum allocation of resources and obtaining a particular objective when they are alternative uses of resources : money , manpower, machine and other facilities. The objecttive in resource allocation may be cost minimization or inversely profit maximization. The technique of linear programming is applicable to problems in which the total effectiveness can be expressed as a linear function of individual allocations and the limitations on resources give rise to linear equalities of the individual allocations.

APPLICATIONS AREAS OF LINEAR PROGRAMMING The use of LP is made in regard to the problems of allocation, assignment, transportation etc. But the most important of these is that of allocation of scare resources on which we shall concentrate. Some allocation problems are as follows: Devising of a production schedule that could satisfy future demands for a firm product and at the same minimize production costs. Choice of investment from a variety of shares and debentures so as to maximize return on investment. Allocation of a limited publicity budget on various heads in order to maximize its electiveness. Selection of the product-mix to make the best use of available recourses like machines man-hours, etc, with a view to maximize profits. Selecting the advertising mix that will maximize the benefit subject to the total advertising budget, Linear programming can be effectively applied.

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Determination of the distribution system that will minimize transportation costs from several warehouses to various markets. Designing, routing and assignment problems. Manufacturing problems. To find number of items of each type that should be manufactured so as to maximize the profit subject to production restrictions imposed by limitations on the use of machinery and labor. Transportation Problems . To find the least expensive way of transporting shipments from the warehouse to customers. Diet Problems . To determine the minimum requirement of nutrients subject to availability of foods and their prices. Blending Problems . To determine the optimum amount of several constituents to be used in producing a set of products while determining the optimum quantity of each product to produce. Assembling Problems. To have the best combination of basic components to produce goods according to certain specifications. Production Problems. To decide the production schedule to satisfy demand and minimize cost in face of fluctuating rates and storage expenses. Job assigning Problems. To assign job o workers for maximum effectiveness and optimum results subject to restrictions of wages and other costs. Trim-Loss Problems. To determine the best way to obtain a variety of smaller rolls of paper from a standard width of roll that is kept in stock and at the same time, minimize wastage. ESSENTIALS OF LINEAR PROGRAMMING MODEL For a given problem situation, there are certain essential conditions that need to be solved by using linear programming. 1. Limited resources : limited number of labour, material equipment and finance 2. Objective : refers to the aim to optimize (maximize the profits or minimize the costs). 3. Linearity : increase in labour input will have a proportionate increase in output. 4. Homogeneity : the products, workers' efficiency, and machines are assumed to be identical.

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5. Divisibility : it is assumed that resources and products can be divided into fractions. (in case the fractions are not possible, like production of one-third of a computer, a modification of linear programming called integer programming can be used). PROPERTIES OF LINEAR PROGRAMMING MODEL The following properties form the linear programming model: 1. Relationship among decision variables must be linear in nature. 2. A model must have an objective function. 3. Resource constraints are essential. 4. A model must have a non-negativity constraint. GENERAL LINEAR PROGRAMMING MODEL A general representation of LP model is given as follows:
Maximize or Minimize, Z = p1 x1 + p2 x2 pn xn

Subject to constraints,
w11 x1 + w12 x2 + w1n xn or = or w1 (i) w21 x1 + w22 x2 w2n xn or = or w2 (ii)

.... ....
wm1 x1 + wm2 x2 +wmn xn or = wm (iii)

Non-negativity constraint,
xi o (where i = 1,2,3 ..n)

GRAPHICAL METHOD Linear programming problems with two variables can be represented and solved graphically with ease. Though in real-life, the two variable problems are practiced very little, the interpretation of this method will help to understand the simplex method. The graphic method of solving linear programming problems consists of the following steps:

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Step:1 Graph the constraints Step:2 Identify the feasible region Step:3 Locate the solution points solution method of solving the problem through graphical method is discussed with an example given below. Example : A company manufactures two types of boxes, corrugated and ordinary cartons. The boxes undergo two major processes: cutting and pinning operations. The profits per unit are Rs. 6 and Rs. 4 respectively. Each corrugated box requires 2 minutes for cutting and 3 minutes for pinning operation, whereas each carton box requires 2 minutes for cutting and 1 minute for pinning. The available operating time is 120 minutes and 60 minutes for cutting and pinning machines. Determine the optimum quantities of the two boxes to maximize the profits. The objective function is, Zmax = 6x1 + 4x2 Constraints: The available machine-hours for each machine and the time consumed by each product are given. Therefore, the constraints are, 2x1 + 3x2 120 ..........................(i) 2x1+ x2 60 ..........................(ii) where x1, x2 0 Graphical Solution: As a first step, the inequality constraints are removed by replacing equal to sign to give the following equations: 2x1 + 3x2 = 120 .......................(1) 2x1 + x2 = 60 .......................(2) Find the co-ordinates of the lines by substituting x1 = 0 and x2 = 0 in each equation. In equation (1), put x1 = 0 to get x2 and vice versa 2x1 + 3x2 = 120 2(0) + 3x2 = 120, x2 = 40 Similarly, put x2 = 0,

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2x1 + 3x2 = 120 2x1 + 3(0) = 120, x1 = 60 The line 2x1 + 3x2 = 120 passes through co-ordinates (0, 40) (60, 0). The line 2x1 + x2 = 60 passes through co-ordinates (0,60)(30,0). The lines are drawn on a graph with horizontal and vertical axis representing boxes x1 and x2 respectively.

