U- 1 OPERATIONS RESEARCH

Operations Research (OR) is a discipline that deals with the application of advanced analytical methods to help in make better
and improved decision. It is a systematic study of basic structure, characteristics, functions and relationships of an organisation,
and provides a basis to managers for improved decision- making OR takes a scientific approach to best decide, how to design
and operate man-machine systems, for industrial use. Operations research is also known as decision science or management
science. "Operation research is concerned with scientifically deciding, how to best design and operate man machine systems;
usually requiring the allocation of scarce resources". Characteristics of OR : 1) Decision-Making 2) Scientific Approach 3)
Objective-Oriented Approach 4) Inter-Disciplinary Approach Reasons / Advantages of OR - 1) Better Control 2) Better
Systems 3) Better Decisions 4) Better Coordination Disadvantages of OR : 1) Dependence on an Electronic Computer
2) Non-Quantifiable Factors 3) Wrong Estimation 4) Involves Time and Cost 5) complex Implementation Nature of OR : 1)
Quality of Solution 2) Goal Oriented Optimum Solution 3) Use of Models 4) Require Willing Executives 5) Reduces Complexity

Origin of OR: 1) Pre-World War-II Developments: Before introduction of the 'operations research", various other techniques
such as inventory control, queuing theory and statistical quality control of the operations research were developed and were in
use. A simple Economic Order Quality (EOQ) model was developed which is used in optimising the total cost of the inventory
system. In early 1900s, Western Electric's Bell Laboratory's inspection engineering department analysed the problem occurred
in the routine quality checks 2) Developments during World War II: the Britain military was mainly concerned for the effective
exploitation of infrequent resources. Hence, a research was conducted by the native scientists. They discovered the various ways
to make the fullest use of the resources to improve the efficiency of the military operations. 3) Post-World War II Developments:
main emphasis of the American and British companies was to maximize the profit from limited resources, so, these companies
focused on application of operation research methodologies. The simplex method, for solving linear programming problem, was
developed by Dantzing in 1947. 4) Computer Era: There were various complex computations in the operations research which
consumed much time, hence, the computers were developed to solve such problems easily. 5) Inclusion of Uncertainty Models:
The operations research techniques were more shaped with the use of the probability theory and statistics.

Scope of Operations Research : 1. Business and Industry: I Production Planning: Scheduling, inventory management, and
resource allocation. Ii Supply Chain Management: Optimizing logistics, transportation, and distribution. Iii Marketing: Market
research, pricing strategies, and sales forecasting. 2. Government and Public Administration: I Urban planning, public health
resource allocation, and disaster management. Ii Optimizing resource use in defense, transportation, and energy sectors. 3.
Healthcare: I Hospital management: Staff scheduling, bed allocation, and patient flow optimization. Ii Epidemiological modeling
and vaccine distribution. 4. Transportation and Logistics: I Network optimization for rail, air, and road transport systems.Ii Traffic
flow management and route optimization. 5. Finance and Banking: I Portfolio management, risk analysis, and financial planning.
Ii Fraud detection and credit risk assessment. 6. Manufacturing: I Quality control, process optimization, and machine scheduling.
Ii Lean manufacturing and minimizing production waste. 7. Energy and Environment: I Renewable energy system design and grid
management. Ii Environmental impact analysis and resource optimization. 8. Military and Defense: I Tactical and strategic
planning. Ii Optimization of supply lines and resource allocation in operations. 9. Telecommunications: Network design,
bandwidth allocation, and traffic optimization. Improving customer satisfaction through service delivery. 10. Education: Resource
allocation for institutions. Scheduling classes and examinations efficiently.

