Management Science

Republic of the Philippines
Laguna State Polytechnic University

Province of Laguna
Compilation of Reports in
Management Science
Submitted by: BSA-1A

A.Y. 2018-2019
Dr. Maria D. Cerezo
May 16, 2019

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Topic: Linear Programming

Reporters: Diane Delgado, Eunice Laarnie Simon, Shera Lontoc & Christian Militante
A Linear Programming is a mathematical modeling technique in which a linear

function is maximized and minimized when subjected to various constraints.
It is useful for guiding quantitative decisions in business planning, in industrial
engineering, and in the social and physical sciences but in lesser extent.
Its application were first seriously attempted in the late 1930s by the soviet
mathematician Leonid Kantorovich (manufacturing schedules). WWII
Examples of Linear Programming Problems (1)

 A Product Mix Problem
A manufacturer has fixed amounts of different resources such as raw material, labor,
and equipment.
These resources can be combined to produce any one of several different products.
The quantity of the resource required to produce one unit of the product is known.
The decision maker wishes to produce the combination of products that will maximize
total income.
Production planning
 Linear Programming methods are often helpful at solving problems related to
production.
 Calculate how much of each product.
 Help to minimize its profits.
Marketing Mix
 Determines how much of a company’s marketing budget.
 Help to measure which blend of marketing avenues deliver the most qualified leads at
the lowest cost.
Developing Linear Programming Model (1)

The variety of situations to which linear programming has been applied ranges from
agriculture to zinc smelting.
Steps Involved:
 Determine the objective of the problem and describe it by a criterion function in terms
of the decision variables.
 Find out the constraints.
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 Do the analysis which should lead to the selection of values for the decision variables
that optimize the criterion function while satisfying all the constraints imposed on the
problem.
Topic: FORECASTING
Reporters: Ferlyn Butial & Taj Adriano
Forecasting is a technique that uses historical data as inputs to make informed

estimates that are predictive in determining the direction of future trends. Businesses utilize
forecasting to determine how to allocate their budgets or plan for anticipated expenses for
an upcoming period of time. This is typically based on the projected demand for the goods
and services offered.
Types of Forecasting Methods
1. Naïve Forecasting Methods
The Naïve Forecasting Methods base a projection for a future period on data
recorded for a past period. For example, a naïve forecast might be equal to a prior period’s
actuals, or the average of the actuals for certain prior periods. Naïve forecasting makes no
adjustments to past periods for seasonal variations or cyclical trends to best estimate a
future period’s forecast. The user of any naïve forecasting method is not concerned with
causal factors, those factors that result in a change in actuals. For this reason, the naive
forecasting method is typically used to create a forecast to check the results of more
sophisticated forecasting methods.
A Naïve Forecast simply uses the actual demand for the past period as the forecasted
demand for the next period. This, of course, makes the assumption that the past will repeat.
It also assumes that any trends, seasonality, or cycles are either reflected in the previous
period's demand or do not exist. An example of naïve forecasting is presented in Table 1.
2. Qualitative and Quantitative Forecasting Methods

Whereas personal opinions are the basis of qualitative forecasting methods,
quantitative methods rely on past numerical data to predict the future. The Delphi method,
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informed opinions and the historical life-cycle analogy are qualitative forecasting methods.
In turn, the simple exponential smoothing, multiplicative seasonal indexes, simple and
weighted moving averages are quantitative forecasting methods.
3. Causal Forecasting Methods

Regression analysis and autoregressive moving average with exogenous inputs are
causal forecasting methods that predict a variable using underlying factors. These methods
assume that a mathematical function using known current variables can be used to forecast
the future value of a variable. For example, using the factor of ticket sales, you might
predict the variable sale of movie-related action figures, or you might use the factor number
of football games won by a university team to predict the variable sale of team-related
merchandise.
4. Judgmental Forecasting Methods

Scenario building, statistical surveys and composite forecasts each are judgmental
forecasting methods based on intuition and subjective estimates. The methods produce a
prediction based on a collection of opinions made by managers and panels of experts or
represented in a survey.
5. Time Series Forecasting Methods

 The time series type of forecasting methods, such as exponential smoothing, moving
average and trend analysis, employ historical data to estimate future outcomes. A time
series is a group of data that’s recorded over a specified period, such as a company’s
sales by quarter since the year 2000 or the annual production of Coca Cola since 1975.
Because past patterns often repeat in the future, you can use a time series to make a
long-term forecast for 5, 10 or 20 years. Long term projections are used for a number of
purposes, such as allowing a company’s purchasing, manufacturing, sales and finance
departments to plan for new plants, new products or new production lines.
Topic: Break-Even Analysis

Reporters: Lea Marie Dagman & Jomel Lopez
 Also referred as Profit Analysis

 Deals with a profit, a topic of direct concern to managers and because it is relatively easy
form of analysis to learn.
 It is a popular management science technique.
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Components of Break-even Analysis