Figure: Graphical presentation of a problem

SIMPLEX METHOD

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AIMS AND OBJECTIVES In the previous lesson we have learnt linear programming with the help of graphical now we will learn the linear programming with the help of Simplex Method using minimization and maximization problems and the degeneracy in LP problems and also the Duality and Sensitivity Analysis. INTRODUCTION In practice, most problems contain more than two variables and are consequently too large to be tackled by conventional means. Therefore, an algebraic technique is used to solve large problems using Simplex Method. This method is carried out through iterative process systematically step by step, and finally the maximum or minimum values of the objective function are attained. The basic concepts of simplex method are explained using the Example 1.8 of the packaging product mix problem illustrated in the previous chapter. The simplex method solves the linear programming problem in iterations to improve the value of the objective function. The simplex approach not only yields the optimal solution but also other valuable information to perform economic and 'what if' analysis. DEFINITION The simplex method is a method which goes from one Basic Feasible Solution (BFS) or extreme point of the feasible region of an Linear programming problem expressed in tableau form to another BFS, in such a way as to continually increase or decrease the value of the objective function until optimality is reached. The simplex method moves from one extreme point to one of its neighboring extreme point. steps of the simplex method for minimization problem: To choose the variable with a negative Cj-Zj . To determine the row to be replaced by selecting the one with the smallest quantity to pivot column substitute rate ratio. To calculate new values for the pivot row. To compute the new values for errw. Finally, to compute the Zj, Cj-Zj values for this tableau. If there are any Cj-Zj numbers less then 0, return to step 1. ADDITIONAL VARIABLES USED IN SOLVING LPP

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Three types of additional variables are used in simplex method such as, (a) Slack variables (S1, S2, S3..Sn): Slack variables refer to the amount of unused resources like raw materials, labour and money. (b) Surplus variables (-S1, -S2, -S3..-Sn): Surplus variable is the amount of resources by which the left hand side of the equation exceeds the minimum limit. (c) Artificial Variables (a1, a2, a3.. an): Artificial variables are temporary slack variables which are used for purposes of calculation, and are removed later. Types of Additional variables

DUALITY AND SENSITIVITY

INTRODUCTION For every Linear Programming Problem, whether maximization or minimization, there is another linear programming problem associated with it, which is the mirror image of the orginal problem and is on the same data. The orginal problem is called the primal problem and the other is called the dual problem. If the primal problem deals with maximization then the dual problem will be of minimization. Conversely, if the primal problem is of minimization then its dual will be dealing with maximization. One problem can be derived from the other and vice verse because both are formulated from the same set of data, although arranged differently in their mathematical presentation. Either one of the primal, then the other would automatically become its dual or the dual of the dual problem is the primal. The selection of the primal problem depends on the case with which a problem can be solved, i.e, the one that is easier to solve is

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designated as primal. However, under certain situations where all the assumptions and requirements of linear programming problems are met, the dual instead of the primal may offer the advantage of fewer iteration, thus shortening the computation time is reaching the optimal solution. The dual has an additional advantage of checking on the correctness of the primal solution because both the primal and dual approach must arrive at the same optimal solution. ADVANTAGE OF DUALITY The dual solution has some powerful advantages over the primal solution in certain situation. If a primal problem has a large number of constraints and a small number of variables then the primal simplex solution becomes more complex. For example if there are three products all of which have to be processed sequentially on eight constraints requiring at least eight slack variables and this would result in the initial simplex tableau having at the minimum eight rows to handle. However, if we convert it into a dual problem where the columns become rows and rows become column, we will have the initial simplex tableau with only three rows to deal with, which obviously is easier. Another advantage is that, since the optimal solution to the objective function is the same for both primal and dual, a dual solution can be used to check the accuracy of the primal solution. Moreover, the management can draw economic interpretation from duality which are very helpful to making decisions. Construction of a dual problem: The rules for constructing the dual from the primal ( or primal from the dual ) are: a. If the objectives of one problem is to be maximized the objective of the other is to be minimized.
b. The maximization problem should have all constrains and

the minimization problem has all constraints. c. All primal and dual variables must be non-negative( 0 )
d. The element of right hand side of the constraints in one

problem are the respective coefficients of the objective function in the other problem.

e. The matrix of constraints coefficients for one problem is the transpose of the matrix of constraint coefficients for the other problem.

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Shadow price: The shadow price of a resource is the unit price that is equal to the increase in profit to be realized by one additional unit of the resource. Thus the dual variable is also referred to as the shadow price or computed price of a resource. This is the highest price the manufacturer would be willing to pay for the resource. Economic interpretation of the dual: The economic interpretation of the dual problem can be explained by an example. A furniture manufacturing company plans to make chairs and tables form mahogany wood that is available in limited quantities. A chair requires five feet of mahogany board and a table 15 feet . it takes 10man-hours to make a chair and 20 man-hours to produce a table. There are 450 feet of wood and 500 hours of labour available. Per unit profit is $40 and $90, respectively, for chairs and tables. The objective of the firm, of course, is to maximize profit with the giver resources. There are two issues that can be raised with the problem on hand. The first obviously is the optimal production plan with the given set of resources, which can be obtained through the simplex procedure. The second question has to do with few much should be paid for additional unit of resources, which is our case are mahogany wood and labour man-hours. The answer to the second question lies in examine the co-efficient of dual variable. In order to see this point, let us formulate the primal of the problem set forth above. Define x1= number of chairs produced X2= number of tables produced. Objective function is to maximize profit, That means Maximize z(x)= 40x1 +90x2 Subject to 5x1 + 15x2450 10x1 + 20x2500 X1,x2 0 The dual of this primal problem is : Minimize z(y)=450y1 + 500y2 Subject to 5y1 + 10y240 15y1 + 20y290 Y1,y20.

