MANAGEMENT SCIENCE 6.

Order
- proper & systematic arrangement of things
CHAPTER 1: BASIC PRINCIPLE OF MANAGEMENT
and people
material order – proper place for
materials, machines and other
PRINCIPLES OF MANAGEMENT physical things
- statements of fundamental truth based on social order – selection and
logic which provides guidelines for managerial appointment of most suitable person
decision making and actions on the suitable job
o basis of observation and analysis
o conducting experimental studies
7. Discipline
- Not just general rules and regulations for
1. division of labor systematic working in an organization, but,
- Specialization of jobs developing commitment in the employees
- Division of work towards organization
- Simpler and results in efficiency - Sincerity, obedience, respect of authority &
- Speed and accuracy in individual performance observance of rules and regulation of the
enterprise
- Can be enforced if good superiors, clear & fair
agreements with workers, sanctions are
2. Authority and responsibility
judiciously applied
- Co-existing
- Should be balanced
- Authority - Responsibility = irresponsible
behavior 8. Initiative
- Responsibility - Authority = ineffective - Encouraged to take initiative in the work
assigned to employees
- Initiate actions without being asked to do
- Management should provide opportunity to
3. Unity of command
its employees
- An employee is responsible to only one
supervisor
Pros:
- Receive orders and be accountable to
 Employees’ belongingness is
immediate superior at a time
increased by management.
- Dual subordination should be avoided
 Employees’ concerns are noticed and
feel valued.
 Employee motivation increases.
4. Unity of direction
 Enhancement in employees’
- One head, one plan
performance
- Related activities should be grouped together
 Efficient achievement of
- Efforts of all members should be directed
organizational goals.
towards common goal
 The burden on the manager has been
- Unity of command is not possible without
reduced
unity of direction

Results of not following:

5. Equity
- a combination of kindness and justice  Employees do not feel valued, and the
- creating an environment where employees employee’s motivation, satisfaction,
feel free from biases and inequality and belongingness decrease.
 They do not give their full potential
  Makes difficult to achieve communication, as per the requirements of
organizational goals situations
 Conflicts of interest arise between
managers and employees
12. Subordination of Individual Interest to
General Interest
9. Fair renumeration - An organization is much bigger than the
- Paid to workers should be fair of the efforts individual
- Satisfaction to both employer and the - Case of conflict, individual must sacrifice for
employees bigger interests
- Determined on the basis of work assigned - To achieve, employees should be honest &
- Creates a harmonious relationship and sincere, proper &
pleasing work atmosphere - regular supervision of work, reconciliation of
mutual differences

10. Stability of Tenure

- No frequent termination and transfer 13. Esprit De’ Corps
- Job security in the organization - Team spirit
- Time is required for an employee to get used - Inspires worker to work harder
to a new work - Interest of the undertaking in the long run
- Creates team spirit & a sense of belongingness - Managers should infuse team spirit &
- Lowers employee turnover rate belongingness

Advantages of stability of Tenure 14. Centralization & De-centralization

- Centralization is concentration of authority at
 Employee loyalty, motivation, and
the top level
devotion are increased.
- De-centralization is disposal of decision-
 Employees commit to staying longer in the
making authority to all the levels of the
same organization
organization
 Employee turnover is lower
- Increases the role of subordinate
 Effective way to retain and use quality
(decentralization)
talents
- Decreases the role of subordinate
Results of avoiding stability of tenure (centralization)

 Frequent employee turnover may be MANAGEMENT

seen
- Process consisting of planning, organizing,
 Employee motivation and loyalty may
actuating and controlling
be increased
- performed to determine and accomplish the
 Working efficiency is decreased
objectives by the use of people and resources
 The hiring of new talents might incur
(George Terry)
higher efforts and costs
- To manage is t forecast and plan, to organize,
to command, to coordinate and to control
(Henry Fayol)
11. Scalar chain - Process of decision making and control over
- The chain of superiors ranging from the the action of human beings for the express
ultimate authority to the lowest purpose of attaining pre-determined goals
- Every order, instructions, etc., has pass (Stanley Vance)
through the chain
- For the sake of convenience & urgency, this
path can be cut short (Gang Plank)
- Temporary arrangement between two
different points to facilitate quick & easy
CHARACTERISTICS OF MANAGEMENT - Looking ahead and preparing for future
deciding business objectives and identifying
Goal oriented
methods to accomplish (what is to be done,
- Vital tool or framework to accomplish how and where is it to be done, who is to do
predefined goals it, how results are to be evaluated)