 Volume
• It is the level of production by a company.
• It is expressed as the number of units
 Costs
• An outlay or expenditure made to achieve an object.
Two Types of Costs
1. Fixed Costs
• Fixed costs remain constant regardless of how many units of product are produced
within a given range.
• It is generally independent of the volume of units produced.
• It is expressed mathematically as 𝑐𝑓
2. Variable Costs
• It is determined on a per-unit basis.
• Total variable costs are depend on the number of units produced.
• Total variable costs are a function of the volume and the variable costs per unit. It is
mathematically expressed as 𝑣𝑐𝑣
• Where: v= Volume (Number of units)
o 𝑐𝑣 = Variable cost per unit
3. Profit
 Profit is the difference between total revenue and total costs.
Total Profit = 𝑣𝑝 − [𝑐𝑓 + 𝑣𝑐𝑣 ]
Total Costs Formula

TC = 𝑐𝑓 + 𝑣𝑐𝑣
Example:
Consider the Western Clothing Company, which produces denim jeans. The
company incurs the following monthly costs to produce denim jeans.
Given : 𝑐𝑓 = $10,000
𝑐𝑣 = $8 per pair
If we arbitrarily let the volume, 𝑣, equal 400 pairs of denim jeans, the total cost is
= $10,000 + (400)($8)
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= $13, 200
Total Revenue
 Total revenue is the volume multiplied by the price per unit.
 It is expressed mathematically as 𝑣𝑝
Example (Total revenue)
From the previous example, if denim jeans sell for $23 per pair and they sell 400
pairs per month, then the total monthly revenue is:
Total Revenue = 𝑣𝑝
= (400)($23)
= $9,200
We have already determined total cost.
Now, we can determine the profit.
= $9,200 – $13,200
= - 4000
Break-even Point
• Obviously, the clothing company experienced a monthly loss instead of profit.
Every business does not want to operate with a loss and it will tend to bankruptcy.
• If we assume that a price is static because of market conditions and that fixed costs
and the variable costs per unit are not subject to change, then the only part can be
varied is volume.
• The volume, 𝑣, that corresponds to this point is the break-even volume.
Break-even Volume
• In general, the break-even volume can be determined using the following formula.
𝑐𝑓
𝑣=
𝑝−𝑐𝑣
10,000
= 23 −8
= 667 pairs of jeans
• In other words, if the company produces 667 pairs of jeans, the profit (loss) will be
zero and the company will break even. This gives the company a point of reference
from which to determine how many pairs of jeans to produce in order to gain a
profit.
Example
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• A volume of 800 pairs of denim jeans will result in the following monthly profit.
= (800)($23) – [$10,000 + (800)($8)]
= $18,400 – [$10,000 + $6,400]
=$2,000
Break-even Volume
• It could be expressed in three forms:
1. Quantity Volume
2. Dollar Volume
3. Volume as a percentage of available capacity
• The general break-even formula we developed was for quantity volume.
• Now we will alter the general break-even formula to reflect these other two ways of
expressing volume.
• First we will consider volume expressed in terms of dollar sales.
We calculate this value by multiplying the break-even quantity volume by the price, p.
Break-even sales volume = 𝒑𝒗
Thus, for our example,
𝒑𝒗= $(23)(667)
= $15,341
Next we will consider volume expressed as a percentage of total capacity. This value is
determined by dividing the break-even quantity volume by the maximum operating
capacity, k.
Break-even volume as a percentage of capacity
=v/k
If in our example the maximum capacity, k, equals
1,000 pairs of denim jeans, then the break-even volume as percentage of total capacity is
v / k = 667 / 1,000
= 66.7 %
PROFIT ANALYSIS
• Price -this is the first item to analyze.
EXAMPLE:
The price for denim jeans increase from $23 to $30.
𝑐𝑓 10,000
v = _______ = _______
p - 𝑐𝑣 30 - 8
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= 454.5 pairs of denim jeans

• Variable Costs
> In our consideration of an increase in price, we mentioned the possibiity of raising the
quality of the product to offset a potential loss of sales due to the price increase.
> This new break-even volume and change in the total cost line that occurs as a result of
the variable cost change.
For example:
Suppose the stitching on the denim jeans is changed to make the jeans more attractive and
stronger.
This change results in an increase in variable costs of $4 per pair of jeans, thus raising the
variable costs per unit, Cv, to $12 per pair.
v = 𝑐𝑓 / p - 𝑐𝑣
= 10,000 / 30 - 12
• Fixed Costs
> This new break-even volume, representing changes in price, fixed costs, and variable
costs.
In example for this, is an increase in advertising expenditures to offset the potential loss in
sales resulting from a price increase. And an increase in advertising expenditures will be
added to the fixed costs.
EXAMPLE:
If the clothing company increases its monthly advertising budget by
$3,000, then the total fixed cost, Cf, becomes $13,000.
Using this fixed cost, as well as the increased variable cost per unit of $12 and the increased
price of $30, we compute the new break-even volume as follows.
v = Cf / p - Cv
= 13,000 / 30 - 12
PROBABILISTIC ANALYSIS OF THE BREAK-EVEN MODEL