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SENSITIVITY ANALYSIS

Sensitivity analysis (SA) is the study of how the uncertainty in the output of a model (numerical or otherwise) can be apportioned to different sources of uncertainty in the model input. A related practice is 'uncertainty analysis' which focuses rather on quantifying uncertainty in model output. Ideally, uncertainty and sensitivity analysis should be run in tandem. A technique used to determine how different values of an independent variable will impact a particular dependent variable under a given set of assumptions. This technique is used within specific boundaries that will depend on one or more input variables, such as the effect that changes in interest rates will have on a bond's price. Sensitivity analysis is a way to predict the outcome of a decision if a situation turns out to be different compared to the key prediction(s). Sensitivity analysis is very useful when attempting to determine the impact the actual outcome of a particular variable will have if it differs from what was previously assumed. By creating a given set of scenarios, the analyst can determine how changes in one variable(s) will impact the target variable. For example, an analyst might create a financial model that will value a company's equity (the dependent variable) given the amount of earnings per share (an independent variable) the company reports at the end of the year and the company's price-toearnings multiple (another independent variable) at that time. In more general terms uncertainty and sensitivity analysis investigate the robustness of a study when the study includes some form of statistical modelling. Sensitivity analysis can be useful to computer modelers for a range of purposes. including: Support decision making or the development of recommendations for decision makers (e.g. testing the robustness of a result); Enhancing communication from modellers to decision makers (e.g. by making recommendations more credible, understandable, compelling or persuasive);

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Increased understanding or quantification of the system (e.g. understanding relationships between input and output variables); and Model development (e.g. searching for errors in the model). Let us give an example: in any budgeting process there are always variables that are uncertain. Future tax rates, interest rates, inflation rates, headcount, operating expenses and other variables may not be known with great precision. Sensitivity analysis answers the question, "if these variables deviate from expectations, what will the effect be (on the business, model, system, or whatever is being analyzed)?" Applications Sensitivity analysis can be used To simplify models To investigate the robustness of the model predictions To play what-if analysis exploring the impact of varying input assumptions and scenarios As an element of quality assurance (unexpected factors sensitivities may be associated to coding errors or misspecifications). It provides as well information on: Factors that mostly contribute to the output variability The region in the space of input factors for which the model output is either maximum or minimum or within pre-defined bounds (see Monte Carlo filtering above) Optimal or instability regions within the space of factors for use in a subsequent calibration study Interaction between factors Sensitivity Analysis is common in physics and chemistry, in financial applications, risk analysis, signal processing, neural networks and any area where models are developed. Sensitivity analysis can also be used in modelbased policy assessment studies. Sensitivity analysis can be used to assess the robustness of composite indicators, also known as indices, such as the Environmental Performance Index.

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DECISION THEORY Decision theory studies rational choices. It is used both to predict and explain actual choices and to improve actual decision making. The first purpose is called positive theory and the second is called normative theory. While our primary aim is to predict and explain actual choices (positive theory), understanding how to improve actual decision making (normative theory) helps us to better understand decision theory for our applications, as well. Anatomy of Decision Theory: The steps of decision theory are: 1) Decision making environment 2) Objective of a decision maker 3) Alternative plans of actions 4) Decision pay off Decision making environment a) Deterministic situation or state of certainty b) Risk Situation c) Situation of Un certainty Steps of Deterministic situation or state of certainty a) Determine the alternative course of action b) Calculate the pay offs, one for each course of action c) Select the alternatives with largest profit or smallest costs either by the method of complete enumeration or with the aid of appropriate mathematical models Rules for decision making under risk: There are several rules and techniques for decision making under risk. Some important ones are: 1) Maximum likehood rule
2) EMV: formula: ( pay off 1st state of nature)*( Probability of the

1st state of nature)+ ( pay off 2nd state of nature)*(Probability of the 2nd state of nature)+ ( pay off last state of

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nature)*(Probability of the last state of nature) and EOL criterion 3) Decision trees 4) Utility functions 5) Bayestan Decision rule 6) Marginal Analysis Decision tree analysis: 1)Define the problem 2)Structure or draw the decision tree 3)Assign probabilities to the states of nature 4)Estimate pay offs for each possible combination of alternatives and states of nature 5)Solve the problem by computing EMV for each state of nature node. This is done by working backward. Applications of Decision theory: 1) It is used both to predict and explain actual choices and to improve actual decision making. 2) Decision theory may also be used to predict equilibrium achieved by some evolutionary process. In particular, this evolutionary process may be the biological evolutionary process or a cultural evolutionary process. 3) It is used to consider profit-maximizing decisions that firms make in perfectly competitive markets 4) the decision theory toolbox considers the additional tools necessary to deal with a world with uncertainty. In some detail, basic rules that an individual or organization should follow if he were rational in the face of uncertainty in business.

TRANSPORTATION MODEL

INTRODUCTION Transportation is a special class of linear programming problem widely applied in business area. Transportation problem deals with

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the distribution of goods from several points of supply (sources) to a number of points of demand (destination) at minimum cost. Usually, we have a given capacity goods at each sources and a given requirement for the goods at destination. The objective of such a problem is to schedule shipments from sources to destination so that total transportation and production cost are minimized. Transportation models can also be used when a firm is trying to decide where to locate a new facility. Before going a new warehouse, factory, or sales office, it is good practice to consider. APPLICATION OF TRANSPORTATION MODEL IN BUSINESS AREA 1. When total supply equals total demand, transportation applied in balancing the demand and supply for minimizing total cost. 2. Transportation model applied to optimizing minimum total cost when supply is not balanced with demand. 3. Transportation model applied to allocation of total finished goods costs. 4. Transportation model applied very accurately in such kind of situation, when it is not possible to transport goods from certain sources to certain destinations, due to unfavorable weather conditions, road hazards, etc. 5. Transportation model applied to reducing total shipment cost by satisfying total supply and demand condition. METHODS FOR BASIC FEASBLE SOLUTION: There are several methods to obtain an initial solution. Discuss below1 .NORTH-WEST CORNER METHOD: A systematic procedure for establishing an initial feasible solution to transportation problem. The steps areStep 1.Select the north-west (upper left hand) corner for a shipment. Step 2.Make as large a shipment as possible in the north-west corner or cell. This operation will completely exhaust either the supply available at one source or the demand at one destination. Step 3.Adjust the supply and demand values. If all supply and demand values are exhausted then stop, otherwise move one cell to the right or one cell down depending on the supply and demand values, go to step 2.