Role of OR in Managerial Decision Making : 1. Optimization of Resources - Maximize efficiency and minimize costs. Example:
Determining the optimal production mix to maximize profit within constraints of labor, material, and machine capacity. 2.
Improved Strategic Planning - Aid in long-term planning by analyzing multiple scenarios and outcomes. Example: Using linear
programming models to decide the most profitable market expansion strategy under budget constraints. 3. Enhanced Decision-
Making Under Uncertainty- Provide tools to analyze risks and uncertainties in decision-making. Example: Employing simulation
techniques to assess potential outcomes of uncertain market trends. 4. Efficient Supply Chain and Logistics Management -
Streamline operations to reduce costs and improve delivery times.. Example: Using the transportation model to minimize delivery
costs while ensuring timely deliveries. 5. Performance Evaluation and Productivity Analysis- Identify inefficiencies and improve
system performance. Example: Employing data envelopment analysis (DEA) to assess the relative efficiency of different
organizational units. 6. Effective Resource Scheduling - Plan and allocate resources effectively to meet demand. Example:
Applying Gantt charts and critical path methods (CPM) to optimize project timelines and resource usage. 7. Support for Tactical
and Operational Decisions -Optimize day-to-day operations. Example: Using inventory models like EOQ (Economic Order
Quantity) to determine optimal order quantities. 8. Data-Driven Insights- Facilitate evidence-based decisions by leveraging data
analytics and modelling . Example: Using regression analysis to predict future sales trends based on historical data. 9. Simulation
of Real-World Systems- Test and analyze different strategies in a simulated environment before implementation. Example:
Running Monte Carlo simulations to evaluate the impact of price changes on revenue. 10. Conflict Resolution and Negotiation-
Provide frameworks for decision-making in competitive and cooperative scenarios. Example: Analyzing competitive pricing
strategies using Nash equilibrium concepts.
Techniques Used: I Linear Programming: For optimization problems. Ii Simulation: To model and analyze complex systems.
Iii Queuing Theory: To study waiting lines and improve service efficiency. Iv Game Theory: For competitive and cooperative
decision-making. V Inventory Models: To control stock levels effectively. Vi Network Analysis: For project management and
logistics.
LINEAR PROGRAMMING
Linear programming (LP) is a mathematical method used to determine the best possible outcome or solution to a problem, given
certain constraints. It is widely used in optimization problems where the objective is to maximize or minimize a linear objective
function, subject to a set of linear equality or inequality constraints. An analysis of problems represented in linear function
with a number of variables that is to be optimised, when subjected to a number of restraints in the form of inequalities, is called
Linear Programming. According to William M Fox, "Linear programming is a planning technique that permits some objective
functions to be minimized or maximised within the framework of given situational restrictions."
Components of Linear Programming: 1. Objective Function: A mathematical expression that needs to be maximized or
minimized. t is usually a linear function of the decision variables, written as: Z= c1x1 +c2x2 +⋯+CnXn . 2. Decision Variables:
These are the variables that represent the decisions to be made. Denoted as x1,x2,…xn, they determine the output of the
problem. 3. Constraints: Linear inequalities or equations that limit the values of the decision variables. Represented as linear
inequalities or equations, such as a11x1 + a12x2+⋯ + a1nXn ≤ b1:. 4. Feasible Region: The set of all possible solutions that satisfy
the constraints. Solutions outside this region are not valid. 5. Optimal Solution: A point in the feasible region where the objective
function achieves its maximum or minimum value.
Scope Programming of Linear _ - 1. Optimization of Resources: Linear programming helps optimize the allocation of limited
resources (such as materials, labor, and time) to achieve the best possible outcome, like maximizing profit or minimizing cost. 2.
Business and Economics: LP is widely used in business for decision-making, such as production planning, supply chain
management, and cost minimization. 3. Manufacturing and Production: Linear programming is applied in scheduling production
processes, managing inventory, and determining the most efficient mix of products to produce under constraints. 4.
Transportation and Logistics: LP is used to find the most cost-effective transportation routes, scheduling deliveries, and
optimizing the allocation of resources across distribution networks. 5. Financial Portfolio Optimization: In finance, linear
programming models help in constructing optimal portfolios by determining the best mix of assets under risk and return
constraints. 6. Agriculture: Linear programming assists in optimizing crop production, resource allocation for irrigation, and
maximizing agricultural yield under constraints such as land and labor availability. 7. Energy Sector: It helps in optimizing energy
production and distribution, such as determining the best mix of energy sources to meet demand at minimum cost. 8.
Telecommunications: LP models are used to optimize network design, minimize communication costs, and manage bandwidth
distribution. 9. Healthcare and Medicine: Linear programming supports resource allocation in hospitals, such as managing staff
schedules, optimizing the use of medical equipment, and minimizing healthcare costs. 10. Transportation Planning and Traffic
Flow: LP can optimize traffic flow in urban areas and public transport networks, ensuring maximum efficiency with limited
infrastructure.
Limitations Programming of Linear - 1) Linear Relationship: A primary requirement of an LP is that the objective function
and every constraint must be linear. However, in real life situations, many business problems can only be expressed in a non-
linear form. In such situations, LP technique is not applicable. 2) Coefficients are Constraints: LP assumes that all values of
coefficients of decision variables are stated with certainty. Due to this restriction, LP cannot be applied to a wide variety of
problems. 3) Fractional Solutions: Many times the solution to a problem may not be an integer but a fraction. Solution in fractions
may not remain optional in rounding off. 4) Complexity: There are computational difficulties when it comes to large problems.
LP model is a mathematical formulation which becomes complex when there are large number of variables and constraints. 5)
Possibility of More than One Objective: LP deals with the problems with single objective. But in real life situations there are
more than one objective. LP faces limitations in such situations. 6) Time Effect: The effect of time is not considered in linear
programming model.
Benefits of Linear Programming - 1) Improves Quality Decision 2) Cost-Benefit Analysism3) Flexibility: LP provides better
tools for meeting the changing conditions. Re- evaluation for changing conditions can be done, even after the plans are prepared.
LPP is a very effective technique under such changing circumstances. 4) Number of Possible Solutions: Management problems
are complex, but with LPP technique, managers can arrive at the best alternative solution to the problem. LPP helps in assuring
that the manager is considering the best optimal solution. 5) Use of Productive Factors: The Linear Programming technique
helps in making the best possible use of the available productive resources such as time, labour, machine etc. A decision-maker
can employ his productive factors effectively by selecting and distributing these elements. 6) Scientific Approach: LP is effective
as it highlights the bottlenecks in the production process. This means that an LP presents a clear picture of the problem. Hence,
it becomes easy to deal with the problem.
U-2 TRANSPORTATION PROBLEM
Transportation model is defined as the study of optimal transportation and resource allocation. Transportation model is defined
as the distribution of goods from many points of supply to a number of points of demand, where the points of supply are known
as origins or sources and points of demand are known as destinations or sinks. It is also involves in determination of the minimum
cost to allocate to a product from several supply sources to several destinations. Transportation model is a special class of the
linear programming problem (LPP).
𝑚
Mathematical model of transportation problem Z = ∑𝑖=1 ∑𝑗=1 𝐶𝑖 𝑗𝑥𝑖 𝑗 Where: Z: Total transportation cost. cij : Cost of transporting
one unit from source i to destination j. xij: Number of units transported from source i to destination j. m: Number of sources.
n: Number of destinations.

Constraints in transportation problem : constraints ensure that the total supply from sources and the total demand at
destinations are satisfied. These constraints are expressed mathematically as follows: 1. Supply Constraints: The total quantity
𝑛
transported from a source must not exceed its available supply. ∑𝑗̈ =1 𝑥𝑖𝑗 ≤ 𝑆𝑖 Where 𝑆𝑖 is the supply at source i. 2. Demand
𝑚
Constraints: The total quantity transported to a destination must meet its demand. ∑𝑖=1 𝑥𝑖𝑗 ≥ 𝑑𝑗 Where dj is the demand at
destination j 3. Non-Negativity Constraints : The quantity transported must be non-negative. Xij ≥ 0.

Assumptions Transportation Problem : 1) The total requirement at different destinations is equal to the available quantity of
the item at to various sources. 2) The items can be transported easily from all sources to destinations. 3) The cost of the product
for unit transportation from all sources to destinations is definitely and exactly known. 4) The cost of transportation on a given
route is directly proportional to the number of units transported on that route. 5) To minimise the total transportation cost for
the organisation as a whole and not for individual supply and distribution centres is the main objective. 6) The demand of a
destination can be satisfied by the use of more than one source.