If we assume that volume is uncertain but that the probability distribution of volume is
identified by a normal distribution, we can perform probabilistic analysis of the break-even
model.
Computerized Break-even Analysis

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NONLINEAR PROFIT ANALYSIS

• One important but somewhat unrealistic assumption of the break-even model as we
have constructed it is that demand is independent of price (i.e., volume remains
constant regardless of the price of the product).
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Example Problem Solution

The following example will demonstrate break-even analysis as prelude to the problems.
Problem Statement
• The texas Electronics Company produces caclculators. The annual fixed cost of
producing calculators is $280,000. The variable cost of producing a calculator is $8.
The company sells the calculators for $26. Given an annual volume of 60,000
calculators, determine the total cost, total revenue, profit, break-even volume, and
break-even sales volume. If production capacity is 80,000 calculators, determine the
break-even volume as a percentage of capacity.
Step 1 Determine Total Cost

Formula : TC = 𝒄𝒇 + 𝒗𝒄𝒗
Step 2 Determine Total Revenue
Formula : TR =𝒗𝒑
Step 3 Determine Profit
Formula : Total Profit = TR - TC
Step 4 Determine Break-even Volume
Formula : v = 𝒄𝒇 / p - 𝒄𝒗
Step 5 Determine Break-even Sales Volume
Formula : B-E sales volume = 𝒗𝒑
Step 6 Determine Break-even Volume as a Percentage
Formula : B-E volume as a % of capacity = v / k
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Topic: SIMULATION
Reporters: Michaela Revilleza, Joemelyn Dela Rosa & Herlene Lapitan
• It represents a major divergence from the topics presented in the previous chapters
of this text.
• Previous topics usually dealt with mathematical models and formulas that could be
applied to certain types of problem with solutions mostly in an analytical way.
• Some problem situations are too complex to be represented by the concise
techniques presented so far, in such cases, SIMULATION is an alternative form of
analysis.
ANALOGUE SIMULATION
• Form of simulation familiar to most people.
• An original physical system is replaced by an analogous physical system that is
easier to manipulate.
For example:
• Wind tunnels that simulate the conditions of flight and treadmills that simulate
automobile tire wear in a laboratory instead of on the road.
COMPUTERIZED MATHEMATICAL SIMULATION

• Systems are replicated with mathematical models, which are analyzed with a
computer.
• Has become very popular technique that has been applied to a wide variety of
business problems. It offers a means of analyzing very complex systems that cannot
be analyzed using the management science techniques in this text.
SIMPLEST FORM OF SIMULATION MODEL:

“MONTE CARLO” PROCESS
• Simulating random variables.
• A technique for selecting numbers randomly from a probability distribution (i.e
“sampling”) for use in a trial (computer) run of simulation.
• The process is the same as in the operation of a gambling casino in Monaco. In
Monaco, such devices as roulette wheels, dice and playing cards are used. These
devices produce numbered results at random from well – defined populations.
The use of Random Numbers
• The Manager of the Big T Supermarket must decide how many cases of milk o
order each week. One of the primary consideration in the manager’s decision is the
amount of milk demanded each week. The number of cases of milk demanded is a
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random variable (x) that ranges from 14 to 18 every week. From past records, the
manager has determined the frequency distribution, a probability distribution of
demand can be developed, shown in Table 15.1
• The purpose of the Monte Carlo process is to generate the random variable, demand
by “sampling” from the probability distribution, P(x).
• The demand per week can be randomly generated according to the probability
distribution by spinning a wheel that is partitioned into segments corresponding to
the probabilities as shown in Figure 15.1
o The wheel replicates the probability distribution for demand if the values of demand
occur in a random manner.
In order to simulate demand for 1 week, the manager spins the wheel; the segment
at which the wheel stops indicates demand for one week.
Over a period of weeks (i.e., many spins of the wheel), the frequency with which
demand values occur will approximate the probability distribution P(x). By spinning
the wheel, the manager artificially reconstructs the purchase of milk during a week.
In this reconstruction, a long period of real time (i.e., a number of weeks) is
represented by a short period of simulated time (i.e., several spins of the wheel).
Reconstructing the roulette wheel by putting numbers along the outer rim as on a
real roulette wheel.
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Figure 15.2 Reconstructed Wheel

Using a random table
• It is not generally practical to generate weekly demand for milk by spinning a
wheel. Alternatively, the process of spinning a wheel can be replicated using
random numbers alone.
• 1st – transfer the ranges of random numbers for each demand value from the roulette
wheel to a table, as in Table 15.2
• 2nd – select a random number from Table 15.3 (RANDOM NUMBER TABLE)
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Table 15.3 Random Number Table

