Introduction to Management Science PDF

9/2/2024 TOPICS Introduction...

9/2/2024 TOPICS Introduction What is Management Science? Special Characteristics of Management Science Areas of Application Major Limitations of Management Science The Management Science Approach in Problem Solving Model Building: Break-even Analysis INTENDED LEARNING OUTCOMES MANAGEMENT SCIENCE Explain Management Science It is a tool used by managers and List the characteristics and areas of administrators in the performance of application of Management Science their most vital task: making crucial Discuss the major limitations of decision. Management Science It is another term for operations Discuss the Management Science research or decision science. approach in problem solving It carries an immense option of tools to Discuss the Break-even Analysis (profit aid managers when faced with analysis) decisions. MANAGEMENT MANAGEMENT SCIENCE APPROACH It refers to the process of administering and The management science approach controlling the affairs of the organization by creating an environment that will contribute to views that precise decisions are a achieving the business goals effectively and product of the following: efficiently. 1. Analysis of the circumstances that can be With the current business environment and measured; advances in technology, business decisions more than ever must be based on the results of a 2. Verification of the quantifiable relationships scientific investigation. 3. Test to determine the presence of cause- Successful executives and managers, therefore, and-effect relationships among factors or must be fully equipped with new tools and variables techniques in their respective fields of expertise. 1  9/2/2024 DEFINITIONS OF MANAGEMENT SCIENCE DEFINITIONS OF MANAGEMENT SCIENCE Operations Research is defined as the According to Lancaster University, management scientific process of transforming data into science can be defined as a concept that is “concerned with developing and applying models insights to making better decisions. and concepts that help to illuminate issues and solve managerial problems”. The approach is Quantitative analysis is the process of essentially interested in looking at an organization and finding ways it can manage itself better and collecting and evaluating measurable and improve its productivity. verifiable data such as revenues, market Management Science, an approach to decision- share and wages to understand the making based on the scientific method, makes behavior and performance of a business. extensive use of quantitative analysis. SPECIAL CHARACTERISTICS OF SYMBOLIC RELATIONSHIP BETWEEN MANAGEMENT SCIENCE QUANTITATIVE & QUALITATIVE MODELS 1. A primary focus on managerial decision- making 2. The application of the scientific approach to decision-making 3. The examination of the decision situation from a broad perspective 4. A reliance on formal mathematical models 5. The use of technology, such as computers, software or applications DEVELOPMENT OF MANAGEMENT SCIENCE DEVELOPMENT OF MANAGEMENT SCIENCE It was during the 1900s when Frederick W. Modern management science was Taylor initiated the scientific management established during World War II when teams revolution that marked the beginning of composed of different disciplines were industrial engineering. formed to aid the military with the strategic At that time, some mathematical models and tactical problems. were being used, such as Erlang’s work on The most significant development post- waiting to line problems, Edison’s work on World War was the discovery of simplex war games and the notable inventory method for solving linear problems by management formula by Harris, the George Dantzig in 1947. Economic Order Quantity (EOQ). 2  9/2/2024 DEVELOPMENT OF MANAGEMENT SCIENCE BENEFITS OF MANAGEMENT SCIENCE During the 1970s, the use of management 1. A methodical approach to problem- science had extended into the social and solving and decision-making urban systems like healthcare, education and 2. Facilitates communication among the criminal justice. different experts in the organization In the 1980s, with the rise of computer 3. Allows exhaustive analysis of different technology, management information system options to arrive at a solution was integrated into management science. 4. Permits proper evaluation of situations with The explosion of computer technology in the uncertainty 1990s was manifested in the production of more advanced devices that can solve 5. Helps the decision-makers decide on how mathematical problems with the same speed much data needs to be gathered based as the mainframes. on a given problem BENEFITS OF MANAGEMENT SCIENCE ARGUMENTS AGAINST MANAGEMENT SCIENCE 6. Improves effectiveness of the decision Time consuming 7. Identifies the finest solution Some decision-makers do not appreciate the 8. A more cost-efficient means of examining results a large number of alternative solutions Difficulty in assessing uncertainties 9. A wide selection of available The use of oversimplified mathematical tools mathematical models that prevents that do not match real-life situations erroneous calculations while The tendency to be more costly relative to experimenting with real-life situations the size of the problem Some experiments/studies are not used for various reasons, which take up unnecessary expense ACTIVITY: AREAS OF APPLICATION Give an example of a business Inventory control situation that needs the application of Facility design management science based on your Product-mix determination personal experience. Portfolio analysis for securities Scheduling and sequencing Transportation planning Design of management information systems Allocation of scarce resources Investment decisions or capital budgeting Project management 3  9/2/2024 AREAS OF APPLICATION FEATURES OF MANAGEMENT SCIENCE New product decisions Management Science is characterized as a Manpower or sales force decisions managerial decision-making’s focal point Market research decisions because of the following: Research and development decisions 1. The implementation of the scientific approach 2. The use of a systematic process to solve Pricing decisions problems Distribution decisions 3. The use of an interdisciplinary approach Credit policy analysis 4. The utilization of mathematical tools; and Machine set-up problems in production 5. The use of some software applications Research and development effectiveness DECISION-MAKING DECISION-MAKING It is the cognitive process of selective a 1. Defining a problem course of action, out of a set of 2. Collecting information available alternatives, to achieve the 3. Identifying alternatives goals of the organization. 4. Weighing the alternatives (Businessjargons.com) 5. Selecting the best possible option 6. Planning and implementing 7. Reviewing and evaluating the outcome SCIENTIFIC METHOD STEPS IN A SCIENTIFIC METHOD It is the highest standard in investigating the 1. Formulate the question or hypothesis natural world. 