Operations Research

Course Outline
Operations Research is the science of decision making and the art
of decision modelling. It is a set of quantitative tools used by the
managers to take decisions and formulate their business
strategies.
The basic objective of this course is to provide an understanding of
the important techniques used in decision making. A certain level
of mathematical hands-on expertise will be required to ensure
understanding of the tools in operations research. While
quantitative tools will be used to develop the understanding of the
complex business situations, the course will aim to develop the
management decision-making ability. The implementation of these
tools has been facilitated considerably by the development of
spreadsheet-based software package; we will make liberal use of
spreadsheet models.
 Course Schedule
Session Topic
1. Linear Optimization - Introduction
2. Geometry and visualization of linear
programming
3. Linear Programming Solver
4. Linear Programming Sensitivity Analysis
5. Transportation problem Formulation and
Solutions
6. Transportation problem Formulation and
Solutions Quiz
7-10 Linear Programming Case Study
 Course Evaluation
Quiz 30%

Project 30%

End Term
40%

Missed exams, unless excused in advance by permission, will

result in a zero for that activity. No make-ups are given. This
policy is absolute and no exceptions will be made, unless
documented extreme extenuating circumstances exist. Tests
may cover any of the material discussed to date in the class.
 Grading Pattern

Range 0- 30- 37- 44- 52- 60- 68- 76- 85-100

of 30 36 43 51 59 67 75 84
Marks
Grade F D D+ C C+ B B+ A A+
s
Academic Integrity..
A student is expected to know what constitutes academic
integrity (please go through students manual) to avoid
committing an academic offence, and to take
responsibility for his/her actions. Any kind of academic
dishonesty (e.g., plagiarism, cheating) will be dealt very
seriously.
 Operations Research
Operations Research (OR) started just before World
War II in Britain with the establishment of teams of
scientists to study the strategic and tactical
problems involved in military operations. The
objective was to nd the most effective utilization of
limited military resources by the use of quantitative
techniques. The result was called Operations
Research.
Numerical Methods of Optimization
Linear programming: studies the case in which the
objective function is linear and the constraints are
specied using only linear equalities and inequalities.

Integer programming: studies linear programs in

which some or all variables are constrained to take
on integer values.

Quadratic programming: allows the objective

function to have quadratic terms, while the
constraints must be specied with linear equalities
and inequalities

Nonlinear programming: studies the general case

in which the objective function or the constraints or
both contain nonlinear parts.
Numerical Methods of Optimization
(contd.)
Stochastic programming: studies the case in
which some of the constraints depend on random
variables.
Dynamic programming: studies the case in
which the optimization strategy is based on
splitting the problem into smaller sub-problems.
Combinatorial optimization: is concerned with
problems where the set of feasible solutions is
discrete or can be reduced to a discrete one.
 Goal of Optimization
The goal is to nd values for n decision variables X = (x 1, x2, ,
xn). The decision maker must choose values for the variables so
that he is in a position to optimize his objective which may
include
Maximize prot
Maximize utilization of equipment
Minimize cost
Minimize raw materials or resources
Minimize traveling time
etc. etc.

OR seeks the determination of the best (optimum) course of action of a

decision problem under the restriction of limited resources. The term
operations research quite often is associated almost exclusively with the
use of mathematical techniques to model and analyze decision
problems..
Linear programming
George B. Dantzig (1947) published Programming in
Linear Structure
Kontorovich (1939) was published in 1959.
Koopmans coined the term Linear Programming
(1948).
Problem Formulation
Step 1. Formulate the Objective Function:
Determine the quantity to be optimized and
express it as a mathematical function. Doing
so serves to dene the input variables.
Step 2. Formulate the Constraints: Identify all
stipulated requirements, restrictions and
limitations, and express them mathematically.
Step 3. Express any hidden conditions. Such
conditions are not stipulated explicitly in the
problem but are apparent from the physical
situation being modeled. Examples: non-
negativity, Integer requirements.
 Example - 1
Food X contains 6 units of vitamin A and 7
units of vitamin B per gram and costs
12p./gm. Food Y contains 8 and 12 units of
vitamin A and B respectively and costs
20p./gm. The daily requirements of vitamin A
and B are 100 units and 120 units
respectively. Formulate the above as a L.P.P.
to minimize the cost.
 Let x and y represent the units of food X
and Y respectively.