• By repeating this process of selecting random numbers from Table 15.3 and then
determining weekly demand from the random number, we can simulate demand for
a period of time.
EXAMPLE:
From Table 15.4 the manager can compute the estimated average weekly demand.
Estimated average demand = 241 / 15
= 16.1 cases per week
The manager can then use this information to determine the number of cases of milk to
order each week.
Although this example is convenient for illustrating how simulation works, the average
demand could have more appropriately been CALCULATED ANALYTICALLY USING
THE FORMULA for expected value. The expected value or average for weekly demand
can be computed analytically from the probability distribution P(x).
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COMPUTER SIMULATION
• As simulation models get progressively more complex, it becomes virtually
impossible to perform them manually, thus making the computer a necessity.
MORE COMMON APPLICATIONS OF SIMULATION
-QUEUING
A major application of simulation has been in the analysis of queuing systems. The
assumptions required to solve the operating characteristic formulas are relatively restrictive.
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For the more complex queuing systems, it is not possible to develop analytical
formulas, and simulation is often the only available means of analysis.
INVENTORY CONTROL
Most of the mathematical formulas used to analyze inventory systems make the
assumption that this demand is certain.
In practice, however, demand is rarely known with certainty. Simulation is one of
the few means for analyzing inventory systems in which demand is a random variable,
reflecting demand uncertainty.
PRODUCTION AND MANUFACTURING

Simulation is often applied to production problems, such as production scheduling,
production sequencing, assembly line balancing (of in –process inventory), plant layout and
plant location analysis.
FINANCE
Capital budgeting problems require estimates of cash flows, which are often a result
of many random variables. Simulation has been used to generate values of the various
contributing factors to derive estimates of cash flows.
Simulation has also been used to determine the inputs into rate of return calculations
where the inputs are random variables, such as market size, selling price, growth rate and
market share.
MARKETING
Marketing problems typically include numerous random variables such as market
size and type and consumer preferences. Simulation can be used to ascertain how a
particular market might react to the introduction of a product or to an advertising campaign
for an existing product.
In the analysis of distribution channels to determine the most efficient distribution
system simulation is also applied.
PUBLIC SERVICE OPERATIONS
Operations of police and fire departments, post offices, hospital, court systems,
airports and other public systems have been analyzed using simulation.
Typically such operations are so complex and contain so many random variables
that no technique except simulation can be employed for analysis.
ENVIRONMENTAL AND RESOURCE ANALYSIS
Simulation models have been developed to ascertain the impact of project such as
nuclear power plants, reservoirs, highways and dams on the environment.
These models include measures to analyze the financial feasibility of such projects.
Other models have been developed to simulate pollution conditions. In resource analysis,
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models were developed to simulate energy systems and the feasibility of alternative energy
sources.
SIMULATION LANGUAGES
Generalized simulation languages have been developed to perform many of the
functions of a simulation study.
Each of these languages requires at least some knowledge of a scientific or business
– oriented programming language.
EXAMPLES: SIMSCRIPT, SIMULA
DYNAMO – for random variables that changes over time
GPSS and GASP – for queuing problems
GERT, Q-GERT and SLAM – for “network” simulation
• PROGRAMMING LANGUAGES USED FOR SIMULATION APPLICATIONS
APPLICATION OF SIMULATION
• Wilderness Recreational Travel
A simulation model was developed to provide a better way of formulating and
evaluating policies for the management of wilderness area use.
The model, written in the GPSS language, generates visitors of varying types and
groups who arrive at various simulated times at different entrance points and move along
selected routes of travel. It provides information for simulations of particular use scenarios.
• CORPORATE PLANNING
A simulation model was designed to assist management in developing medium –
term (2-3 years) corporate plans that encompassed all aspects of the company’s operation
from sales forecasting to cash flow analysis. Its submodels are: sales, production, cash flow
and print.
Sales – uses sales and price forecasts to develop input data for the other submodels.
Production – uses sales projections to generate a production schedule in addition to
providing estimates of raw materials, inventory requirement, labor – force and so forth.
Cash flow – main component of planning model. Sales and production are analyzed and
then used for marginal pricing and new market penetration.
Print- reports for sales, production, etc.
• RESTAURANT OPERATIONS AND PLANNING
A simulation model was developed to encompassed 3 subsystem:
1. The customer system
2. The production system
3. The delivery system
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The model was used to test new product service concepts and new restaurant
configurations, to analyze labor and staffing needs, to solve operational problems, analyze
individual restaurant profitability and productivity and to deal with a variety of other
corporate activities.
• TIMBER PROCESSING
Developed a “decision simulator”, an interactive visual (rather than numeric)
simulation of the decision – making scenario (somewhat similar to a videogame) to deal
with problem. This process can be repeated to explore alternative decisions.
• CD PORTFOLIO MANAGEMENT IN A BANK
A model using the SLAM simulation language was developed to assess the impact
of different interest – rate conditions on its certificate of deposit (CD) portfolio for planning
purposes.
Its results represent the manager’s “what - if” analyses of future conditions.
Topic: Markov Analysis

Reporters: Allysa Alcaraz, Eunice Laarnie Simon, Shera Lontoc & Diane Delgado
What is Markov Analysis?