2. Collect data Scientists correctly arrive at new knowledge 3. Test hypothesis and update their previous knowledge by using the scientific approach. 4. Draw a conclusion It consists of systematic observation, measurement, experiment and the  Using the scientific method on formulation of questions or hyphotheses management problems is more effective (explorable.com). through the use of various methodologies/ tools of management science. 4  9/2/2024 MAJOR REASONS FOR USING MATHEMATICAL MODELS (TURBAN & MEREDITH, 1986) 1. The advancement of technology has resulted to more A decision made by a department in alternatives. Sometimes the possible solutions are an organization can affect other infinite. 2. Mathematical models are easier to manipulate than departments. the real system, making experimentation easier. Management science enables a 3. The cost of blunders during the trial-and-error experiment will be lower when using mathematical system approach that views that all models. systems are comprised of subsystems. 4. Mathematical models allow managers to take advantage of calculated risks in the decision-making Management science enables some process. This will minimize the uncertainty presented in the environment. problems that need to be solved 5. With the use of modeling analysis, the cot will be through a team approach. relatively lower compared to a similar process done with the real system. TOOLS OF MANAGEMENT SCIENCE TOOLS OF MANAGEMENT SCIENCE ALLOCATION MODELS INVENTORY MODELS These are used for problems involving the They determine the best inventory model allocation of resources to obtain optimal and the best time to place an order. effectiveness. Mathematical programming is the broad term for The objective of these models is to tools that are used to solve problems in which the minimize the following costs: cost of decision-makers must allocate limited resources holding or carrying extra inventory, among various activities to optimize managerial ordering cost and shortage cost. objective. These tools include linear programming and distribution models. TOOLS OF MANAGEMENT SCIENCE TOOLS OF MANAGEMENT SCIENCE QUEUING MODELS COMPETITIVE MODELS (or Game Theory) – Queuing models or waiting lines demonstrate how present an analytical framework on the to achieve an ideal balance between providing behavior of competing players in the an appropriate level of service and the waiting achievement of their conflicting goals. time of a customer in a queuing system. NETWORK MODELS – are employed for These models aim to manage waiting line problems based on the arrival process, queue proper management of interrelated structure and service process. activities or “networks”, such as large construction projects. These models apply techniques that will improve the coordination of subtasks while providing ways to use resources efficiently. 5  9/2/2024 TOOLS OF MANAGEMENT SCIENCE TOOLS OF MANAGEMENT SCIENCE DYNAMIC PROGRAMMING MODELS DECISION ANALYSIS MODELS They deal with the optimization of multistage They are employed for managerial situations decision situations. involving the selection of an optimal course of These models solve the original problem by action given potential return and the subdividing it into sub-problems that will be corresponding probabilities of the states of worked out sequentially. nature. MARKOV ANALYSIS FORECASTING It describes and forecasts the possible outcome It involves the prediction of the future under of a system that undergoes transition over time. various scenarios FEASIBLE & INFEASIBLE SOLUTIONS OPTIMAL & NON-OPTIMAL SOLUTIONS A feasible solution requires that all The best among all feasible solutions is conditions and constraints given on the called an optimal solution. problem are satisfied. All possible feasible solutions have to Defiance of said constraints would cause the unacceptability of the solution. be examined before an optimal Thus, the said solution is considered solution will be chosen. infeasible. A non-optimal solution is a feasible solution that is not considered optimal. MANAGEMENT SCIENCE APPROACH TO PROBLEM SOLVING UNIQUE & MULTIPLE SOLUTIONS If there will be a single optimal solution, it will be classified as a unique solution. On the other hand, if there will be more optimal solutions, then there are “multiple solutions”. Greater flexibility is presented by the latter case which is considered more favorable by management. 6  9/2/2024 OBSERVATION DEFINITION OF THE PROBLEM It is the identification of a problem that exists in the Once it has been determined that a system (organization). problem exists, the problem must be clearly The system must be continuously and closely and concisely defined. observed so that problems can be identified as soon as they occur or are anticipated. Because the existence of a problem implies Problems can often be identified by a management that the objectives of the firm are not being scientist, a person skilled in the techniques of met in some way, the goals (or objectives) management science and trained to identify of the organization must also be clearly problems, who has been hired specifically to solve defined. A stated objective helps to focus problems using management science techniques. attention on what the problem is. MODEL CONSTRUCTION MODEL SOLUTION A management science model is an A management science solution technique abstract representation of an existing usually applies to a specific type of model. problem situation. Thus, the model type and solution method It can be in the form of a graph or chart, but most are both part of the management science frequently a management science model consists technique. of a set of mathematical relationships. We can say that a model is solved because These mathematical relationships are made the model represents a problem. up of numbers and symbols. When we refer to model solution, we also mean problem solution. IMPLEMENTATION It is the actual use of the model once it has been BREAK-EVEN ANALYSIS developed or the solution to the problem the model was developed to solve. It is a modeling technique to determine the Frequently the person responsible for putting the number of units to sell or produce that will model or solution to use is not the same person who result in zero profit. developed the model, and thus, the user may not fully understand how the model works or exactly what it is supposed to do. BREAK-EVEN POINT If the management science model and solution are It is the level of sales volume where total not implemented, then the effort and resources revenues and total expenses are equal, used in their development have been wasted. that is, there is neither profit nor loss. 7  9/2/2024 COMPONENTS OF BREAK-EVEN ANALYSIS Volume is the level of sales or production by a company. Cost incurred by a business to produce a specific quantity of a product or offer a service. Profit is the difference between total revenue and total cost. ILLUSTRATIVE PROBLEM: GRAPHICAL SOLUTION Graphical models have the advantage of providing a “picture” of the model that can sometimes help us understand the modeling process better than mathematics alone can. 8