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IN
D ECISION
MAKING
Decision making is the term generally associated with the first five steps of the problem solving process. Problem solving can be defined as the process of identifying a difference between the actual and the desired state of affairs and then then taking action to resolve the difference.
P ROBLEM
SOLVING STEPS
Identify and define the problem Determine the set of alternative solutions Determine the criterion or criteria that will be issued to evaluate the alternatives Evaluate the alternatives choose an alternative Implement the selected alternative Evaluate the results
The first step of decision making is to identify the problem and it ends with the choosing of an alternative.
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E XAMPLE OF DECISION
MAKING PROCESS
Assume that you are currently unemployed Suppose that your job search from has resulted in offers from companies A, B, c, D
A LTERNATIVES
Accept the position in A Accept the position in B Accept the position in C Accept the position in D
D ETERMINE
THE CRITERIA
Then the best alternative would be the one with the highest salary Single criterion decision problem. Multi criteria decision problem
Q UANTITATIVE MODELS
O.R. techniques
LPP Integer programming Network models Project scheduling PERT/CPM Inventory models Queuing models Simulation Forecasting
Q.T
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F INANCE
A course in which you learn how to apply OR and statistical models in financial decision making. Techniques such as LPP Forecasting techniques PERT / CPM Regression analysis
L INEAR P ROGRAMMING
M ODELS
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I NTRODUCTION
Linear programming deals with the optimization (Maximization or minimization) of a function of variables known as objective function, subject to a set of linear equations and/or inequalities known as constraint. The objective function may be profit, cost, production capacity or any other measure of effectiveness, which is to be obtained in the best possible or optimal manner.
The constraint may be imposed by different resources such as market demand, production process and equipment, storage capacity, raw material availability, etc.
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C ONT
The term Linear is used to describe the proportionate relationship of two or more variables in a model. The given change in one variable will always cause a resulting proportional change in another variable.
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C ONT
The word , Programming is used to specify a sort of planning that involves the economic allocation of limited resources by adopting a particular course of action or strategy among various alternatives strategies to achieve the desired objective.
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Marketing requirement
Total production cannot exceed 700 dozens. Number of dozens of Space Rays cannot exceed number of dozens of Zappers by more than 350.
Technological input
Space Rays requires 2 pounds of plastic and 3 minutes of labor per dozen. Zappers requires 1 pound of plastic and 4 minutes of labor per dozen.
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Producing as much as possible of the more profitable product, Space Ray ($8 profit per dozen). Use resources left over to produce Zappers ($5 profit per dozen), while remaining within the marketing guidelines.
Space Rays = 450 dozen Zapper = 100 dozen Profit = $4100 per week
8(450) + 5(100)
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Management is seeking a production schedule that will increase the companys profit.
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A linear programming model can provide an insight and an intelligent solution to this problem.
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X1 = Weekly production level of Space Rays (in dozens) X2 = Weekly production level of Zappers (in dozens).
Objective Function:
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P ROBLEM 1
A retired person wants to invest up to an amount of Rs. 30,000 in fixed income securities. His broker recommends investing in two bonds. Bond A yielding 7% and bond B yielding 10%. After some consideration, he decides to invest at most Rs. 12000 in bond B and at least Rs. 6000 in Bond A. he also wants the amount invested in bond A to be at least equal to the amount invested in bond B. what should the broker recommend if the investor wants to maximize his return on investment ?
T HE S ERVER P ROBLEM
General Description A firm that assembles computers and computer equipment is about to start production of two new Web Server models. Each type of model will require assembly time, inspection time and storage space. The amounts of each of these resources that can be devoted to the production of the servers is limited. The manager of the firm would like to determine the quantity of each model to produce in order to maximize the profit generated by sales of these servers.
A DDITIONAL I NFORMATION
In order to develop a suitable model of the problem, the manager has met with design and manufacturing personnel. As a result of these meetings, the manager has obtained the following information:
Parameter Profit per unit Assembly time per unit Inspection time per unit Storage space per unit Server Type 1 USD 60 4 hours 2 hours 3 cubic feet Server Type 2 USD 50 10 hours 1 hour 3 cubic feet
The manager also has acquired information on the availability of company resources. These daily amounts are:
Resource Assembly time Inspection time Storage space Amount available 100 hours 22 hours 39 cubic feet
The manager also met with the firms marketing manager and learned that the demand for the servers was such that whatever combination of these two models of servers is produced. All of the output can be sold.