Types Of Transportation Problem : 1. Balanced Transportation Problem : Total supply equals total demand (𝛴𝑆𝑖 = ∑𝑑𝑗).
Solution: No need for dummy sources or destinations. Example: A factory with a production capacity of 100 units supplies goods
to warehouses that demand exactly 100 units in total. 2. Unbalanced Transportation Problem : Total supply does not equal
total demand (𝛴𝑆𝑖 ≠ ∑𝑑𝑗). Solution: A dummy source (if ∑𝑑𝑗 > 𝛴𝑆𝑖 ) or dummy destination (if 𝛴𝑆𝑖 > ∑𝑑𝑗) is added to balance
the problem. Example: A warehouse demands more goods than all factories can supply, or factories produce more goods than
required. 3. Minimization Problem: The goal is to minimize total transportation costs while meeting supply and demand.
Common Use: Logistic cost optimization, such as delivering goods at the lowest possible cost. Example: Determining the cheapest
way to distribute products from suppliers to customers. 4. Maximization Problem : The goal is to maximize profit, efficiency, or
any other desired benefit during transportation. Common Use: Assigning resources to maximize utilization or profit. Example:
Allocating vehicles to routes to maximize revenue while adhering to supply and demand constraints.

Initial feasible solution for a transportation problem : 1 North west Corner Method is a systematic way to find an initial
feasible solution for a transportation problem. It is a straightforward approach that prioritizes allocating shipments starting from
the "northwest" (upper-left) corner of the cost matrix and moving step-by-step based on supply and demand constraints Steps:
1. Start at the northwest corner of the cost matrix. 2. Allocate the minimum of supply or demand to the cell. 3. Adjust the
remaining supply and demand for the respective row or column. 4. Move right if demand is zero, or down if supply is zero, and
repeat until all supply and demand are satisfied. Advantages: I Simple to implement. Ii Step by step solution Disadvantages: I
Ignores transportation costs, leading to potentially suboptimal starting solutions. Ii Takes time
2 Least Cost Method is technique for finding an initial feasible solution for a transportation problem. the Least Cost Method
selects the cell with the lowest transportation cost at each step. This approach often results in a better (lower-cost) starting
solution. Steps:1. Identify the cell with the minimum transportation cost. 2. Allocate the minimum of supply or demand to that
cell. 3. Adjust the remaining supply and demand. 4. Cross out the row or column if supply or demand becomes zero, and move
to the next smallest cost cell. Advantages: I Provides accurate solution ii Fulfil Supply and Demand Disadvantages: More
complex to compute ii Not follow systematic rule
3. Vogel’s Approximation Method (VAM) : Calculate a "penalty cost" for each row and column based on the difference between
the two smallest costs in that row or column. Allocate to the cell with the smallest cost in the row/column with the highest
penalty. Steps: 1. Compute the penalty for each row and column by finding the difference between the two smallest costs. 2.
Identify the row or column with the highest penalty.3. Allocate as much as possible to the cell with the smallest cost in that
row/column. 4. Adjust the remaining supply and demand and recalculate penalties. 5. Repeat until all supply and demand are
satisfied. Advantages: I Systemic method ii Take less time Disadvantages: I Solution is nearest to optimal solution ii not for
large matrix.
Optimal solution of a transportation problem minimizes (or maximizes) the objective function (e.g., cost or profit) while
satisfying all supply and demand constraints. After finding the Initial Basic Feasible Solution (IBFS) using methods like the
Northwest Corner Method, Least Cost Method, or Vogel’s Approximation Method, the solution can be optimized further
Methods to Achieve Optimal Solution - 1. Stepping Stone Method :Examine unused routes (empty cells) to determine whether
moving goods through those routes will reduce the total transportation cost. Steps: 1. Start with the IBFS.2. For each empty cell,
form a closed loop by adding and subtracting allocations alternately along rows and columns. 3. Calculate the opportunity cost
for each empty cell: Opportunity Cost} = Cost of entering the cell - total current cost in the loop. 5. If a negative opportunity cost
exists, reallocate goods along the loop to reduce costs, and repeat until no further improvement is possible. Advantages: Intuitive
and easy to understand. Disadvantages: Time-consuming for large problems.
2. MODI Method (Modified Distribution Method) : Directly calculates opportunity costs for all empty cells without explicitly
forming loops, making it more efficient than the Stepping Stone Method. Steps:1. Start with the IBFS. 2. Calculate potentials (
for rows and for columns) using the formula: Ui + vj = cij (for basic cells). 𝛥 ij= cij- - (ui + vj). 4. If any Delta ij < 0, choose the cell
with the most negative Delta ij , and adjust allocations along a closed loop to improve the solution. 5. Repeat until all opportunity
costs are non-negative. Advantages: Faster and more systematic than the Stepping Stone Method. Disadvantages: Requires
careful calculation of potentials.

Degeneracy in a transportation problem occurs when the number of basic variables in a feasible solution is less than the
required number for a non-degenerate solution. This situation can cause difficulties in solving the problem using methods like
the Stepping Stone or MODI method. Conditions for Non-Degeneracy: For a transportation problem with sources and
destinations: The required number of basic variables is m+n-1. If the number of allocated cells (basic variables) is less than , the
solution is degenerate.

ASSIGNMENT PROBLEM
The assignment problem is a special type of optimization problem where the goal is to assign tasks to agents (or resources) in
such a way that the total cost is minimized (or total profit is maximized). It is a specific case of the transportation problem where
supply and demand are both equal to one. Applications/objective of Assignment Model : 1) Assignment of operations to job.
2) Machines allocation for optimal space utilization. 3) Salesmen assignment to different sales areas. 4) Employee's assignment
to machines. 5) Effectiveness of teachers and subjects.
Mathematical Formulation : Decision Variables: Xij = {1, if agent I is assigned to task j. 0, otherwise} Objective Function:
Minimize (or maximize) the total cost (or profit): Minimize Z = cij: Cost of assigning agent to task. xij: Decision variable.

Hungarian Method : An efficient algorithm that solves the assignment problem in polynomial time. Steps: 1. Subtract the
smallest element in each row from all elements in the row. 2. Subtract the smallest element in each column from all elements in
the column. 3. Cover all zeros in the matrix with the minimum number of lines. 4. If the number of lines equals , the optimal
solution is found. Otherwise, adjust the matrix and repeat.