• Markov analysis is a method of analyzing the current behavior of some variable in
an effort to predict the future behavior of the same variable.
• This procedure was developed by the Russian mathematician, Andrei A. Markov
early in this century.
• He first used it to describe and predict the behavior of particles of gas in a closed
container. As a management tool, Markov analysis has been successfully applied to
a wide variety of decision situations.
• Example and Solution
Example 1:
• A machine which produces parts may either he in adjustment or out of adjustment.
If the machine is in adjustment, the probability that it will be in adjustment a day
later is 0.7, and the probability that it will be out of adjustment a day later is 0.3. If
the machine is out of adjustment, the probability that it will be in adjustment a day
later is 0.6, and the probability that it will be out of adjustment a day later is 0.4. If
we let state-1 represent the situation in which the machine is in adjustment and let
state-2 represent its being out of adjustment, then the probabilities of change are as
given in the table below. Note that the sum of the probabilities in any row is equal
to one.
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Solution:
• The process is represented in Fig. 18.4 by two probability trees whose upward
branches indicate moving to state-1 and whose downward branches indicate moving
to state-2.
• Suppose the machine starts out in state-1 (in adjustment), Table 18.1 and Fig.18.4
show there is a 0.7 probability that the machine will be in state-1 on the second day.
Now, consider the state of machine on the third day. The probability that the
machine is in state-1 on the third day is 0.49 plus 0.18 or 0.67 (Fig. 18.4).
Calculations can similarly be made for next days and are given in Table 18.2 below:
Applications of markov analysis
• Markov analysis has come to be used as a marketing research tool for examining
and forecasting the frequency with which customers will remain loyal to one brand
or switch to others. It is generally assumed that customers do not shift from one
brand to another at random, but instead will choose to buy brands in the future that
reflect their choices in the past.
Other applications that have been found for Markov Analysis include the following
models:
• A model for manpower planning,
• A model for human needs,
• A model for assessing the behaviour of stock prices,
• A model for scheduling hospital admissions,
• A model for analyzing internal manpower supply etc.
Topic: Inventory Analysis with Uncertain Demand

Reporter: Liezel Cortez & Ken Ruzel Pascual
Reorder Point- has to do when actually place the order of an item

Safety Stock- how much inventory you need to keep on hand with regards to the variations
of the demand
Holding Costs- the cost of holding or “carrying” inventory over time
• Definition of Terms:
Ordering Costs- cost of placing an order and receiving goods
Set-up Costs- cost to prepare a machine or process for manufacturing an order.
• INDEPENDENT VS. DEPENDENT DEMAND
• SAFETY STOCKS
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 These are the emergency stocks or the extra stock of products needed to have in
case of unforeseen circumstances that can put them to the verge of selling out.
Example of circumstances:
• breakdown of product machinery
• Weather and other related troubles affecting the stocks/delivers
 This is also called the “Inventory formula/Equation”
• Calculating Safety Stocks
Example:
A souvenir retailer “From Russia with Love” based in the New York City sells Gzel
Tea sets from Russia. On an average, it takes about 40 days to get the tea sets made and
shipped from Russia to NYC. The company sells about 15 tea sets a day but on good days
sales can go as high as 25. Unfortunately, in Russia, they have snow storms and the roads
are not always reliable, which sometimes results in long lead times, up to 55 days.
• To calculate Safety stock:
SS = Maximum Daily Usage x Maximum lead time in days - Average Daily Usage x
Average Lead time in days
= (25 x 55) – (15 x 40)
= 775
 Is a system for calculating the materials and components needed to manufacture a
product.
 It consists of three primary steps: taking inventory of the materials and components
on hand, identifying which additional ones are needed and then scheduling their
production or purchase.
 Is one of the most widely used systems for harnessing computer power to automate
the manufacturing process.
• MRP SYSTEM (Material Requirements Planning)
 MRP uses information from the bill of materials (a list of all the materials,
subassemblies and other components needed to make a product, along with their
quantities), inventory data and the master production schedule to calculate the
required materials and when they will be needed during the manufacturing process.
• MRP SYSTEM (Material Requirements Planning)
• OBJECTIVES OF MRP SYSTEM
• to make sure that materials and components are available when needed in the
production process and that manufacturing takes place on schedule.
• Effective inventory management and optimization
• Improve manufacturing efficiency by using accurate scheduling to optimize the use
of labor and equipment.
• SINGLE PERIOD MODEL
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• This model is also known as the “newsboy problem” as it describes the problem of a
newspaper vendor who must decide on how many papers to order per day and any
that are leftover must still be paid for.
 Using historical data
• Identify a variety of demand scenarios
• Determine probability each of these scenarios will occur
 Given a specific inventory policy
• Determine the profit associated with particular scenario
• Given a specific order quantity
 Order the Quantity that maximize the average profit
• Marginal Analysis with Discrete Distributions
 Finding inventory level with the lower cost is not difficult when following the
marginal analysis procedure. This procedure states that a business would stock an
additional unit only if the expected marginal profit for the unit equates or exceeds
the expected marginal loss.
• Marginal Analysis with Discrete Distributions
 This relationship expressed symbolically as follows:
P = probability that demand will be greater than or equal to a given supply
1-P = Probability that demand will be less than supply
Marginal Profit (Ce) – profit of selling extra unit
Marginal Loss (Cs)- loss of selling extra unit
• OPTIMAL ORDER QUANTITY
The optimal decision rule is to stock the additional unit if
P (Ce) ≥ (1-P) Cs
With some basic mathematical manipulations we can determine the level of P :
P (Ce) ≥ Cs – P (Cs)
P (Ce) + P (Cs) ≥ Cs
P (Ce+ Cs) ≥ Cs or P ≥ Cs
Cs+Ce
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Topic: QUEUING ANALYSIS