Universal activity Importance

- Essential function that guides and facilitates  provides directions

the achievement of goals  reduce the risks of uncertainty
 reduces overlapping and wasteful
Both science and Art activities
- Relies on fundamental principles that have  promotes innovative ideas
universal applicability, and requires the skill  facilitates decision-making
and ability  establishes standards for controlling

Continuous process

- An ongoing and perpetual process that Features

extends throughout the entire lifespan of an  focuses on achieving objectives
organization  primary of management
Social process  pervasive
 continuous
- Operates within the realm of human  futuristic
interactions  involves decision making
Dynamic activity  mental exercise

- Requires adaptability and flexibility to align Planning Process

Group activity  setting objectives

 developing premises
- Pertains to a group, team, or community o  identifying alternative courses of
individuals responsible for various managerial action
tasks  selecting an alternative
 implement the plan
Distinct process
 follow up action
- Follows a systematic and structured approach
to ensure efficiency and effectiveness
2. Organizing
A profession
- process of identifying and grouping of the
- Requires specific expertise and education works to be performed
- delegating responsibility and authority
Multi- disciplinary in nature
- establishing relationships to enable people to
- A diverse blend of knowledge and skills from work most efficiently
different fields - require humans and authority
- create organization
- staffing
- success of organization depends on how well
it can coordinate the various resources

FUNCTIONS OF MANAGEMENT
Importance
1. Planning
- ascertaining in advance what is supposed to  helps organizations to reap the benefit of
be done and who has to do it specialization
  provides for optimum utilization of  Attempts to get maximum out of
resources employees by identifying their capabilities
 helps in effective administration  Essential to keep the elements like
 channels for expansion and growth supervision, motivation, leadership, and
 achieves coordination among different communication effective
departments  Ensures that every employee work for
 creates scope for new change organizational goals
 Coping up with the changes in the
organization is possible through effective
Process direction
 Stability and balance can be achieved
 division of work
 departmentation
 linking departments
5. Controlling
 assigning duties
- Determining what is being accomplished
 defining hierarchal structure
- Evaluating performance
- Applying corrective measure, if necessary, so
that performance takes place according to
3. Staffing plans (Terry and Franklin)
- Build an organization through the recruitment, - Establishing standards of performance
selection, and development of individuals as - Measuring current performance and
capable employees (McFarland) comparing it against the established standards
Importance - Taking actions to correct any performance
that does not meet standards
 Filling the organizational position
 Developing competencies to Process
challenges  Set performance standards
 Retaining personnel (professionalism)  Measure performance
 Optimum utilization of the human  Compare actual performance against
resources performance standards
Process  Analyze deviations
 Take corrective actions
 Analyzing manpower requirements
 Recruitment
 Selection
 Placement
 Training and development
 Performance appraisal

4. Directing
- Referred as leading, motivating, activating of
people in an organization
- Involves communication, leadership, and
motivation
- Inspiring others to do what management
wants to be done

Importance

 Initiates actions to get desired results in

an organization
Management science Feedback

- Concerned with developing and applying Model construction

models and concepts - development of the functional relationships
- help to illuminate management issues and - describe the decision variables, objective
solve managerial problems function and constraints of the problem
- scientific approaches to problem solving and  The product costs P5 to produce and sells for
decision making P20
- solve many different types of problems  Z=P20x-P5x
o investment  Equation as a whole is functional relationship
o resource allocation  Mathematic model
o production mix  X number of unit or product, z number of
o marketing profit
o scheduling  Z dependent variable, x independent variable
 20 and 5 are parameters
Why study management science?