Special cases in Assignment Problems : 1. Balanced Problem A problem with equal number of rows and columns is known
as a balanced problem. For example, if there are 4 workers and 4 jobs in a problem, such a problem is termed as a balanced
assignment problem. 2. Unbalanced Problem : The number of agents (n) is not equal to the number of tasks (m).Solution: Add
dummy rows (agents) or dummy columns (tasks) to the cost matrix to balance the problem Assign zero cost to all entries3.
Minimization Problem: In a minimization assignment problem, the goal is to assign tasks to agents such that the total cost,
time, distance of assignments is minimized while ensuring that each agent is assigned to exactly one task and each task is
assigned to exactly one agent.. 4. Maximization Problem : In a maximization assignment problem, the objective is to assign
tasks to agents to maximize the total benefit (or profit), ensuring that each agent is assigned exactly one task and each task is
assigned exactly one agent. 5 Multiple optimal Assignment Problem: In some assignment problems, there may exist multiple
optimal solutions. This occurs when different sets of assignments result in the same total cost (for minimization) or total profit
(for maximization). 6 Traveling Salesman Problem: The Traveling Salesman Problem (TSP) is a classic optimization problem in
operations research and computer science. It involves finding the shortest possible route for a salesman to visit a given set of
cities exactly once and return to the starting city.
 U-3 Difference between PERT(Program And Review Technique) and CPM( Critical Path Method)
Basis PERT CPM
Model The result is estimated in a manner of probability because The result is ascertained in a manner of certainty
Time The activities uncertain time are dealing in this method The dealing of the exact time of the activities is done
This method is used for non-respective jobs such as This method is used for repetitive jobs such as
Jobs
planning and scheduling of research programmes. residential construction.
It is event oriented, in as much as its results are calculated It is activity oriented, in as much as its result is
Orientation
on the basis of the events. calculated on the basis of the activities.
Dummy Dummy activities are used in the PERT technique to
Dummy activities are not used in the CPM technique.
Activities represent the proper sequencing of the activities.
The dealing of the cost of a project schedules and their
Cost The dealing of cost of a project is not done in this method.
minimisation is done in the CPM technique.
Crashing The dealing of crashing is not done in the PERT method. The dealing of crashing is done in the CPM method.
With the use of three time estimates, estimated time for One type of time estimation is used in the calculation
Estimation
each activity are calculated. that is exactly known
Control It is used as an important control device as it assists the It cannot be used as control device as it requires
Device management in controlling a project by constant review of repetition of the entire evaluation of the project, each
Statistical PERT technique uses the statistical devices in the CPM technique does not use the statistical devices
Device estimation. estimation.

NETWORK CONSTRUCTION
Graphic representation of a project's operations is called a network or network diagram. It is the combination of activities and
events which are require to reach the end objective of a project. steps of network construction: Step 1) Properly define the
project and its all important activities or tasks.2) Develop the relationships among the activities. Decide which activities must
precede the others. 3) Connect all the activities and draw the network. 4) Time and/ or cost estimates are assigned to each
activity. 5) Calculate the path which has the longest time and this is called critical path. 6) Use the network for planning,
scheduling, monitoring and controlling the project.
Rules for Drawing Network Diagram : 1) One and only one arrow is used for representing each defined activity in the network.
Hence, any activity cannot be represented more than once in a network. 2) All preceding activities must be completed before
selecting any new activity. 3) The arrow which is used for showing the activity is indicative of the logical precedence only. 4) The
direction of the arrow indicates the general progression in time. 5) When a no. of activities terminate at one event, it indicates
that no activity emanating from that event may start unless all activities terminating there have been completed. 6) No. are used
for representing the events. 7) activities are identified by the no. of their starting and the ending events. 8) should be only one
initial and one terminal node in a network. 9 ) Parallel activities between two events, without intervening events are prohibited.

TIME-COST TRADE-OFF
The time-cost trade-off is a concept in project management that involves balancing the time required to complete a project with
the cost associated with that time. It explores how changes in the duration of activities can affect the total cost of the project.
The goal is to optimize the project schedule without incurring unnecessary costs, finding the best balance b/w time and cost.
Time-Cost Trade-Off Process: When managing a project, managers must consider how to reduce the overall project duration
while keeping an eye on the increasing costs involved in doing so. Time compression involves crashing certain activities, which
shortens their duration by allocating more resources, but this comes at an additional cost. The challenge is to determine how
much time to "crash" each activity while considering the cost implications, often making the decision based on whether the
benefit of completing the project earlier outweighs the added cost. Key Factors in Time-Cost Trade-Off: 1. Direct Costs: These
are costs directly related to reducing activity duration, such as additional labor, overtime, and equipment. 2. Indirect Costs:
These are costs associated with the overall project time. As the project is completed faster, indirect costs (e.g., overhead, site
management, supervision) are reduced. Steps in Time-Cost Trade-Off: 1. Identify Activities to Crash: Determine which
activities have the flexibility to be shortened (those on the critical path, typically). 2. Evaluate Crashing Options: Assess the trade-
offs by calculating the cost of reducing the duration of an activity and the time it will save. 3. Crash the Activities: Apply the
crashing method to activities that offer the greatest benefit (cost savings in indirect costs or benefit from shorter project
completion time). 4. Recalculate Project Duration and Cost: After crashing certain activities, reassess the overall project duration
and the associated cost. Conclusion: The time-cost trade-off helps project managers make informed decisions on how to best
allocate resources to achieve the desired project duration while managing costs effectively. By carefully considering the costs
associated with reducing time, project managers can determine whether shortening the project timeline is worth the additional
investment or if a longer, more cost-effective timeline would be better.
 PROBABILITY CONSIDERATIONS IN PERT
In PERT (Program Evaluation and Review Technique), probability plays a key role in estimating the project duration. Since PERT is
used for projects with uncertain activity durations, it incorporates probability distributions to handle the uncertainty in task
durations and assess the likelihood of completing the project within a certain time frame.
Probability Considerations in PERT: 1. Three Time Estimates: I Optimistic Time (O): The shortest time in which an activity
can be completed, assuming everything goes well. Ii Pessimistic Time (P): The longest time an activity might take if everything
goes wrong. Iii Most Likely Time (M): The most realistic time estimate, assuming normal conditions. These three estimates allow
project managers to consider the uncertainty in the duration of each activity. 2. Expected Time (TE): PERT calculates the
expected time (TE) for each activity using a weighted average formula, which is based on these three estimates. The formula is:
TE = O+4M+P/6. 3. Standard Deviation (σ): The standard deviation helps quantify how much the actual activity duration could
deviate from the expected time, providing insight into the variability of the project timeline. The formula for standard deviation
in PERT is: σ = P−O /6. 4 Project Duration: Add expected times of activities on the critical path for the total project duration.
Compute the project's standard deviation by summing the variances (square of σ) of critical path activities. 5 Probability of
Completion: Use the Z-score formula: Z=T−TE/Project Standard Deviation where T is the desired completion time. Look up the
Z-score in a standard normal distribution table to find the probability.

