Quantitative Decision Models I

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Lecture 01
 Agenda
● Introductions: Prof & Course
● Course Outline
● Intro to MS/OR
● Intro to Modelling
● Next class
 Kevin W. Li
● Office: OB510
● Email: kwli@uwindsor.ca
● Tel: 253-3000 ext. 3456
● Office Hours:
– Kevin W. Li
» Mondays/Wednesdays 14:00-16:30
– TA/GA office hours: TBA
 Keep in Touch
● If you have a question, you are STRONGLY
encouraged to ASK IT IN CLASS. You are
probably not the only one that needs the question
answered, and other students may benefit from your
questions, too.
● Check our course website regularly. Ask your
questions in the Discussion area or check the FAQ
area for information.
● Discussion board online is designed to be a forum
for us to exchange ideas and comments.
● Drop by during office hours or book another time to
see me in my office.
 Today’s Objectives
● Understand course requirements and
evaluation
● Know Where to go for What
● Be aware of the importance of decision
modeling to business
 Quantitative Decision Models I
● Course Outline ☞ handout
● Website: (See the course outline as well.)
– Go to www.uwindsor.ca/classnotes and follow
the link to Odette School of Business 
Management Science  our course.
– Individual login is required.
» Use your UW ID and password.
» If you have any difficulty, please refer to IT Helpdesk.
– Lecture slides, assignments, announcements,
discussion board, supplemental material, and
milestone dates, etc.
Course Requirements
● You learn decision analysis by doing
decision analysis
– Do AT LEAST the self-test problems in the
text.
– If you still cannot get to the point, do more
exercises.
● Software
– Get comfortable with Excel
– Excel Solver (main tool discussed in class)
– Management Scientist
Course Evaluation

● 4 Assignments – 15%
– Will be posted on the website.
● Midterm- 40%
– Friday, October 27, 7:00-10:00pm
– Room: TC102 and TC202.
● Final – 45%
– See Registrar’s website for info.
 Policies Re Assignments
● All assignments are individual work and should be
completed independently.
● Assignments will be collected during the first 10
minutes. Any assignments after the first minutes up to
the end of the class will be accepted with a 30% penalty.
No assignments will be accepted after the class is over.
● Assignments must be handed in to the section that a
student is officially registered.
● Assignments should be STAPLED and placed in an
ENVELOPE. On the envelope, please clearly indicate
your name, ID, course number, section number, etc.
 Policies Re Missed Midterms
● Students who miss the midterm with legitimate reasons
have to hand in appropriate documents to the instructor
by November 11. A deferred midterm will be
administered by the Dean’s Suite on the last day of the
final exam period. Please contact the Dean’s suite for
exact date, time and place.
● It is IMPOSSIBLE to shift the midterm weight to other
components of this course.
● Failure to hand in appropriate documents by November
10, a grade of zero will be assigned for missed
midterms.

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Introduction to the Course
● The body of knowledge involving quantitative
approaches to decision making is referred to as
– Management Science
– Operations Research
– Decision Science
● It had its early roots in World War II and is
flourishing in business and industry with the aid of
computers
● General MS/OR approach
– Build a mathematical model for a real-world system
– Use the model to improve system design and operations

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 Topics in this course
● Operations Research/Management Science
– Deterministic vs. Stochastic
● Mathematical programming:
– Linear programming,
– Integer programming.
● Project scheduling: PERT/CPM:
● Inventory management

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

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Quantitative Analysis and
Decision Making
● Potential Reasons for a Quantitative
Analysis Approach to Decision Making
– The problem is complex.
– The problem is very important.
– The problem is new.
– The problem is repetitive.

