Unit 1 or
- 1. Subject:QUANTITATIVE TECHNIQUES FOR MANAGERS Subject Code: RMB207 By DR. ZIAUL HASSAN BAKHSHI Associate Professor Faculty of Management JETGI, Barabanki.
- 2. Unit I
- 3. Operations Research Operations Research is the application of scientific methods, techniques and tools to operation of a system with optimum solution to the problem.
- 4. SCOPE OF OPERATIONS RESEARCH • In Defense Operations • In Industry • In Planning For Economic Growth • In Agriculture • In Traffic control • In Hospitals
- 5. CHARACTERISTICS OF OPERATIONS RESEARCH • Operations Research is an interdisciplinary team approach. The problems an operations research analyst face is heterogeneous in nature, involving the number of variables and constraints, which are beyond the analytical ability of one person. • Operations Research increases the creative ability of the decision maker. Operations Research provides manager mathematical tools, techniques and various models to analyse the problem on hand and to evaluate the outcomes of various alternatives and make an optimal choice. • Operations Research is a systems approach. A business or a Government organization or a defense organization may be considered as a system having various sub-systems.
- 6. Decision theory Decision theory deals with decision making under conditions of risk and uncertainty. For our purpose, we shall consider all types of decision models including deterministic models to be under the domain of decision theory. In management literature, we have several quantitative decision models that help managers identify optima or best courses of action.
- 7. STEPS IN DECISION THEORY APPROACH 1. List the viable alternatives (strategies) that can be considered in the decision. 2. List all future events that can occur. These future events (not in the control of decision maker) are called as states of nature. 3. Construct a payoff table for each possible combination of alternative course of action and state of nature. 4. Choose the criterion that results in the largest payoff.
- 8. DECISION MAKING UNDER CERTAINTY (DMUC) Decision making under certainty assumes that all relevant information required to make decision is certain in nature and is well known. It uses a deterministic model, with complete knowledge, stability and no ambiguity. To make decision, the manager will have to be quite aware of the strategies available and their payoffs and each strategy will have unique payoff resulting in certainty. The decision-making may be of single objective or of multiple objectives.
- 9. DECISION MAKING UNDER RISK (DMUR) Decision-making under risk (DMUR) describes a situation in which each strategy results in more than one outcomes or payoffs and the manager attaches a probability measure to these payoffs. This model covers the case when the manager projects two or more outcomes for each strategy and he or she knows, or is willing to assume, the relevant probability distribution of the outcomes. The following assumptions are to be made: (1) Availability of more than one strategies, (2) The existence of more than one states of nature, (3) The relevant outcomes and (4) The probability distribution of outcomes associated with each strategy. The optimal strategy in decision making under risk is identified by the strategy with highest expected utility (or highest expected value).
- 10. DECISION MAKING UNDER UNCERTAINTY Decision making under uncertainty is formulated exactly in the same way as decision making under risk, only difference is that no probability to each strategy is attached.
- 11. TYPES UNDER UNCERTAINTY • CRITERION OF OPTIMISM (Maximax) • CRITERION OF PESSIMISM (Maximin) • CRITERION OF REGRET (regret matrix or opportunity loss matrix) • EQUAL PROBABILITY CRITERION (Laplace criterion) • HURWICZ CRITERION (CRITERION OF REALISM)
- 12. Problems based on Decision theory States of Nature Strategies N1 N2 N3 N4. S1 4,000 -100 6,000 18,000 S2 20,000 5,000 400 0 S3 20,000 15,000 -2,000 1,000 The following matrix gives the payoff (in Rs.) of different strategies (alternatives) S1 , S2 and S3 against conditions (events) N1 , N2, N3 and N4. Indicate the decision taken under the following approaches : (i) Pessimistic (ii) optimistic (iii) Equal probability (iv) Regret and (iv) Hurwicz criterion, the degree of optimism being 0.7.