Management Science (Goh) Chapter 1: Introduction: Slide
Management Science (Goh) Chapter 1: Introduction: Slide
Chapter 1: Introduction
Slide 1
Origin of Management Science
Slide 2
Problem Solving and Decision Making
Slide 3
Problem Analysis and Decision Making
Decision-Making Process
Slide 4
Qualitative vs. Quantitative Analysis
Quantitative Analysis
• concentrate on the quantitative facts or data associated
with the problem
• analyst will develop mathematical expressions that
describe the objectives, constraints, and other relationships
that exist in the problem
• analyst will use one or more quantitative methods to make
a recommendation
Slide 5
Quantitative Analysis
The more closely the model represents the real situation, the
more accurate the conclusions and predictions will be.
Slide 8
Mathematical Models
Slide 9
Mathematical Models
Slide 10
Mathematical Models
Slide 11
Mathematical Models
Slide 13
Transforming Model Inputs into Output
Uncontrollable Inputs
(Environmental Factors)
Controllable
Output
Inputs Mathematical
(Projected
(Decision Model
Results)
Variables)
Slide 14
Transforming Model Inputs into Output
ABC Chair Corp. Example
Uncontrollable Inputs
10 profit per chair
5 hours needed per chair
40 hours of capacity
Mathematical
Output
Controllable Model
Profit = 80
Inputs Maximize 10x
s.t. 5x < 40 Hours used = 40
X=8
x>0
Slide 15
Model Solution
The analyst attempts to identify the alternative (the
set of decision variable values) that provides the
“best” output for the model.
Slide 16
Model Solution
Slide 17
Model Testing and Validation
Slide 19
Implementation and Follow-Up
Slide 20
Revenue, Cost and Profit Model: Ponderosa
Development Corp.
Slide 21
Example: Ponderosa Development Corp.
Slide 22
Example: Ponderosa Development Corp.
Question:
Identify all costs and denote the marginal cost
and marginal revenue for each house.
Answer:
The monthly salaries total $35,000 and monthly
office lease and supply costs total another $5,000.
This $40,000 is a monthly fixed cost.
The total cost of land, material, labor, and sales
commission per house, $105,000, is the marginal cost
for a house.
The selling price of $115,000 is the marginal
revenue per house.
Slide 23
Example: Ponderosa Development Corp.
Question:
Write the monthly cost function c (x), revenue
function r (x), and profit function p (x).
Answer:
c (x) = variable cost + fixed cost = 105,000x + 40,000
r (x) = 115,000x
p (x) = r (x) - c (x) = 10,000x - 40,000
Slide 24
Example: Ponderosa Development Corp.
Question:
What is the breakeven point for monthly sales
of the houses?
Answer:
r (x ) = c (x )
115,000x = 105,000x + 40,000
Solving, x = 4.
Slide 25
Example: Ponderosa Development Corp.
Question:
What is the monthly profit if 12 houses per
month are built and sold?
Answer:
p (12) = 10,000(12) - 40,000 = $80,000 monthly profit
Slide 26
Example: Ponderosa Development Corp.
1200
Total Revenue =
Thousands of Dollars
1000
115,000x
800
600
Total Cost =
400
40,000 + 105,000x
200
Break-Even Point = 4 Houses
0
0 1 2 3 4 5 6 7 8 9 10
Number of Houses Sold (x)
Slide 27
Using Excel for Breakeven Analysis
Example: Ponderosa Development Corp.
• We will enter the problem data in the top portion of the
spreadsheet.
• The bottom of the spreadsheet will be used for model
development.
A B
1 PROBLEM DATA
2 Fixed Cost $40,000
3 Variable Cost Per Unit $105,000
4 Selling Price Per Unit $115,000
5 MODEL
6 Sales Volume
7 Total Revenue =B4*B6
8 Total Cost =B2+B3*B6
9 Total Profit (Loss) =B7-B8
Slide 28
Example: Ponderosa Development Corp.
A B
1 PROBLEM DATA
2 Fixed Cost $40,000
3 Variable Cost Per Unit $105,000
4 Selling Price Per Unit $115,000
5 MODEL
6 Sales Volume 12
7 Total Revenue $1,380,000
8 Total Cost $1,300,000
9 Total Profit (Loss) $80,000
Slide 29
Management Science Techniques
• Linear programming**
• Integer linear programming
• Network models
• Project scheduling: PERT and CPM
• Inventory models
• Waiting line
• Simulation
• Decision analysis
• Goal programming
• Analytic hierarchy process
• Forecasting methods.
• Markov-process models
Slide 30