DECISION THEORY
A process is used to determine the best possible decision among the various available options is known as decision theory.
Depending upon its degree of certainty, a decision maker is facilitated to evaluate and examine the best decision. According to
Fishburn, "solving the decision model consists of finding a strategy for action, the expected related value of which is atleast as
great as the expected relative value of any other strategy in a specified set. The perspective criteria of a strategy will be
maximisation of decision maker's total expected relative value."
Elements in Decision Making: 1. Decision-Maker : The individual or group responsible for making the decision. 2. Goals : The
desired outcomes or objectives the decision aims to achieve. 3. Preference or Value System : The decision-maker’s priorities,
values, or criteria that influence the choice of alternatives. 4. States of Nature : External conditions or scenarios that can affect
the decision but are beyond the decision-maker's control (e.g., market trends, weather).5. Acts/Courses of Action : The set of
available alternatives or strategies the decision-maker can choose from. 6. Payoff : The result or outcome of a specific action
under a particular state of nature, often measured in terms of benefit or cost. 7. Payoff Table : A matrix showing payoffs for each
combination of actions and states of nature to help evaluate decisions. 8. Opportunity Loss Table : A table showing the potential
loss incurred by not choosing the optimal decision for each state of nature, highlighting the cost of missed opportunities.
Steps in Decision Making : Step 1. Define the Problem: Clearly identify the issue or decision to be made, including its scope
and objectives. 2. List All Possible Alternatives : Generate a comprehensive list of potential courses of action or solutions. 3.
Identify the Expected Future Events : Determine external factors, uncertainties, or scenarios (states of nature) that could impact
the outcomes. 4. Construct a Payoff Table :Create a matrix showing the outcomes (payoffs) for each combination of alternatives
and future events. 5. Select an Optimum Decision Criterion : Choose a decision rule or strategy based on the decision context
(e.g., maximizing profit, minimizing risk, etc.). 6. Apply the Model and Make the Decision :Use the payoff table and chosen
criterion to analyze alternatives and select the best course of action.

Decisions Making Environments : The decision-making environment refers to the context or conditions under which a
decision is made. It is influenced by the availability of information, level of certainty, and nature of the outcomes. Types of
decision-making environments: 1 Decision-Making Under Certainty : The outcomes of each alternative are known with
certainty. Example: A company investing in a fixed-return savings account where the interest rate is guaranteed. 2. Decision-
Making Under Risk : The probabilities of various outcomes are known, but the exact outcome is uncertain. Example: Launching
a new product with known market research probabilities for success, failure, or moderate demand. 3. Decision-Making Under
Uncertainty : Neither the probabilities nor the outcomes are known with certainty. Example: Entering a completely new and
untested market with no historical data.

Decision-Making Under Uncertainty : occurs when a decision-maker lacks information about the likelihood of various states
of nature (future events) and cannot assign probabilities to these outcomes. Decision Criteria Under Uncertainty: 1.
Maximin Criterion (Pessimistic Approach) : Select the alternative with the best of the worst possible outcomes. Focuses on
minimizing potential losses in the worst-case scenario. 2. Maximax Criterion (Optimistic Approach): Select the alternative with
the best possible outcome. Assumes the most favorable state of nature will occur. 3. Minimax Regret Criterion : Minimize the
maximum regret (opportunity loss) for each decision. Regret is the difference between the payoff of the best decision and the
actual decision made. 4. Laplace Criterion (Equal Likelihood) : Treat all states of nature as equally probable and choose the
alternative with the highest average payoff. Assumes complete ignorance about probabilities. 5. Hurwicz Criterion (Weighted
Optimism) : Combine pessimism and optimism by assigning a weight (α) to the best outcome and (1 - α) to the worst outcome.
Decision depends on the decision-maker’s attitude toward risk.

Decision-Making Under Risk occurs when a decision-maker is aware of the possible outcomes of different alternatives and
can assign probabilities to these outcomes. decision-making under risk involves situations where the likelihood of various future
events or states of nature is known or can be estimated. Decision Criteria Under Risk: 1. Maximum Likelihood Rule : Choose
the decision based on the state of nature with the highest probability of occurrence. Focuses only on the most likely outcome,
ignoring other probabilities. Example: If one state of nature has a probability of 0.6 (higher than others), select the alternative
with the best payoff for that state. 2. Bayesian Analysis (Posterior Analysis) : Combines prior probability information
with new data or evidence to update probabilities of different states of nature. This is used to refine decision-making under
uncertainty. Leverages the Bayes' theorem to make more informed decisions. Example: If new market research indicates
increased chances of success, update probabilities before calculating EMV. 3. Expected Payoff Criterion : Select the
alternative with the highest expected monetary value (EMV) by calculating the weighted average of all possible payoffs. Formula:
EMV = \sum (Payoff \times Probability) i. Expected Monetary Value (EMV) Criterion : The decision-maker calculates the expected
value of each alternative by multiplying each outcome’s payoff by its probability and then summing these values. Formula: EMV
= \sum (Payoff \times Probability).ii. Expected Opportunity Loss (EOL) Criterion/Expected Regret : Selects the alternative that
minimizes the expected opportunity loss (regret), which is the difference between the payoff of the best decision and the payoff
of the chosen decision for each state of nature. Formula: EOL = \sum (Regret \times Probability) iii Expected Value of Perfect
Information (EVPI) Criterion : Measures the value of having perfect information about the future before making a decision. It
quantifies the maximum amount a decision-maker would be willing to pay to gain certainty. Formula: EVPI = Expected Value with
Perfect Information - Maximum EMV

