Management Science 1. Identify and define the problem.

2. Determine the set of alternative solutions.

- an approach to decision making based on the 3. Determine the criterion or criteria that will be used to
scientific method, makes extensive use of evaluate the alternatives.
quantitative analysis. 4. Evaluate the alternatives.
- two other widely known and accepted names are 5. Choose an alternative.
operations research and decision science. 6. Implement the selected alternative.
The scientific management revolution (1900s) 7. Evaluate the results to determine whether a satisfactory
solution has been obtained.
- initiated by Frederic W. Taylor, provided the
foundation for the use of quantitative methods in Decision making - generally associated with the first five steps
management. of the problem-solving process.
Modern management science research
Single-criterion decision problems - problems in which the
- is generally considered to have originated during the objective is to find the best solution with respect to one
World War II period (teams were formed with criterion
strategic and tactical problems).
Multicriteria decision problems - problems that involve more
Two developments that occurred during the post–World War than one criterion.
II period led to the growth and use of management science in
nonmilitary applications. Two forms of analysis phase of the decision-making process.

The most significant methodological development Qualitative analysis - based primarily on the manager’s
judgment and experience; it includes the manager’s intuitive
- discovery by George Dantzig, in 1947, of the simplex
“feel” for the problem and is more an art than a science
method for solving linear programming problems.
(experienced similar problems and relatively simple).
- At the same time these methodological developments
were taking place, digital computers prompted a Quantitative analysis – it concentrates on the quantitative facts
virtual explosion in computing power. or data associated with the problem and develop mathematical
- Computers enabled practitioners to use the
expressions that describe the objectives, constraints, and other
methodological advances.
relationships that exist in the problem (little experience with
- devices can now be used to solve problems larger
similar problems, or if the problem is sufficiently complex).
than those solved on mainframe computers in the
1990s. A manager can increase decision-making effectiveness by
Revenue Management at AT&T Park learning more about quantitative methodology and by better
understanding its contribution to the decision-making process.
- The first Management Science in Action in this
chapter. Reasons why a quantitative approach might be used in the
- describes one of the most important applications of decision-making process:
management science in the sports and entertainment
1. The problem is complex, and the manager cannot develop a
industry.
- When dynamically pricing a good or service, an good solution without the aid of quantitative analysis.
organization regularly reviews supply and demand of 2. The problem is especially important (e.g., a great deal of
the product and uses operations research to determine
money is involved), and the manager desires a thorough
if the price should be changed to reflect these
analysis before attempting to make a decision.
conditions.
- If a particular Giants’ game is appealing to fans, 3. The problem is new, and the manager has no previous
tickets sell quickly and demand far exceeds supply as experience from which to draw.
the date of the game approaches.
4. The problem is repetitive, and the manager saves time and
1.1 PROBLEM SOLVING AND DECISION effort by relying on quantitative procedures to make routine
MAKING decision recommendations.

Problem solving - the process of identifying a difference • It usually takes imagination, teamwork, and
between the actual and the desired state of affairs and then considerable effort to transform a rather general
taking action to resolve the difference. For problems important problem description into a well-defined problem.
enough to justify the time and effort of careful analysis, the
problem-solving process involves the following seven steps:
 • The more the analyst is involved in the process of Deterministic Model All uncontrollable inputs to
structuring the problem, the more likely the ensuing the model are known and
quantitative analysis will make an important cannot vary.
contribution to the decision-making process.
Stochastic/Probabilistic Any uncontrollable are
• The process of developing and solving models is the Model uncertain and subject to
essence of the quantitative analysis process. variation, often more
difficult to analyze.
QUANTITATIVE ANALYSIS

• Model Development
• Data Preparation DATA PREPARATION
• Model Solution
• Report Generation • This step is not trivial, due to the time required and
the possibility of data collection errors and often
MODEL DEVELOPMENT needs a fairly large data base and information system
specialists
Models - representations of real objects or situations and can
be presented in various forms. MODEL SOLUTION
✓ In modeling terminology, physical replicas are • The analyst attempts to identify the alternatives that
referred to as iconic models. (quicker and less provides the best output for the model.
expensive to build) • The best output is the optimal solution.
✓ Physical in form but do not have the same • If the alternative does not satisfy all of model
physical appearance as the object being modeled constraints, it is rejected as being infeasible
referred to as analog models. regardless of the objective function value.
✓ representations of a problem by a system of • Vice versa of the above bullet, it is feasible and a
symbols and mathematical relationships or candidate for the best solution.
expressions referred to as mathematical models.
(quick identification or profit expectations) MODEL TESTING AND
VALIDATION
The purpose, or value, of any model is that it enables us to
make inferences about the real situation. Solutions generated = model
accuracy can be assessed
Herbert A. Simon, a Nobel Prize winner in economics and an
expert in decision making, said that a mathematical model Small test problems (known) or
does not have to be exact; it just has to be close enough to least expected, solutions can be used for model testing and
provide better results than can be obtained by common sense. validation. If model generates expected solutions, use model
on the full-scale problem. If inaccuracies inherent in model
MATHEMATICAL MODLES identified, take correction actions (collection of more-accurate
Objective Function It describes the problem’s input data and modification of the model).
objective, such as
maximizing profit or REPORT GENERATION
minimizing cost.
• A managerial report based on the results of the model
Constraints A set of restrictions or should be prepared; the report should be easily
limitations, such as understood by the decision maker and should include
production capacities recommended decision and other pertinent
information about the results).
Uncontrollable Inputs Environmental factors that
are not under the control of MODEL OF COST, REVENUE, AND PROFIT
the decision maker (profit
per unit, production time per
unit, & production capacity)

Decision Variables Controllable inputs;

decision alternatives
specified by the decision
maker (number of units of a
product to produce).
MANAGEMENT SCIENCE TECHNIQUES