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Quantitative Analysis

● Quantitative Analysis Process

– Model Development
– Data Preparation
– Model Solution
– Report Generation

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 Model Development
● Models are representations of real objects or
situations
● Three forms of models are:
– Iconic models - physical replicas (scalar
representations) of real objects
– Analog models - physical in form, but do not
physically resemble the object being modeled
– Mathematical models - represent real world
problems through a system of mathematical
formulas and expressions based on key
assumptions, estimates, or statistical analyses
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Advantages of Models

● Generally, experimenting with models

(compared to experimenting with the real
situation):
– requires less time
– is less expensive
– involves less risk

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 Mathematical Models
● Cost/benefit considerations must be made in
selecting an appropriate mathematical model.
● Frequently a less complicated (and perhaps
less precise) model is more appropriate than a
more complex and accurate one due to cost
and ease of solution considerations.

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 Mathematical Models
● Relate decision variables (controllable inputs) with fixed or
variable parameters (uncontrollable inputs)
● Frequently seek to maximize or minimize some objective
function subject to constraints
● Are said to be stochastic if any of the uncontrollable inputs is
subject to variation, otherwise are deterministic
● Generally, stochastic models are more difficult to analyze.
● The values of the decision variables that provide the
mathematically-best output are referred to as the optimal
solution for the model.

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 Transforming Model Inputs into Output
Uncontrollable Inputs
(Environmental Factors)

Controllable
Output
Inputs Mathematical
(Projected
(Decision Model
Results)
Variables)

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Data Preparation
● Data preparation is not a trivial step, due to
the time required and the possibility of data
collection errors.
● A model with 50 decision variables and 25
constraints could have over 1300 data
elements!
● Often, a fairly large data base is needed.
● Information systems specialists might be
needed.
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 Model Solution
● The analyst attempts to identify the alternative (the
set of decision variable values) that provides the
“best” output for the model.
● The “best” output is the optimal solution.
● If the alternative does not satisfy all of the model
constraints, it is rejected as being infeasible,
regardless of the objective function value.
● If the alternative satisfies all of the model
constraints, it is feasible and a candidate for the
“best” solution.

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 Model Solution
● One solution approach is trial-and-error.
– Might not provide the best solution
– Inefficient (numerous calculations required)
● Special solution procedures have been
developed for specific mathematical models.
– Some small models/problems can be solved by
hand calculations
– Most practical applications require using a
computer

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Computer Software

● A variety of software packages are available

for solving mathematical models.
– Spreadsheet packages such as Microsoft Excel
– The Management Scientist, developed by the
textbook authors

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 Model Testing and Validation
● Often, goodness/accuracy of a model cannot be assessed
until solutions are generated.
● Small test problems having known, or at least expected,
solutions can be used for model testing and validation.
● If the model generates expected solutions, use the model
on the full-scale problem.
● If inaccuracies or potential shortcomings inherent in the
model are identified, take corrective action such as:
– Collection of more-accurate input data
– Modification of the model

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 Report Generation
● A managerial report, based on the results of
the model, should be prepared.
● The report should be easily understood by
the decision maker.
● The report should include:
– the recommended decision
– other pertinent information about the results (for
example, how sensitive the model solution is to
the assumptions and data used in the model)

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 Implementation and Follow-Up
● Successful implementation of model results
is of critical importance.
● Secure as much user involvement as possible
throughout the modeling process.
● Continue to monitor the contribution of the
model.
● It might be necessary to refine or expand the
model.

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 Quantitative Methods in Practice

■ Linear Programming ■ Decision Analysis

■ Integer Linear ■ Goal Programming
Programming ■ Analytic Hierarchy
■ PERT/CPM Process
■ Inventory models ■ Forecasting
■ Waiting Line Models ■ Markov-Process Models
■ Simulation

In this course, we are going to cover Linear

Programming, Integer Linear Programming,
PERT/CPM, and some Inventory Models.

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The Management Scientist
Software
● Modules

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 Next Class
● Install Premium Solver (to install premium
solver, you must have installed Excel add-in
Solver first) and Management Scientist.
● Read Section 1.4, Appendices 1.1 and 1.2
● Bring to class
– Notes for next class

YOU LEARN DECISION ANALYSIS BY

DOING DECISION ANALYSIS!!
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