So the objective function is

min z = 12x + 20y
subject to
6x + 8y 100,
7x + 12y 120,
x, y 0.
 Problem
An automobile manufacturer makes automobiles and
trucks in a factory that is divided into two shops. Shop
A which perform the basic assembly operation must
work 5 man days on each truck but only 2 man days
on each automobile. Shop B which perform nishing
operations must work 3 man days for each automobile
or truck that it produces. Because of men and
machine limitations shop A has 180 man days per
week available while shop B has 135.man days per
week. If the manufacturer makes a prot of Rs. 300 on
each truck and Rs. 250 on each automobile; how
many of each should be produced to maximize his
prot?
 Example 2. Blending..

The manager of an oil refinery must decide on the optimum mix of two
possible blending processes of which the input and output production
runs as follows:

Input Output

Crude A Crude B Gasoline Gasoline Y

X
1 8 4 7 9

2 5 6 6 5

The maximum amount available of crudes A and B are 250 units and
200 units respectively. Market demand shows at least 150 units of
gasoline X and 130 units of gasoline Y must be produced. The profit
per production run from process 1 and process 2 are Rs. 5 and Rs. 7
respectively. Formulate the problem to maximize profit.
Hard Drivers Inc. manufactures computer hard drives.
Because demand has seasonal variations it is difficult
to schedule production to keep costs to a minimum.
Next year, management estimates that the demand
for a 10-GB hard drive will be 50,000 units in the rst
quarter followed by 100,000, 50,000 and 200,000 in
the second, third and fourth quarters. Because the
companys production capacity is 125,000 units per
quarter, during the slow seasons the company must
produce extra hard drives and store them in inventory
to help meet demand during the high seasons,
particularly during the fourth quarter because
Christmas sales makes the highest sales quarter of the
year. The production cost of a hard drive is Rs. 25 per
unit and company policy is to charge an inventory
holding cost of Rs. 1 per hard drive per quarter for
each unit in inventory at the beginning of a quarter.
Assume the company starts off the rst quarter with
10,000 units in inventory and wishes to end the last
quarter with 20,000 units in inventory. Formulate a linear
programming to determine how many hard drives should be
produced in each quarter in order to minimize total cost.
Portfolio Selection
Problem..
International City Trust (ICT) invests in large cap
stocks, corporate bonds, precious metal stocks,
mortgage-backed securities, and construction loans.
ICT has Rs. 5 million available for immediate
investment and wishes to maximize the interest
earned on the investments over the next year.
To encourage a diversied portfolio, the board of
directors has placed several limits on the amount
that can be committed to any one type of
investment: (i) no more than 25% of the total
amount invested may be in any single type
investments, (ii) at least 30% of the funds invested
must be in precious mode, (iii) at least 45% invested
in large cap stocks and corporate bonds, and (iv) the
average risk score of the total investment must be 2
or less.
For each type of investment, the following table
shows the expected return over the next year as
well as a score that indicates the risk associated
with the investment
Investment Int. earned Risk Score
Large Cap Stocks 19% 1.7
Corporate Bonds 10% 1.2
Gold Stocks 18% 3.7
Platinum Stocks 12% 2.4
Mortgage Securities 8% 2

Construction Loans 15% 2.9

 Example 5. (HR)
The MTNL wants to know the minimum number of operators
required to meet the daily requirement of the Jamshedpur
telephone exchange:
Time of day Minimum no. of operators required
0200 0600 2
0600 1000 8
1000-1400 10
1400-1800 5
1800-2200 4
2200-0200 1

An operator is on duty continuously for eight hours from the

time of the duty commences. Formulate the LP model of the
problem.
 Flair Furniture Company
The flair furniture company produces inexpensive tables and
chairs. The production process for each is similar in that both
require a certain number of hours of carpentry work and a
certain number of labor hours in the painting and varnishing
department. Each table takes 4 hours of carpentry and 2 hours
of painting and varnishing shop. Each chair requires 3 hours of
carpentry and 1 hour of painting and varnishing. During the
current production period, 240 hours of carpentry time
available and 100 hours of painting and varnishing time
available. Each table sold with a profit of Rs. 7; each chair
produced is sold for a Rs. 5 profit.
Flair Furnitures problem is to determine the best possible
combination of tables and chairs to manufacture in order to
reach the maximum profit. The firm would like this production
mix situation formulated as an LP problem.