Reporters: Rona Mae Decena & Christian Militante
OBJECTIVES
• Increase service rate.
• Decrease waiting time.
QUEUING THEORY
• It is the mathematics of waiting lines.
• It is extremely useful in predicting and evaluating system performance.
• Queuing theory has been used for operations research, manufacturing and systems
analysis. Traditional queuing theory problems refer to customers visiting a store,
analogous to requests arriving at a device.
QUEUING SYSTEM
• Model processes in which customers arrive.
• Wait their turn for service.
• Are serviced and then leave.
KEY ELEMENTS
• Customer- refers to anything that arrives at a facility and requires service.
• Server- refers to any resource that provides the requested service.
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2 Important key points of

Queuing Theory
1. Arrival Rate- how many people are coming per second, minute, and hour.
2. Service Rate- how many people we can provide service per second, minute, and
hour.
QUEUING MODELS
1. Deterministic Queuing Model (DQM)
2. Probabilistic Queuing Model (PQM)
• DQM
ʎ = mean number of arrivals per time period
µ = mean number of units served per time period
If ʎ > µ, the waiting line shall be formed and increased indefinitely and service
system would fail ultimately.
If ʎ ≤ µ, there shall be no more line.
The Single-Server Waiting Line System

• Simplest form of queuing system.
• The most important factors to consider in analyzing a queuing system:
1. Queue Discipline- in what order customers are served.
2. Calling Population- where customers come from.
3. Arrival Rate- how often customers arrive at the queue.
4. Service Rate- how fast customers are served.
Single Server Queuing model
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Example:
ʎ = 24 customers per hour arrive at checkout counter
µ = 30 customers per hour can be checked out
The ratio of the arrival rate to the service rate must be less than one, which also
means the service rate must be greater than the arrival rate if this model is to be used. The
server must be able to serve customers faster than they come into the store, or the waiting
line will grow to an infinite size and the system will never reach a steady state.
Effect of Operating Characteristics on Managerial Decisions
• Several alternatives for reducing customer waiting time
1. Addition of another employee to pack up the purchases
2. Addition of an additional checkout counter
Alternative 1:
The Addition of an Employee
The addition of an extra employee will cost the store manager $150 per week. With
the help of the national office’s marketing research group, the manager has determined that
for each minute that customer waiting time is reduced, the store avoids a loss in sales of
Province of Laguna
$75 per week. (That is, the store loses money when customers leave prior to shopping
because of a long line, or when customers do not return.)
If a new employee is hired, customers can be served in less time. In other words, the
service rate, which is the number of customers served per time period, will increase.
Previous service rate:
µ= 30 customers served per hour
The addition of a new employee will increase the service rate to:
It will be assumed that the arrival rate will remain the same (ʎ= 24 per hour)
Alternative 2:
The Addition of a Checkout Counter
Next we will consider the manager’s alternative of constructing a new checkout
counter. The total cost of this project would be $6,000, plus an extra $200 per week for an
additional cashier.
Problem:
• jockeying
But let us assume that the customers will divide themselves equally. Thus, the new arrival
rate for each checkout counter is
ʎ = 12 customers per hour
And the service rate remains the same for each of the customers,
Parameters of the Multiple- Server Model

ʎ = arrival rate
µ = service rate
c = number of servers
cµ = mean effective service rate for the system, which must exceed the arrival rate
Applications of Queuing Analysis
• Election Voting
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• Bank Teller Staffing

• Machine Operator Assignment
• A Telephone “Hotline” System
Topic: CPM and Pert Analysis
Reporters: Rachel Gesmundo & John Carlo Sequeña
CPM stands for Critical Path Technique.

PERT stands for Project Evaluation and Review Technique.
 These two technique are basically identical.
 PERT is a probabilistic technique.
 CPM is deterministic technique.
 CPM and PERT were developed at the same time during the late 1950.
CPM and PERT Analysis are the most popular uses of network for project analysis.
 Projects like, construction of building, development of drug, installation of computer
system represented as networks.
 It can be used to determine the time duration of the projects.
CPM network
 Concurrent Activities
 The Critical Path
 Event Scheduling
 Latest Event Times
 Activity Slack
 CPM network also consists of branches and nodes
 Branches reflects activities of project or operation.
 Nodes represents the beginning and termination of activities referred to as events
 The branches represented routes or paths over which items flowed from one point in the
network to other points, which were represented by nodes.
As an example of a CPM network, we will consider the project of constructing the house:
Concurrent Activities
 Designing the house and obtain financing are now combined into Activity 1 to 2.
 The activity of ordering and receiving building materials follows the first activity
(combined).
 In the other words, the home builder can have the foundation laid and other the
materials concurrently.
 When activities 2 to 3 and 2 to are completed, the activities 4 to 5 and 4 to 6 can begin
simultaneously.
In a CPM network, two or more activities are not allowed to share starting and ending
nodes.
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 The longest path is also called critical path.