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2. VOGELS APPROXIMATION METHOD (VAM): An algorithm used to find a relatively efficient initial feasible solution to a transportation problem. This method gives better initial solution in terms of less transportation cost and do not the cost. The steps in VAM are as follows: Step 1.Given a balanced transportation table calculate penalty numbers for each row and column by taking the difference between the lowest and next lowest unit transportation costs. This difference indicates the penalty or extra cost which has to be paid for not assigning an allocation to the cell with the minimum transportation cost. Step 2.Select the row or column having the largest penalty number. If there is a tie then it can be broken by selecting the cell where maximum allocation can be made. Step 3.Assigning the maximum number of units possible to the lowest cost in the row or column selected in step 2. Adjust the availabilities and requirements after allocation at sources and destinations. Eliminate from further consideration a row or column for which availability and requirement conditions are met. Step 4.Repeat steps 1 to 3 until the entire available capacity at various sources and requirements at various destinations have been met.

3. INSPECTION METHOD: It is another method used in transportation problem for initial solution. Here at first consider lowest cost cell and then complete this cell with supply and demand. This process is going on it until completion of allocated cell. METHOD FOR OPTIMUM SOLUTION: After the computation of an initial solution the next step is to check to optimality. An optimum solution is one in which there is no other of transportation routes (allocation) that will reduce the total transportation costs. 1 .STEPPING STONE METHOD: An iterative technique for moving from an initial feasible solution to an optimal solution in transportation problem. Starting from the initial feasible solution the following steps are followed-

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Step 1.Compute improvement index for each of the empty cells. This is computed by calculating the opportunity costs of an empty cell. This means that if we shift one unit from a cell containing positive shipment to the empty cell that will be the net cost. If all empty cells have positive improvement index, then the given solution is an optimum solution. Step 2.If there are several empty cells with negative improvements indices, then we select the cell having the largest negative improvement index and shift the maximum possible units to that cell without violating the supply and demand constraints. After it, again go to step 1. 2. THE MODIFIED DISTRIBUTION METHOD (MODI): A technique that is used to evaluate the empty cells in a transportation problem. The methods involves the following step Step 1.For an initial basic solution with m + n n occupied cells, calculate the Ui and Vj for rows and columns. To start with any one of uis or vjs is given the value zero. It is better to assign zero for a particular ui or vj where there are maximum number of allocations in a row or column respectively as it will considerably reduce the arithmetic work. By using the relation cij=ui + vj for all occupied cells (i ,j ) the computation of uis and vjs for others rows and columns can be completed. Step 2.For unoccupied cells, calculate opportunity cost by using the relation: ij = cij-(ui+vj) for all i and j Step 3.Examine sign of each ij. a) If 0, then current basic feasible solution is optimum. b) If 0, then current basic feasible solution will remain unaffected but an alterntive solution exist. c) If one or more 0, then an optimum solution can be obtained by entering unoccupied cell (i, j) in the basis. An unoccupied cell having the largest negative value of is chosen for entering into the new transportation schedule. Step 4.Construct a closed path (loop) for the unoccupied cell with largest negative opportunity cost. Start the close loop with the selected unoccupied cell make a plus sign (+) in this cell, trace a path along the rows (or column) to an occupied cell, mark the corner with minus sign (-) and continue down the column (or row ) to an occupied cell and mark the corner with alternatively plus sign (+)

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and minus sign (-). Close the path back to the selected unoccupied cell. Step 5.Locate the smallest quantity allocated to a cell marked with a minus sign. Allocated this value to the selected unoccupied cell and add it to other occupied cells marked with plus signs and subtract it from the occupied cells marked with minus signs. Step 6.Obtain a new solution after allocating units to the unoccupied cell according to step 5 and calculate the new total transportation cost. Step 7.Test the revised solution for optimality.

NETWORK ANALYSIS PERT & CPM

CONCEPT AND MEANING Network Analysis (N.A.) is an important concept that deals with project management. A project is a well-defined set of jobs, tasks, or activities, which must be completed in a specified time and sequence order. The jobs, tasks or activities are interrelated and require resources such as money, material, personnel and other facilities. Therefore, the major focus of project management is to schedule jobs,tasks or activities in an efficient way so as to reduce or have minimum cost of its completion within the specified period. Network analysis, sometimes called network planning and scheduling techniques, is a set of operations research techniques needed and useful for planning, scheduling and controlling large and complex projects. The diagrammatical representation of these techniques, which consists of arrows (activities) and nodes (events) is known as network diagram. Possible areas of application of network analysis include: (a) Construction projects such as building highways, house, bridge, e.t.c; (b) Maintenance or planning of oil refinery, ship repair and other large operations; (c) Preparation of bids and proposals for large projects; (d) Development of new weapon/system or manufacturing system; (e) Manufacturing and assemblage of large items such as airplanes, ships and computers; and

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(f) Simple projects such as home remodeling, moving to a new house, house cleaning and painting.

Limitations of the method Differences may occur about the activities that precede each other. Duration of activities are estimates it is unlikely that the durations of all activities are known. They are generally based on experience on similar projects, the availability and quality of staff and the level of resources available. It is often necessary to make decisions on employing extra staff to accelerate progress of the project or specific elements of it. This increase in cost has to be off-set against potential savings which may accrue. This may arise due to unforeseen circumstances. Objectives of network analysis 1. Minimization of total cost 2. Minimization of total time 3. Minimization of time for a given cost 4. Minimization of a given total time 5. Minimization of idle resources 6. Network analysis can also be employed to minimize production delays , interruptions and conflicts

NETWORK DIAGRAM The pictorial representation of the interrelation of the various activities and events concerning a project is known as network diagram. Network models: there are four network models that can be used to solve a verity of problem. Minimum-spanning tree technique: This minimal-spanning tree technique connects nodes at a minimum distance.

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Steps for the minimal-spanning tree: There are five steps for the minimal-spanning tree problem. 1. Select any node in the network. 2. Connect this node to the nearest node that minimizes the total distance. 3. Considering all of the nodes that are now connected 4. Find and connect the nearest mode that is not connected. 5. Repeat the third step until all nodes are connected

Maximal-flow technique : The maximal-flow technique finds the most that can flow through a network. Four steps of the Maximal-flow technique: 1. Pick any path from the start (source) to the finish (sink) with some flow. 2. Find the arc on this with the smallest flow capacity available. 3. For each node on this path, decrease the flow capacity in the direction of flow by the amount c . 4. Repeat these steps until an increase in flow is no longer possible.