- appreciation for the relevance and power of

MS
- Learn to recognize when MS can and cannot EXAMPLE:
be fruitfully applied
- Learn how to apply the major techniques of The product is made from steel and that the business
MS to analyze a variety or managerial firm has 100 pounds of steel available; 4 pounds of
problems steel to make each product
- Develop an understanding of how to
4x = 100 lbs. of steel
interpret the results of an MS study
Z = P 20 – 5
Uses scientific approach
 Objective function (Z) – profit equation
- Define the problem and gather of data
 Constraint (Steel) – resource equation
- Formulate a model to represent the problem
 maximize Z=P20-P5x, subject to 4x=100lbs
- Develop a computer-based procedure for
deriving solutions to the problem from the
model
Model solution
- Test the model and refine it as needed
- Model solved using MS techniques
- Apply the model to analyze the problem and
 maximize Z=P20-P5x, subject to 4x=100lbs
develop recommendations for management
- Help to implement the team’s Simple algebra solution:
recommendations that are adopted by
management  x = 100
 x = 100/4
Management science process  x = 25 units
Management science techniques Profit function substitution
Observation  Z = P20x – P5x
- identification of a problem  20(25)-5(25)
- Management scientist is a skilled person in  P375
MS techniques
Problem definition
- problem must be clearly and consistently Information
defined
- problem must be clearly and consistently Model implementation
defined - actual use of the model or its solution
 3. Determine the set of alternative solutions
4. Evaluate the alternatives
Example:
5. Choose an alternative
Information data: 6. Implement the selected alternative
7. Evaluate the results
 A bakery makes and sells birthday cakes (Cake
A & Cake B)
 Cake A cost P100 to produce, Cake B costs
Decision-Making Process
P120
 Cake A cost P100 to produce, Cake B costs Structuring the problem
P120
- Define the problem
 Cake A cost P100 to produce, Cake B costs
- Determine the criteria
P120
- Identify the alternatives
 Cake A cost P100 to produce, Cake B costs
P120 Analyzing the problem
Business problem: - identify the alternatives
- choose an alternative
 Assuming all cakes produced can be sold out,
Single – criterion decision problems
determine the number of different cakes to
- the objective is to find the best
produce to make the most profit given the
solution
limited amount of double cream available
- involve more than 1 criterion
Decision variable:
Qualitative vs. Quantitative Analysis
 x=number of Cake A to produce
Analysis phase of Decision-Making Process
 y=number of Cake B to produce
 Z=total profit qualitative analysis
- based largely on the manager’s
Model
judgment and experience
 Z=P200x+P250y-P100x-P120y (objective quantitative analysis
function) - concentrate on the quantitative facts
 0.5x+0.8y <=20lbs of double cream (resource o problem
constraint) o development of
mathematical expressions to
Parameters
make recommendations
 P200, P100, 0.5lbs, 20lbs (known values
Reasons for quantitative analysis approach to
Formal specification of model decision-making

 maximize Z=P200x+P250y-P100x-P120y - The problem is complex

 Subject to 0.5x+0.8y <=20lbs - ““very important
- ““new
- ““repetitive
PROBLEM SOLVING AND DECISION MAKING
Quantitative analysis process
Problem solving
- Model development
- identifying a difference between the actual - Sata preparation
and desired state of affairs - Model solution
- Report generation
7 Steps of Problem Solving

1. identifying a difference between the actual

and desired state of affairs Models
2. Determine the criteria for evaluating
- representations of real objects or
alternatives
situations
 iconic models - the quantity of output multiplied by
- physical replicas of real objects the variable cost per unit of output
analog models total revenue
- physical in form - selling price per unit x sales volume
- do not physically resemble the object (PQ)
being modeled - where PQ is the selling price per unit
mathematical model
- represents real world problems
through a system of mathematical total cost
formulas and expressions - Total Cost = total fixed cost + total
variable cost
Deterministic Model

- all uncontrollable inputs to the model

are known and cannot vary EXAMPLE: BEP analysis of ABC Co.