 If more than one path tie for the longest, they are all critical paths.
 Critical path: Start A to D finish
Estimated duration= 20 weeks
 We consider delay to exactly finish at 20 weeks.
 For small project finding paths and determining longest path is a convenient way to
identify critical path.
 Large project is prohibited.
Event Scheduling
 Scheduling procedure begins addressing the Question: When the activities Start and
finish at the earliest time if no delays occur?
 The starting and finishing times of each activity if no delays occur anywhere in the
project are called EARLIEST STARTING TIME and EARLIEST FINISHING
TIME.
 ES= Earliest time for a particular activity
 EF= Earliest finish time for a particular activity.
 EF=ES +estimated duration time.
 Latest start time for an activity is the latest possible time that it can start without
delaying the completion of the project.
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 Latest finish time has the corresponding definition with respect to finishing the
activity.
 The latest finish time of an activity is equal to smallest of the latest start time of its
immediate successors.
 LF= smallest LS of the immediate successors.
Identifying Slack in the Schedule
 Slack for an activity is the difference between its latest finish time and its earliest finish
time.
 Slack=LF-EF
 Each activity with zero slack is on a critical path through the project network such that
any delay along this path will delay project completion.
PERT Analysis
 Probability analysis of the Pert Network
⊸ Probabilities can be determine by computing the number of standard deviation.
 Computerized PERT Analysis
⊸ The capability to perform CPM/PERT network analysis is a standard feature of most
management science software packages for the personal computer.
 PROJECT CRASHING AND TIME-COST TRADE-OFF
⊸ Demonstrated the use of CPM and PERT network analysis for determining project time
schedules.
⊸ Project Management is frequently confronted with the problem of having to reduce
the scheduled completion time of a project to meet a deadline.
⊸ Project Duration can be reduced by assigning more labor to project activities.
⊸ The decision to reduce the project duration must be based on an analysis of the trade-
off between cost and time.
⊸ Project Crashing is a method for shortening the project duration by reducing the time
one or more of the critical project activities to a time that is less than the normal activity
time.
⊸ Crashing is achieved by devoting more resources, measured in terms of dollars to the
activities to be crashed.
⊸ The objective of project crashing is to reduce the project duration while minimizing the
cost crashing.
Province of Laguna
Topic: INVENTORY ANALYSIS

Reporters: Mikki Bautista & Mia Joyce Panesa
Inventory
⊸ Variety of forms such as partially finished products at different stages of a
manufacturing process, raw materials, resources, labor or cash
⊸ Common in manufacturing
⊸ Its purpose is not only to meet the customer’s demand, it also often represents a
significant cost to a business firm.
⊸ In inventory analysis, it has no representation of the most basic and fundamental form,
which of the most CLASSIC ECONOMIC ORDER QUANTITY
CARRYING COST
Cost incurred by the store for carrying the inventory
• Direct storage cost
• Deferred profit on investment
• Interest on the inventory
• Product obsolescence
• Depreciation, taxes, insurance
Usually expressed on per-unit basis; annual basis
ORDERING COST
The cost of placing an order
• Cost of processing order
• All record keeping transportation costs to get the order from the supplier
• Cost of unloading the order
• Salaries of employees in the ordering process
• All supplies used in ordering, including forms, postages, telephone and computer time
• Expressed per order basis
Total annual inventory cost

Cc Q/2 + Co D/Q
Province of Laguna
EOQ FORMULA
CC =OC
Q/2 X Cc = D/Q X Co
√𝟐𝑫𝒙𝑪𝒐
EOQ = 𝑪𝒄
Example:
Assume that a local gift shop is attempting to determine how many sets of wine glass to
order. The store feels it will sell approximately 750 sets in the next year as a price of
P22 per set. The wholesale price that the store pays per set is P20. Cost of carrying one
set of wine glasses are estimated at P2.50 per year while ordering are estimated at P35.
Answer:
√𝟐𝑫𝒙𝑪𝒐
EOQ = 𝑪𝒄
√𝟐𝒙 𝟕𝟓𝟎𝒙𝑷𝒉𝒑𝟑𝟓
EOQ = 𝑷𝒉𝒑𝟐.𝟓𝟎
EOQ = 𝟏𝟒𝟓 𝒖𝒏𝒊𝒕𝒔 𝒑𝒆𝒓 𝒐𝒓𝒅𝒆𝒓
APPLICATION OF MATHEMATICAL MODEL IN MANAGEMENT

QUEUING ANALYSIS
• ELECTION VOTING
• The length of time a voter must wait in line prior to voting in an election is frequently a
deterrent to voter turn out.
• The firm employed queuing analysis in developing a manual that local election
officials could use to allocate voting machines more effectively
• BANK TELLER STAFFING
• The bank wanted to reduce labor costs but not at the expense of bank service.
• The bank objective was to provide consistently good service to customers by matching
the staff levels and work schedules .
• Using queuing analysis the bank developed a teller staffing system to achieve the
objective
• Machine operator assignment
• The objective is to increase production capacity
• The model was used to determine how many machines should be assigned to each
attendant to minimize the total expected cost of operation.
• A TELEPHONE HOTLINE SYSTEM

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• Queuing analysis was used to determine staff and equipment requirements.