Shortest-route technique: minimizes the distance though a network. 1. 2. 3. Steps of the shortest-Route technique Find the nearest node to the origin (plant). Find the next-nearest node to the origin (plant),. Repeat this process until you have gone through the entire network.

All-Node-Pairs Shortest path: The floyd-Warshall algorithm is useful for finding the shortest path between all pairs of nodes in a network.

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Three steps of the All-Node-pairs shortest path Algorithm : 1. Initialize distance and node adjacency matrices. 2. Check the distance matrix for shorter paths between nodes using node I as an intermediate node. 3. Repeat the second step using the other nodes in sequence as the intermediate node RULES IN CONSTRUCTING A NETWORK 1. No single activity can be represented more than once in a network. The length of an arrow has no significance. 2. The event numbered 1 is the start event and an event with highest number is the end event. Before an activity can be undertaken, all activities preceding it must be completed. That is, the activities must follow a logical sequence (or interrelationship) between activities. 3. In assigning numbers to events, there should not be any duplication of event numbers in a network. 4. Dummy activities must be used only if it is necessary to reduce the complexity of a network. 5. A network should have only one start event and one end event. Some conventions of network diagram are shown in Figures below: Some Conventions followed in making Network Diagrams

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PROCEDURE FOR NUMBERING THE EVENTS USING FULKERSON'S RULE Step1: Number the start or initial event as 1. Step2: From event 1, strike off all outgoing activities. This would have made one or more events as initial events (event which do not have incoming activities). Number that event as 2. Step3: Repeat step 2 for event 2, event 3 and till the end event. The end event must have the highest number. Example : Draw a network for a house construction project. The sequence of activities with their predecessors is given in the following table, below.

METHODS OF NETWORK ANALYSIS The two well known methods of network analysis are: (a) Critical path method (CPM); and (b) Program evaluation review technique (PERT). Both methods (CPM and PERT) focus their procedures on identifying the critical path. The critical path takes the longest or maximum time duration of the project; while activities on the critical path are called the critical activities. Some major features of both methods are discussed as follows: (a) CPM (i) CPM is used for activities which are deterministic; (ii) It is an activity-oriented technique;

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(iii) It is good in establishing a trade-off for optimum balancing between scheduled time and cost of the project; and (iv) CPM was developed mostly for maintenance and construction projects.

(b) PERT (i) It is an event-oriented technique; (ii) It handles probablististic type of data; and (iii) It has activities of non-receptive nature and therefore used for one time project.

PERT: This was developed by the US Navy for the planning and control of the Polaris missile program and the emphasis was on completing the program in the shortest possible time. In addition PERT had the ability to cope with uncertain activity completion times. In PERT activities are shown as a network of precedence relationships using activity-on-arrow network construction 1. Multiple time estimates 2. Probabilistic activity times PERT is used in project management for non-repetitive jobs (research and development work), where the time and cost estimates tend to be quite uncertain. This technique uses probabilistic time estimates. CPM: CPM (Critical Path Method) was developed by Du Pont and the emphasis was on the trade-off between the cost of the project and its overall completion time (e.g. for certain activities it may be possible to decrease their completion times by spending more money - how does this affect the overall completion time of the project. In CPM activities are shown as a network of precedence relationships using activity-on-node network construction 1. Single estimate of activity time 2. Deterministic activity times

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CPM is used in production management for the jobs which are repetitive in nature where the activity time estimates can be predicted with considerable certainty due to the existence of past experience. Project management generally consists of three phases. Planning: Planning involves setting the objectives of the project. Identifying various activities to be performed and determining the requirement of resources such as men, materials, machines, etc. The cost and time for all the activities are estimated, and a network diagram is developed showing sequential interrelationships (predecessor and successor) between various activities during the planning stage. Scheduling: Based on the time estimates, the start and finish times for each activity are worked out by applying forward and backward pass techniques, critical path is identified, along with the slack and float for the non-critical paths. Controlling: Controlling refers to analyzing and evaluating the actual progress against the plan. Reallocation of resources, crashing and review of projects with periodical reports are carried out. Far more than the technical benefits, it was found that PERT/CPM provided a focus around which managers could brain-storm and put their ideas together. It proved to be a great communication medium by which thinkers and planners at one level could communicate their ideas, their doubts and fears to another level. Most important, it became a useful tool for evaluating the performance of individuals and teams. There are many variations of CPM/PERT which have been useful in planning costs, scheduling manpower and machine time. CPM/PERT can answer the following important questions: How long will the entire project take to be completed? What are the risks involved? Which are the critical activities or tasks in the project which could delay the entire project if they were not completed on time?

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Is the project on schedule, behind schedule or ahead of schedule? If the project has to be finished earlier than planned, what is the best way to do this at the least cost?

PERT/CPM NETWORK COMPONENTS PERT / CPM networks contain two major components i. Activities, and ii. Events Activity: An activity represents an action and consumption of resources (time, money, energy) required to complete a portion of a project. Activity is represented by an arrow. An Activity

Event: An event (or node) will always occur at the beginning and end of an activity. The event has no resources and is represented by a circle. The ith event and jth event are the tail event and head event respectively. An Event

Merge and Burst Events One or more activities can start and end simultaneously at an event.

Preceding and Succeeding Activities Activities performed before given events are known as preceding activities, and activities performed after a given event are known as succeeding activities.