BAYESIAN ANALYSIS IN DECISION-MAKING

Bayesian analysis is a statistical method that helps decision-makers update their knowledge about uncertain events by
incorporating new evidence or data into prior beliefs. This approach is particularly useful under conditions of uncertainty and is
based on Bayes' theorem. Bayes' Theorem : Bayes' theorem calculates the updated (posterior) probability of an event based
on its prior probability and the likelihood of new evidence. P(A|B) = P(B|A) x P(A)/ P(B) Steps in Bayesian Analysis: 1.
Define Prior Probabilities: Estimate the probabilities of each state of nature (prior probabilities) based on existing knowledge or
data. 2. Gather New Evidence: Collect new data or observations that are relevant to the decision. 3. Determine Likelihoods:
Assess the conditional probabilities of observing the new evidence under each state of nature. 4. Calculate Posterior
Probabilities: Use Bayes' theorem to update the prior probabilities based on the new evidence, resulting in posterior
probabilities. 5. Use Updated Probabilities for Decision-Making: Incorporate the posterior probabilities into decision models
(e.g., payoff tables, expected value calculations). Applications of Bayesian Analysis: 1. Market Research: Updating
market potential estimates based on surveys or trials. 2. Medical Diagnosis: Refining the probability of a disease given test
results. 3. Investment Decisions: Adjusting probabilities of market scenarios based on economic reports. 4. Supply Chain
Management: Updating demand forecasts based on new trends or data.

DECISION TREES
A decision tree is a graphical tool used to evaluate and make decisions, especially under conditions of risk. It provides a structured
approach to visualize the decision-making process, including possible actions, outcomes, probabilities, and payoffs. Components
of a Decision Tree: 1. Decision Nodes (Squares): Represent points where decisions are made. 2. Chance Nodes (Circles):
Represent uncertain outcomes, with probabilities assigned to each branch. 3. Branches: Represent possible choices or events
stemming from a decision or chance node. 4. Payoffs: The outcomes (rewards or costs) associated with each branch.
Steps in Decision Tree Analysis: Step 1) Systematic identification of the points for decision and the alternative course of action
at each decision point. 2) Determination of the probabilities and payoffs at each and every point that is associated with it.3)
Computation of the expected payoffs (EMV) for each course of action starting from the extreme right end. 4) Course of action
yielding the best payoff for every particular decision should be selected. 5) Proceed backwards to the next stage of decision
points. 6) Unless the first decision point has reached, above steps should not be repeated 7) Considering the whole situation,
the final identification of the course of action is suitable from the beginning to the end for different possible outcomes.
Advantages of Decision Trees: 1. Simplicity: Easy to understand and interpret, even for non-technical stakeholders. 2. Visual
Representation: Provides a clear and structured way to map out decisions and outcomes. 3. Incorporates Uncertainty: Accounts
for probabilities of various events and their associated outcomes. 4. Quantitative Analysis: Allows calculation of Expected
Monetary Value (EMV) and comparison of alternatives. 5. Flexibility: Can handle complex decision-making problems with
multiple alternatives and uncertain outcomes. 6. Helps in Risk Assessment: Highlights potential risks and rewards, aiding in
informed decision-making. 7. Supports Sensitivity Analysis: Can test how changes in probabilities or payoffs affect the decision.
Disadvantages of Decision Trees : 1. Subjectivity: Probabilities and payoffs may be based on estimates, leading to potential
bias. 2. Complexity: Large trees can become unwieldy and difficult to interpret. 3. Static Nature: Assumes probabilities and
payoffs remain constant over time. 4. Ignores Qualitative Factors: Decision trees focus on quantitative data and may overlook
important qualitative factors. 5. Assumes Independence: Often assumes events are independent, which may not always hold
true in real-world scenarios. 6 Time-Consuming for Complex Problems:
Applications of Decision Tree - 1) Segmentation: Recognise people who want to be members of a specific class. 2)
Stratification: Assign cases into one of different categories, like high, medium, and low-risk groups 3) Prediction: Creating rules
and using them to predict future events.4) Prediction can also mean attempts to relate predictive attributes to values of a
continuous variable. 5) Data Reduction and Variable Screening: Select a useful subset of predictors from a large set of variables
for use in building a formal parametric model 6) Interaction Identification: Identify relationships that relate only to particular
subgroups and specify these in a formal parametric model.