• The analysis indicated the number of telephone lines and staff operators necessary to
achieve a level of service
• Simulation
QUEUING
• The major application of simulation has been in the analysis of queuing system
INVENTORY CONTROL
• Product demand is an essential component in determining the amount of inventory a
commercial enterprise should keep. Most of the mathematical formulas used to analyze
inventory system make the assumption that this demand is certain, not random variable,
however demand is rarely known with certainty.. Simulation is one of the few means
for analyzing inventory systems in which demand id random variable, reflecting
demand uncertainty
• PRODUCTION AND MANUFACTURING
• Simulation is often applied to production problem such as production scheduling,
production sequencing, and plant layout and location analysis.
• FINANCE
• Capital budgeting problems require estimates of cash flow, which are often results of
many random variables, simulation has been used to generate values of the various
contributing factors to derive estimates of cash flows
• MARKETING
• Marketing problems typically include numerous random variables, such as market size
and types of consumer preferences. Simulation can be used to ascertain how a particular
market might react to the introduction of a product or to an advertising campaign for an
existing product. It is also applied in the analysis of distribution channels to determine
the most efficient distribution system.
• PUBLIC SERVICE OPERATION
• Operations of police departments, fire departments, post offices, hospitals, court
systems, airports and other public systems have been analyzed using simulations.
• CORPORATE PLANNING
• RESTAURANT OPERATIONS AND PLANNING
• ENVIRONMENTAL AND RESOURCE ANALYSIS
FORECASTING
• WORK FORCE FORCASTING
• The department workload was seasonal and worker availability varied from month to
month. The department was able to compile all the factors related to its work force
Province of Laguna
requirements and worker availability. Historical data enabled the departments to

determine seasonal fluctuations related to each of this factors.
• A forecasting model that interrelated all of these factors was developed and used to
predict shortages and surpluses in the workforce
INVENTORY ANALYSIS
• PARTS AND RAW MATERIAL INVENTORY
• It is used to determine safety stocks that achieved a specific service level
• It is used to determine the order sizes
PERT –CPM NETWORK
• PERT CPM is one of the popular among management science techniques
• The first formal application of PERT network analysis was inn 1958., when PERT was
applied as a management control procedure for the development of the NAVYS
POLARIS Missile system
• PERT /CPM has also been applied in the private sector. Two major areas of application
• Research and development
• Construction
• It is also used in planning and scheduling of major events, such as conferences, sports
fest, basketball tournaments, political conventions, school registrations and rock
concerts
BREAK EVEN ANALYSIS
• Very helpful to managers in making decisions in the short run
• It is also applicable in product planning (i.e, determining whether to add a new product
or discontinue an old product, determining the appropriate price for a product and
determining when to purchase new equipment and operating facilities.

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Republic of the Philippines

Laguna State Polytechnic University

Submitted by: BSA-1A

Dr. Maria D. Cerezo

May 16, 2019

Topic: Linear Programming

A Linear Programming is a mathematical modeling technique in which a linear

Examples of Linear Programming Problems (1)

Developing Linear Programming Model (1)

Forecasting is a technique that uses historical data as inputs to make informed

2. Qualitative and Quantitative Forecasting Methods

3. Causal Forecasting Methods

4. Judgmental Forecasting Methods

5. Time Series Forecasting Methods

Topic: Break-Even Analysis

 Also referred as Profit Analysis

Components of Break-even Analysis

Total Costs Formula

= 454.5 pairs of denim jeans

PROBABILISTIC ANALYSIS OF THE BREAK-EVEN MODEL

Computerized Break-even Analysis

NONLINEAR PROFIT ANALYSIS

Example Problem Solution

Step 1 Determine Total Cost

COMPUTERIZED MATHEMATICAL SIMULATION

SIMPLEST FORM OF SIMULATION MODEL:

Figure 15.2 Reconstructed Wheel

Table 15.3 Random Number Table

PRODUCTION AND MANUFACTURING

Topic: Markov Analysis

What is Markov Analysis?

Topic: Inventory Analysis with Uncertain Demand

Reorder Point- has to do when actually place the order of an item

Topic: QUEUING ANALYSIS

2 Important key points of

The Single-Server Waiting Line System

Parameters of the Multiple- Server Model

• Bank Teller Staffing

CPM stands for Critical Path Technique.

 The longest path is also called critical path.

Topic: INVENTORY ANALYSIS

Total annual inventory cost

APPLICATION OF MATHEMATICAL MODEL IN MANAGEMENT

• A TELEPHONE HOTLINE SYSTEM

• Queuing analysis was used to determine staff and equipment requirements.

requirements and worker availability. Historical data enabled the departments to

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