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Preceding and Succeeding Activities

Activities A and B precede activities C and D respectively. Dummy Activity An imaginary activity which does not consume any resource and time is called a dummy activity. Dummy activities are simply used to represent a connection between events in order to maintain a logic in the network. It is represented by a dotted line in a network, see Figure. Dummy Activity

CRITICAL PATH ANALYSIS The critical path for any network is the longest path through the entire network. Since all activities must be completed to complete the entire project, the length of the critical path is also the shortest time allowable for completion of the project. Thus if the project is to be completed in that shortest time, all activities on the critical path must be started as soon as possible. These activities are called critical activities. If the project has to be completed ahead of the schedule, then the time required for at least one of the critical activity must be reduced. Further, any delay in completing the critical activities will increase the project duration. The activity, which does not lie on the critical path, is called noncritical activity. These non-critical activities may have some slack time. The slack is the amount of time by which the start of an activity may be delayed without affecting the overall completion

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time of the project. But a critical activity has no slack. To reduce the overall project time, it would require more resources (at extra cost) to reduce the time taken by the critical activities to complete. Scheduling of Activities: Earliest Time and Latest Time Before the critical path in a network is determined, it is necessary to find the earliest and latest time of each event to know the earliest expected time (TE) at which the activities originating from the event can be started and to know the latest allowable time (TL) at which activities terminating at the event can be completed. Forward Pass Computations (to calculate Earliest, Time TE) Procedure Step 1: Begin from the start event and move towards the end event. Step 2: Put TE = 0 for the start event. Step 3: Go to the next event (i.e node 2) if there is an incoming activity for event 2, add calculate TE of previous event (i.e event 1) and activity time. Note: If there are more than one incoming activities, calculate TE for all incoming activities and take the maximum value. This value is the TE for event 2. Step 4: Repeat the same procedure from step 3 till the end event. Backward Pass Computations (to calculate Latest Time T Network Model L) Procedure Step 1: Begin from end event and move towards the start event. Assume that the direction of arrows is reversed. Step 2: Latest Time TL for the last event is the earliest time. TE of the last event. Step 3: Go to the next event, if there is an incoming activity, subtract the value of TL of previous event from the activity duration time. The arrived value is TL for that event. If there are more than one incoming activities, take the minimum TE value. Step 4: Repeat the same procedure from step 2 till the start event.

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DETERMINATION OF FLOAT AND SLACK TIMES Float : As discussed earlier, the non critical activities have some slack or float. The float of an activity is the amount of time available by which it is possible to delay its completion time without extending the overall project completion time. For an activity i = j, let tij = duration of activity TE = earliest expected time TL = latest allowable time ESij = earliest start time of the activity EFij = earliest finish time of the activity LSij = latest start time of the activity LFij = latest finish time of the activity Total Float TFij: The total float of an activity is the difference between the latest start time and the earliest start time of that activity. TFij = LSij ESij ....................(1) or TFij = (TL TE) tij ....................(2) Free Float FFij: The time by which the completion of an activity can be delayed from its earliest finish time without affecting the earliest start time of the succeeding activity is called free float. FFij = (Ej Ei) tij ....................(3) FFij = Total float Head event slack Independent Float IFij: The amount of time by which the start of an activity can be delayed without affecting the earliest start time of any immediately following activities, assuming that the preceding activity has finished at its latest finish time. IFij = (Ej Li) tij ....................(4) IFij = Free float Tail event slack Where tail event slack = Li Ei The negative value of independent float is considered to be zero. Critical Path: After determining the earliest and the latest scheduled times for various activities, the minimum time required to complete the project is calculated. In a network, among

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various paths, the longest path which determines the total time duration of the project is called the critical path. The following conditions must be satisfied in locating the critical path of a network. An activity is said to be critical only if both the conditions are satisfied. 1. TL TE = 0 2. TLj tij TEj = 0 Example : A project schedule has the following characteristics as shown in the table Project Schedule

i. Construct PERT network. ii. Compute TE and TL for each activity. iii. Find the critical path. Solution: (i) From the data given in the problem, the activity network is constructed as shown in the following figure. Activity Network Diagram

(ii) To determine the critical path, compute the earliest, time T Network Model E and latest time TL for each of the activity of the project. The calculations of TE and TL are as follows: To calculate TEfor all activities, TE1 = 0 TE2 = TE1 + t1, 2 = 0 + 4 = 4 TE3 = TE1 + t1, 3 = 0 + 1 =1 TE4 = max (TE2 + t2, 4 and TE3 + t3, 4)

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= max (4 + 1 and 1 + 1) = max (5, 2) = 5 days TE5 = TE3 + t 3, 6 = 1 + 6 = 7 TE6 = TE5 + t 5, 6 = 7 + 4 = 11 TE7 = TE5 + t5, 7 = 7 + 8 = 15 TE8 = max (TE6 + t 6, 8 and TE7 + t7, 8) = max (11 + 1 and 15 + 2) = max (12, 17) = 17 days TE9 = TE4 + t4, 9 = 5 + 5 = 10 TE10 = max (TE9 + t9, 10 and TE8 + t8, 10) = max (10 + 7 and 17 + 5) = max (17, 22) = 22 days To calculate TL for all activities TL10 = TE10 = 22 TL9 = TE10 t9,10 = 22 7 = 15 TL8 = TE10 t 8, 10 = 22 5 = 17 TL7 = TE8 t 7, 8 = 17 2 = 15 TL6 = TE8 t 6, 8 = 17 1 = 16 TL5 = min (TE6 t5, 6 and TE7 t5, 7) = min (16 4 and 15 8) = min (12, 7) = 7 days TL4 = TL9 t 4, 9 = 15 5 =10 TL3 = min (TL4 t3, 4 and TL55 t 3, 5) = min (10 1 and 7 6) = min (9, 1) = 1 day TL2 = TL4 t2, 4 = 10 1 = 9 TL1 = Min (TL2 t1, 2 and TL3 t1, 3) = Min (9 4 and 1 1) = 0 Various Activities and their Floats

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(iii) From the table, we observe that the activities 1 3, 3 5, 5 7,7 8 and 8 10 are critical activities as their floats are zero. Critical Path of the Project

The critical path is 1-3-5-7-8-10 (shown in double line in the above figure) with the project duration of 22 days.