U-4 GAME THEORY

When two or more rational opponents are engaged under a situation of conflict and competition, then in this condition, the
study of decision-making is known as Game Theory. In addition, one can say that a strategic decision-making is called as game
theory. In other words, game theory is the "collaboration between intelligent rational decision-makers and mathematical model
of conflicts". To find out the guidelines of rational behaviour in the game conditions is the main objective of the game theory
Advantages of game theory : 1 Strategic Decision Making 2 Predicting Outcomes 3 Conflict Resolution 4 Optimizing Resources 5
Behavioral Insights Disadvantaged of game theory : 1 Complexity: Analyzing complex games can be mathematically challenging
and may require simplifying assumptions that don’t always reflect real-world situations.2 Assumption of Rationality: Game
theory often assumes that all players act rationally, which doesn’t account for human emotions, irrational behavior, or imperfect
information. 3 Limited Real-World Application: In some cases, the models might oversimplify reality, making the results less
applicable to real-world scenarios. 4 Information Requirements: Accurate predictions require extensive information about the
strategies and preferences of others, which may not always be available. 5 Overemphasis on Competition: Game theory typically
focuses on competitive environments, which might not capture the full dynamics of cooperative or collaborative situations.
Types of Games : 1. Zero-Sum Games: one player's gain is exactly balanced by the other player's loss. The total payoff remains
constant, so if one player gains, the other loses the same amount. Example: A two-player chess game where one player's gain is
the other's loss. 2. Non-Zero-Sum Games: the total payoff is not constant. Players can cooperate, and both can benefit, or both
can lose. The game allows for scenarios where both players can win or lose. Example: Trade negotiations or business partnerships.
3. Two-Person Games:These are games involving exactly two players. Example: A chess match, where one player’s win is the
other’s loss. 4. N-Person Games: These games involve more than two players, typically denoted as "n" players, where n ≥ 3.
Example: A business negotiation with multiple companies, or a political alliance. 5 Games of Perfect Information: all players have
complete knowledge of the game's state and all previous moves made by other players. Example: Chess, where both players can
see the entire board and know all prior moves. 6. Games of Imperfect Information some information is hidden from players,
meaning they do not have complete knowledge of the game state or the moves made by others. Example: Poker, where players
have private cards and do not know the cards of others. 7.Games with Limited Number of Moves: number of moves or turns
each player can take is finite and predetermined. Example: A typical chess game, where each player takes turns and the game
ends after a set number of moves or when a checkmate occurs. 8.Games with Unlimited Number of Moves: players can continue
making moves indefinitely, without a predefined limit. Example: Repeated negotiations or ongoing market competition, where
players can continue interacting with no predetermined end. 9. Constant Sum Games are a special type of game where the sum
of the payoffs for all players remains constant, but unlike zero-sum games, the total payoff is not necessarily zero. Example: A
competitive business environment where two companies are vying for a market share. If one company increases its market share,
it comes at the cost of the other company’s share, maintaining a constant total market share. 10. 3x3 Games: involves two players
(Player 1 and Player 2), each of whom has 3 strategies to choose from. This results in a 3x3 payoff matrix that shows the payoffs
for each possible combination of strategies. 11. Larger Games involve more than two players or more strategies per player.
Example: A 4x4 game (4 players, each with 4 strategies), or games in economics where multiple companies or countries interact,
each having different possible strategies. 12. 2x2 Two-Person Games involves two players, each with two strategies to choose
from. The game is represented by a 2x2 payoff matrix, which shows the outcomes (payoffs) for each possible combination of
strategies chosen by the two players. 13. 2xM and Mx2 Games involves two players, where one player has 2 strategies, and the
other player has M strategies. Example: In a 2x3 game (where Player 1 has 2 strategies and Player 2 has 3 strategies), the payoff
matrix will have 6 possible outcomes (2 × 3 = 6).
Strategies of a game - The strategies of a game refer to the planned actions and decisions made by players in order to achieve
their objectives and win. In general, game strategies vary depending on the type of game, but they often involve tactics for
optimizing resources, anticipating opponents' moves, and exploiting weaknesses.
Types of strategy - 1. Pure Strategies is a strategy where a player chooses a specific action or move with certainty, and this
action is played every time the game is repeated. Essentially, a pure strategy involves making a deterministic choice, with no
randomness involved. Eg: In the classic game of Rock, Paper, Scissors, if a player always chooses "Rock," that is a pure strategy.
Similarly, in chess, moving a particular piece (e.g., always moving the queen) could represent a pure strategy. Characteristics: I
Deterministic choice. Ii No randomness or mixing of strategies. Iii The player knows exactly what action to take at every stage. 2.
Mixed Strategies -involves a player choosing between different possible actions according to certain probabilities. Instead of
always choosing a single action, a player randomizes over a set of strategies. In this case, each strategy has a probability assigned
to it, and these probabilities may vary between players in different games. Eg: In Rock, Paper, Scissors, if a player chooses "Rock"
50% of the time, "Paper" 25%, and "Scissors" 25%, this is a mixed strategy. The player is using a probabilistic approach to choose
between different actions. Characteristics: I Involves randomness. Ii Strategies are chosen according to specific probabilities. Iii
Often used when no pure strategy is optimal (e.g., in Nash equilibria in non-zero-sum games).
Application of game theory :1 Economics: Used to model market competition, pricing strategies, auctions, and bargaining
between firms and consumers. For example, in oligopolies, firms use game theory to predict the actions of competitors. 2
Political Science: Applied in voting systems, negotiations, international relations, and conflict resolution. It helps analyze
strategies in elections, treaties, or military conflicts. 3 Business and Marketing: Used in pricing strategies, product launches, and
competition analysis. Companies often apply game theory to anticipate competitor actions and optimize their own strategies.
4.Biology: Game theory helps explain the evolution of species and behaviors in animals, like cooperation and competition in
evolutionary biology. 5 Law: Applied in legal disputes, particularly in areas like antitrust law and negotiation strategies. It helps
understand the potential outcomes of litigation and settlement processes. 6 Computer Science: Used in algorithms, network
theory, and cybersecurity. Game theory helps design protocols and secure communication in multi-agent systems. 7 Social
Sciences: Employed to study cooperation, trust, and behavior in societies, including understanding social dilemmas like the
"tragedy of the commons. 8 Sports and Recreation: Game theory is used to analyze strategies in competitive sports, from team
tactics to individual player decisions.

PRINCIPLE OF DOMINANCE is a concept in game theory that helps players simplify their decision-making process by identifying
strategies that are always better (or at least no worse) than others. According to this principle, a strategy is dominant if it always
leads to a better outcome for a player, regardless of what the other players do. A strategy is dominated if there is another strategy
that always gives a better or equal outcome for the player, no matter what the other players do.

