Operation Research & Managerial Decision Making

Decision making is a key managerial responsibility of today managers under intense competition than ever before. Hence the need for effective decision making in business has been more apparent. a sound and useful decision requires a rigorous and scientific approach to the problem. Operation Research which has been defined as "the use of scientific method to provide criteria for decisions regarding man machine system involving repetitive operations", provides manages with quantitative basic for decision making. By employing a systematic study of a problem involving gathering data building a mathematical model experimenting with the model and predicting future operations; operations research provides those in control of the system with optimum solutions to the problems that confront the executive when he tries to achieve a thorough going rationality in dealing with his problems. In short mathematical and logical means of Operation Research provides the executive with quantitative basic for decision making and enhance ability to made long-range plans and to solve everyday problems of running a business industry with greater efficiency, competence and confidence.

The advantage of OR study approach in business and management decision making may be classified as follows:

1.      Better Control. The management of big concerns finds it much costly to provide continuous executive supervisions over routine decisions. An OR approach directs the executives to devote their attention to more pressing matters. For example, OR approach deals with production scheduling and inventory control.

2.      Better co-ordination. Sometimes OR has been very useful in maintaining the law and order situation out of chaos. For example, an OR based planning model becomes a vehicle for coordinating marketing decisions with the limitations imposed on manufacturing capabilities.

3.      Better Decisions. OR models frequently yield actions that do improve an intuitive decision making. Sometimes a situation may be so complicated that the human mind can never hope to assimilate all the important factors without the help of OR and computer analysis.

4.      Better Systems. OR study is also initiated to analyze a particular problem of decision making such as establishing a new warehouse. Later, OR approach can be further developed into a system to be employed repeatedly. Consequently the cost of undertaking the first application may improve the profits.

Remark.  Some of the industrial/business/government problems which can be analyses by O.R. approach are classified as follows:

1.      As most of the resources in India are inadequate managers are faced with the problem of making optimum use of them. Linear programming is a general model for optimum allocation of scarce or limited resources to competing products or activities, determination of optimal product mix transportation schedules plant location assignment of personnel and machine media selection investment portfolio selection blending of materials energy ecology (pollution) are few examples of the type of problems can be solved by linear programming.

2.      It is a known fact that about 2/3 of the Indian investment in industries is bound up in the form of inventories. It is utmost important to release this locked up capital inventory control model aids in minimizing the sum of (i) acquisition costs, (ii) stock holding, (iii) shortage costs for various stock items. Since inventory items in warehousing and manufacturing situations may run into hundreds a great deal of savings as also reduction in shortages can be achieved by utilizing inventory control techniques like EOQ, ROL models and ABC analysis etc.

3.      Most of the projects may it be handled by public sector, private sector or government are delyed significantly due to lack of proper planning, scheduling and controlling. Network theory enables mangers to cope with the complexities involved in large projects. PERT and CPM techniques are extremely useful for the purpose of planning analysing scheduling and controlling the progress and completion of large and one time projects. Beginning with their initial application to the Polaris project and maintenance of chemical plants today they are applied to highway building and dam's construction and to the development and production of high technology items such as aircrafts ships and computers so on. These techniques can cut down the project duration and costs considerably.

4.      Dynamic programming has been successfully applied to such areas as planning and advertising expenditures, distributing, sales effort, and production scheduling.

5.      Decision analysis has been applied to problems in controlling hurricanes water pollution medicine law, nuclear safety, space exploration, new product decisions, advertising expenditures research and development and so forth.

6.      Queuing theory has had application in solving problems concerned with traffic congestion servicing machines subject to breakdown, determining the level of a service force air traffic scheduling design of dams job shop scheduling hospital operations receipt and withdrawal counters in a commercial bank.

7.      The use of exponential smoothing for (i) preparation of monthly forecasts for stock keeping items (ii) determination of optimal product inventory and work force levels in production is well established.

8.      Simulation can be employed in a wide variety of probabilistic marketing situations. Simulation for example can be used to derive the NPV/ internal rate of return distribution for the venture of introduction of a new product. Likewise in the case of introduction of new product or penetration of new market or advertising campaign etc., the probability distribution of sales (i.e., the state of nature) may be called out from managerial judgement and statistical decision theory and then applied to choose the optimal strategy and/or find EVPI to undertake any sampling inquiry.

9.      Replacement Theory is extensively applied in finding the optimal replacement interval for: (a) equipment that deteriorates with time, (b) equipment (e.g., bulbs) that perishes suddenly and (c) staff replacement.

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