PROJECT EVALUATION REVIEW TECHNIQUE, PERT In the critical path method, the time estimates are assumed to be known with certainty. In certain projects like research and development, new product introductions, it is difficult to estimate the time of various activities. Hence PERT is used in such projects with a probabilistic method using three time estimates for an activity, rather than a single estimate, as shown in Figure. PERT Using Probabilistic Method with 3 Time Estimates

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Optimistic time tO: It is the shortest time taken to complete the activity. It means that if everything goes well then there is more chance of completing the activity within this time. Most likely time tm: It is the normal time taken to complete an activity, if the activity were frequently repeated under the same conditions. Pessimistic time tp: It is the longest time that an activity would t ake to complete. It is the worst time estimate that an activity would take if unexpected problems are faced. Taking all these time estimates into consideration, the expected time of an activity is arrived at. The average or mean (ta) value of the activity duration is given by, Ta= t0+4tm+tp/6 .....................(5) The variance of the activity time is calculated using the formula, Ta= t0+4tm+tp/6 ...................(6) Probability for Project Duration The probability of completing the project within the scheduled time (Ts) or contracted time may be obtained by using the standard normal deviate where Te is the expected time of project completion.

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...............(7) Probability of completing the project within the scheduled time is, P (T Ts) = P ( Z Z0 ) (from normal t ables) .................(8) Example : An R & D project has a list of tasks to be performed whose time estimates are given in the table, as follows. Time expected for each activity is calculated using the formula (5): Ta= t0+4tm+tp/6 = 4+4(6)+8/6 = 36/6 = 6 days for activity A Similarly, the expected time is calculated for all the activities. The variance of activity time is calculated using the formula (6).

Similarly, variances of all the activities are calculated. Construct a network diagram and calculate the time earliest, TE and time Latest TL for all the activities. Network Diagram

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Time Estimates for R & D Project

a. Draw the project network. b. Find the critical path. c. Find the probability that the project is completed in 19 days. If the probability is less that 20%, find the probability of completing it in 24 days. Solution: Calculate the time average ta and variances of each activity as shown in the following table. Te & s2 Calculated

From the network diagram Figure, the critical path is identified as 1-4, 4-6, 6-7, with project duration of 22 days. The probability of completing the project within 19 days is given by,

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Thus, the probability of completing the R & D project in 19 days is 9.01%. Since the probability of completing the project in 19 days is less than 20%, we find the probability of completing it in 24 days.

GAME THEORY

Game theory is a probabilistic model which is used in analyzing, and driving rules for making decisions when two or more people are competing for some objectives. Game theory attempts to look at the relationships between participants in a particular model and predict their optimal decisions. There are two primary use of game theory: descriptive and prescriptive.

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In the descriptive use, game theory has been used to study a wide variety of human and animal behaviors In the prescriptive (normative) use, game theory has also been used to attempt to develop theories of ethical or normative behavior. Strengths and Weaknesses of Game Theory Strengths Game Theory (1) Game theory is a model type, which are generally explicit and unambiguous in nature. For this reason, solution to game theory are easy to criticize or subscribe to. (2) Game theory as model if applied it provides a limited representative of reality and for this reason a solution to game theory is a solution to a surrogate for the real problem. (3) A solution to game theory is objective. For this reason the solution can easily be manipulated, augmented and eliminated. (4) There are always consistencies in solution to game theory (reliability). (5) Game theory can give a decision marker an opportunity of knowledge to acceptance or rejection of a hypothesis. (6) Game theory is applicable to a close system because the payoffs of the all participants are added up to be zero (winning = (+) and loses = (-) then the game is called zero- sum game. Otherwise, it is known as non-zero-sum game Weaknesses of Game Theory (1) For practical considerations, game theory always imposed constraints because it is the only correct way to formulate the problem. (2) Game theory is based on the assumption that the parties are rational and few in numbers. (3) It is based on the assumption that each player knows the objectives of his opponent.

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Applications of Game Theory in Business: 1) predicts outcomes of a group of interacting agents where an action of a single agent directly affects the payoff of other participating agents 2)studies of multi person decision problems. 3)a bag of analytical tools designed to help to understand the phenomena that are to be observed when decision-makers interact. 4) studies the mathematical models of conflict and cooperation between intelligent rational decision-makers. 5) To focus on Price and quantity competition Types of games There are several types of game: Cooperative or non-cooperative A game is cooperative if the players are able to form binding commitments. For instance the legal system requires them to adhere to their promises. In noncooperative games this is not possible. Symmetric and asymmetric A symmetric game is a game where the payoffs for playing a particular strategy depend only on the other strategies employed, not on who is playing them. If the identities of the players can be changed without changing the payoff to the strategies, then a game is symmetric Most commonly studied asymmetric games are games where there are not identical strategy sets for both players. For instance, the ultimatum game and similarly the dictator game have different strategies for each player. Zero-sum and non-zero-sum In zero-sum games the total benefit to all players in the game, for every combination of strategies, always adds to zero (more informally, a player benefits only at the equal expense of others). Many games studied by game theorists (including the infamous prisoner's dilemma) are non-zero-sum games, because the outcome

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has net results greater or less than zero. Informally, in non-zero-sum games, a gain by one player does not necessarily correspond with a loss by another. Simultaneous and sequential Simultaneous games are games where both players move simultaneously, or if they do not move simultaneously, the later players are unaware of the earlier players' actions (making them effectively simultaneous). Sequential games (or dynamic games) are games where later players have some knowledge about earlier actions Perfect information and imperfect information An important subset of sequential games consists of games of perfect information. A game is one of perfect information if all players know the moves previously made by all other players. Thus, only sequential games can be games of perfect information because players in simultaneous games do not know the actions of the other players. Most games studied in game theory are imperfectinformation games. Interesting examples of perfect-information games include the ultimatum game and centipede game. Recreational games of perfect information games include chess, go, and mancala. Many card games are games of imperfect information, for instance poker or contract bridge. Many-player and population games Games with an arbitrary, but finite, number of players are often called n-person games. Evolutionary game theory considers games involving a population of decision makers, where the frequency with which a particular decision is made can change over time in response to the decisions made by all individuals in the population. Differential games Differential games such as the continuous pursuit and evasion game are continuous games where the evolution of the players' state variables is governed by differential equations. Metagames These are games the play of which is the development of the rules for another game, the target or subject game. Metagames seek to maximize the utility value of the rule set developed. The theory of metagames is related to mechanism design theory.