QUEUING THEORY
Queuing theory is a mathematical study of waiting lines or queues. It is used to analyze the behavior of systems where entities
(like people, tasks, or data packets) arrive to receive some service but may need to wait due to limited resources. This theory is
widely applied in fields like telecommunications, traffic engineering, computer science, healthcare, and logistics.For example,
people waiting in a queue on a milk booth to get milk, waiting at the cash counter to deposit the electricity and water bill, to pay
fees at the fee counter in the college etc. Advantages: 1. Optimizes Resource Utilization2. Improves Customer Satisfaction 3.
Reduces Costs 4. Informs Capacity Planning5. Enhances Decision-Making 6. Predicts System Behavior7. Identifies Bottlenecks 8.
Supports Scalability 9. Applies Across Industries10. Improves Productivity Disadvantages 1. Simplistic Assumptions 2.
Complexity in Real Systems3. Data Dependency 4. Limited Practicality for Dynamic Systems 5. Over-Simplification 6. High Initial
Effort 7. Requires Expertise 8. Static Analysis 9. Ignores Qualitative Factors 10. Resource Intensity
Operating Characteristics of Queuing System - 1) Queue Length: means the average number of customers who are waiting
in the queue to get service 2) System Length: means the average number of customers existing in the system which includes
those who are waiting to be served and those who are being served. 3) Waiting Time in the Queue: means the average time
that a customer has spent in the queue to get service. 4) Total Time in the System: means the average time that a customer
spends in the system from entry in the queue to completion of service. 5) Server Idle Time: Server idle time is the relative
frequency with which the service system is idle. Idle time is directly related to cost.
Assumptions of Queue - 1. Arrival Process: Arrivals follow a specific distribution, often Poisson (random, with a constant
average rate).2. Service Process: Service times are typically exponentially distributed, meaning the time between service
completions is random but follows a known probability distribution. 3. Queue Discipline: The order in which customers are
served follows a certain rule, such as First-Come, First-Served (FCFS), Last-Come, First-Served (LCFS), or others. 4. Finite/Infinite
Queue Capacity: The system may have either a finite or infinite queue size. 5. Number of Servers: The system may have one or
more servers, each providing service independently.6. Population: The population of customers is generally assumed to be
infinite (or very large), meaning arrivals are not influenced by the number of customers already in the system. 7. Steady State:
The system is typically assumed to reach a steady-state condition, where arrival and service rates are constant over time.
Application of queuing theory: 1. Telecommunications : Designing and optimizing networks for call routing and data traffic
management. Managing bandwidth allocation to reduce congestion in internet services. 2. Healthcare : Scheduling
appointments to reduce patient wait times in clinics and hospitals. Managing emergency room operations and ambulance
dispatch systems. 3. Transportation : Controlling traffic flow at intersections using signal timing optimization. Designing efficient
toll booth and ticket counter systems. 4. Retail and Customer Service: Optimizing the number of checkout counters to minimize
customer waiting time in supermarkets. Managing call center operations by determining the number of agents needed. 5.
Manufacturing :Streamlining production lines to reduce bottlenecks and idle time. Optimizing inventory restocking and order
processing systems. 6. Logistics and Supply Chain: Improving the efficiency of warehouses by managing loading and unloading
queues. Scheduling delivery routes and managing distribution centers. 7. Airports : Managing passenger flow at check-in
counters, security checks, and boarding gates. Scheduling runway usage for incoming and outgoing flights. 8. Banking and
Finance : Reducing wait times at teller counters in banks. Managing customer flow for ATMs during peak hours. 9 Public Services
: Organizing voting booths during elections to minimize voter wait times. Managing queues at government offices for licenses,
registrations, or passport processing. Queuing theory helps in designing systems to balance service efficiency and resource
utilization, making it valuable in any field that involves waiting lines or service operations.

SIMULATION
Simulation is a numerical solution method that seeks optimal alternatives (strategies) through a trial and error process. The
simulation approach can be used to study almost any problem that involves uncertainty, i.e., one or more decision variables can
be represented by a probability distribution, like decision making under risk. According to Shannon, "Simulation is the process
of designing a model of a real system and conducting experiments with this model for the purpose of understanding the
behaviour (with the limits imposed by a criterion or set of criteria) for the operation of the system". Advantages- 1. Risk-Free
Testing 2. Cost-Effective 3. Real-Time Analysis 4. Complex Systems Representation 5. Scenario Testing 6. Improved Decision-
Making 7. Optimization 8. Training and Education Limitations: 1. Accuracy Limitations 2. Dependence on Input Data 3. Model
Complexity 4. Computational Demand 5. Risk of Misuse 6. Over-Simplification 7. Cost of Development
Process of Simulation - Step 1: Identify the Problem: Identify the Problem to be modeled and the specific aspects to be
simulated. 2: i) Identify the Decision Variables ii) Decide the Performance Criterion (Objective) & Decision Rules 3: Construct
a Numerical Model: Develop a mathematical or computational model that represents the problem's behavior. 4: Validate the
Model: : Ensure the model accurately represents the real system and functions correctly. 5: Design the Experiments: Design the
experiments with the help of simulation model by listing particular values of variables to be tested. 6: Run Simulation Model:
For obtaining the results in the form of operating characteristics run the model on the computer. 7: Examine the Results in Terms
of Problem Solution : Analyze the simulation results to draw conclusions or make decisions.
Application of Simulation - 1. Queuing Problem: Simulation is used to model waiting lines (queues) in systems like customer
service, call centers, or hospitals. By simulating customer arrival rates, service times, and queue disciplines, businesses can
optimize staffing, reduce wait times, and improve service efficiency.2. Inventory Management: Simulation helps in managing
inventory levels by modeling demand fluctuations, reorder points, and lead times. It allows businesses to test different inventory
strategies (e.g., just-in-time, safety stock) to minimize costs and avoid stockouts or excess inventory. 3. Financial Management
Used for risk analysis, portfolio optimization, market forecasting, and financial modeling, helping to predict market behavior and
improve investment strategies. 4. Job Shop Scheduling: Simulation in job shop scheduling models the production process,
considering machine availability, job priorities, and processing times. It helps optimize production schedules, reduce machine
downtime, and improve throughput by testing different scheduling rules and configurations. 5. Network Management:
Simulation is used in network management to model data flow, congestion, bandwidth allocation, and routing. It helps in
optimizing network performance, ensuring efficient data transmission, minimizing delays, and preventing bottlenecks in
telecommunications or IT networks. 6. Marketing Management: simulation models customer behavior, market dynamics, and
campaign strategies. It helps predict customer responses to pricing, promotions, or product changes, enabling more effective
decision-making for marketing strategies, sales forecasting, and resource allocation. 7. Healthcare: Used for medical training
(e.g., surgery simulators), disease modeling, drug testing, and patient care management to improve decision-making and reduce
risks. 8. Military: Applied in combat training, strategy planning, and mission rehearsals to prepare personnel for real-world
scenarios without the risks involved. 9. Transportation: Used for traffic flow modeling, vehicle design, and optimizing
transportation systems to improve efficiency and safety. 9. Education: Applied in virtual classrooms and learning environments
to enhance student engagement and learning experiences.