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Usefulness of Game theory in Business

Game theory was once hailed as a revolutionary interdisciplinary phenomenon bringing together psychology, mathematics, philosophy and an extensive mix of other academic areas. Eight Noble Prizes have been awarded to those who have progressed the discipline; but beyond the academic level, is game theory actually applicable in today's world? Yes! The classical example of game theory in the business world arises when analyzing an economic environment characterized by an oligopoly. Competitive firms are faced with a decision matrix similar to that of a Prisoner's Dilemma. Each firm has the option to accept the basic pricing structure agreed upon by the other companies or to introduce a lower price schedule. Despite that it is in the common interest to cooperate with the competitors, following a logical thought process causes the firms to default. As a result everyone is worse off. Although this is a fairly basic scenario, decision analysis has influenced the general business environment and is a prime factor in the use of compliance contracts. Game theory has branched out to encompass many other business disciplines. From optimal marketing campaign strategies, to waging war decisions, ideal auction tactics and voting styles, game theory provides a hypothetical framework with material implications. For example, pharmaceutical companies consistently face decisions regarding whether to market a product immediately and gain a competitive edge over rival firms, or prolong the testing period of the drug; if a bankrupt company is being liquidated and its assets auctioned off, what is the ideal approach for the auction; what is the best way to structure proxy voting schedules? Since these decisions involve numerous parties, game theory provides the base for rational decision making. Another important concept, zero-sum games, also stemmed from the original ideas presented in game theory and the Nash Equilibrium. Essentially, any quantifiable gains by one party are equal to the losses of another party. Swaps, forwards, options and other financial instruments are often described as "zero-sum" instruments, taking their roots from a concept that now seems distant. (For an in depth explanation about game theory, check out Game Theory: Beyond the Basics.)

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SIMULATION

INTRODUCTION Simulation is one of the most widely used in quantities analysis tools. It is a mathematical model which is used to find out some alternative course of action. There are various it sector to using the Simulates model. ForExample Business students take courses that use management games to stimulate realistic competitive business situations. Your local civil defense organization may carry out rescue and evacuation practices it simulates the natural disaster conditions of a hurricane or tornado. PROCESS OF SIMULATION 1. Define Problem 2. Introduce the variables 3. Construct a numerical model 4. Possible Courses of Action for testing 5. Run the experiment 6. Consider the result 7. Select best course of Action. Advantages: Simulation is a tools that has become widely accepted by managers for several reasons 1) It is relatively straightforward and flexible 2) Recent advances in software make some simulation models very easy to develop.

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3) It can be used to analyze large and complex real world situations than can not be solved by conventional quantitative analysis models. 4) Simulation allows us to study the interactive effect of individual components or variables to determine which ones are important. 5) Time compression is possible with simulation. The effect of ordering, advertising or other policies over May months or years can be obtained by computer simulation in a short time. Disadvantages: 1) Good simulation models for complex situation can be very expensive. It is often a long, complicated process to develop a model. 2) Managers must generate all of the conditions constraints for solutions that they want to examine. and

3) Each simulation model is unique. Its solutions and inferences are not usually transferable to other problems. Various uses in Profession of simulation: Simulation is using in the following way 1) Civil defense organization. 2) Conditions of disasters. 3) Business Students. 4) Managers in organization. 5) Mathematical Term etc.

Applicability of Quantitative Techniques As a Tools of Business Decision Making (1)Business Mathematics

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This course is designed to improve the quantitative reasoning skills of business students. It provides an introduction to two important knowledge bases: linear functions and systems and the fundamentals of the derivative and integration and their uses in business decision making. The focus of the course will be on the application of these mathematical concepts to personal business, management, marketing, and finance issues. Excel spreadsheet applications will be used extensively throughout the course. (2)Probability and Statistics A course in elementary probability and statistical concepts with emphasis on data analysis and presentation; frequency distributions; probability theory; probability distributions, sampling distributions, statistical inference, hypothesis testing. (3)Quantitative Techniques in Management An introduction to quantitative techniques in management. Topics include linear programming, assignment problems, transportation algorithms, network and inventory models, and decision theory. 4)Management Information system This course provides methodology of the design, analysis, and evaluation of management information systems (MIS). Topics include organizational implications of information technology, planning and control systems, implementation of an integrated system, technical treatment of MIS management, and application of computers via computer packages in business environments. (5)Quantitative Techniques Advanced applications of quantitative techniques to the solution of business problems. Topics include classical optimization techniques, non-linear programming, topics in mathematical programming, and graph theory.

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(6)Operations Management Basic review of service and production systems designs and performance evaluation. Topics include operations strategy, staff and production scheduling, Just-in-Time and time-based competition, project management, and the role of technology in service and manufacturing operations. (7)Forecasting for Decision Making Review of different approaches to forecasting used by management at different levels of decision making. Techniques will include smoothing and decomposition, causal and judgmental methods. Computer applications and modeling will be emphasized.

(8)Project Management Survey of management techniques applicable to a wide variety of business-related project types. Emphasis on the project management cycle, including selecting, scheduling, budgeting, and controlling projects. Desired qualifications and roles of project managers. Extensive use of project management software will be required. 9)Cost Benefit Management An introduction to an overview of the field of cost benefit management. Fundamental theoretical evaluation of cost/benefit of a project. Includes: the selection of the best investment criteria, the external environment spillover effects and the application of cost/benefit management decision making under uncertainty.