Stochastic (probabilistic) Model o The ABC Co. produces expensive and unusual
gifts to be sold in stores that cater to affluent
- all uncontrollable inputs to the model
customers who already have everything. The
are known and cannot vary
latest new-product proposal to management
Example; from the company’s research department is
limited edition grandfather clock.
Transforming Model Inputs into Output ABC. Co.
Management needs to decide whether to
Uncontrollable Inputs introduce this new product and, if so, how
many of these grandfather clocks to produce?
- 10 profit per chair
- 5 hours needed per chair o Before making this decision, a sales forecast
- 40 hours of capacity will be obtained to estimate how many cloaks
Controllable inputs can be sold. Management wishes to make the
decision that will maximize the company’s
- X=8 profit
Mathematical model
o If the company goes ahead with this product,
- Maximize 10x a fixed cost of $50,000 would be incurred for
- S.t. 5x < 40 setting up the production facilities to produce
- X> 0 this product. In addition to this cost, there is a
production cost that varies with the number
Break – Even Analysis
of clocks produced. The unit variable
Fixed cost (marginal) cost is $400/clock produced
- all uncontrollable inputs to the model
are known and cannot vary o Each clock sold would generate a revenue of
$900 for the company
- business costs, such as rent, that are
constant whatever the quantity of
goods or services produced. - Q = #of grandfather clocks to produce
Variable cost (decision variable)
- determined on a per-unit basis - Cf = $50,000 if Q>0 (Cf=0, if Q=0)
- costs that change as the volume - Cv = $400/unit
changes - p = $900/unit
- raw materials, piece-rate labor, - Total variable cost = $400Q
production supplies, commissions, - Total cost = $50,000 + $400Q
delivery costs, packaging supplies, and - Total revenue = $900Q
credit card fees - Profit = Total revenue - Total cost
Total variable cost o = $900Q – ($50,000 + P$00Q)
- cost those changes based on activities
 - Q b/e = FC/ (sales price per unit-VC Controller $4,000
per unit) Office Manager $3,000
o = 50,000 (900-400) Receptionist $2,0000
o = 50,000/500 = 100units
- 100units, BEP

EXAMPLE: Ponderosa Dev Corp

Ponderosa Development Corporation (PDC) is

a small real estate developer that builds only one style
house. The selling price of the house id $115,000.
Land for each house costs $55,000 and lumber,
supplies, and other material run another $28,000 per
house. Total labor costs are approximately $20,000
per house.

Ponderosa leases office space for $2,000 per

month. The cost of supplies, utilities, and leased
equipment runs another $3,000 per month. The one
salesperson of PDC is paid a commission of $2,000 on
the sale of each house. PDC has seven permanent
office employees whose monthly salaries

EMPLOYEE MONTHLY SALARY

President $10,000
VP, Development $6,000
VP, Marketing $4,500
CHAPTER 3: DECISION ANALYSIS
Project Manager $5,500
Steps in Decision Making - the outcome for any combination of
alternative states of nature
 Clearly define the problem at hand
 List the possible alternatives Fisher Fabrication Payoff Table
 Identify the possible outcomes
 List the payoff of each alternative
 Select one of the mathematical decisions

Cause and Effect Diagram

- Ishikawa or “fish bone” diagram Example 1:

- Graphic tool used to explore and
display the possible causes of a A distribution company is considering purchasing a
certain effect computer to increase the number of orders it can
process and thus increase its business if economic
Pareto Chart conditions remain good, the company takes a
- A bar chart that displays the most downturn, the company will lose money
significant types of defect occurrences Example:
in descending order
Consider a concessions vendor who must decide
Decision Analysis whether to stock coffee for the concession stands at a
- Provides a framework for making football game. If the weather is cold, most of the
important decisions coffee will be sold, but if the weather is warm, very
- Allow us to select a decision form a little coffee will be sold.
set of possible decision alternatives Decision Making Criteria for Uncertainty
- optimize the resulting payoff in terms
of a decision criterion maximax criterion
- an optimistic decision criterion for
Decision Making dealing with uncertainty without
- a mental process resulting in the using probability, determining the
selection of an alternative among best possible and select one
several alternative maximin criterion
- a pessimistic decision criterion for
DECISION CRITERIA FOR ONE TIME DECISION dealing with uncertainty without
INVOLVING UNCERTAINTY using probability, determining the
Decision Making Environment worst possible the minimize
opportunity loss
certainty - the difference between the actual
- the results of selecting each payoff that occurs for a decision and
alternative are known before the the optimal payoff for the same
decision is made decision
uncertainty maximax regret criterion
- the decision maker does not know - considers the costs of selecting the
what outcome will occur when an wrong alternative, computed the
alternative is selected regret payoff which is the difference
that pay off and the payoff that would
Decision Making Criteria
have occurred, then select with
statue of nature smallest regret value
- the possible outcomes in an decision
situation over which the decision
maker has no control

payoff
Fisher Fabrication Opportunity-Loss Table
 Fisher Fabrication Maximum Regret Table

Decision Making Criteria for Uncertainty

Minimax regret criterion

- Considers the costs of selecting the
wrong alternative, computed the
regret payoff which is the difference
that payoff and the payoff that would
have occurred, then select with
smallest regret value
Expected – value criterion
- Employs probability to select the
alternative that will produce the
greatest average payoff or minimum
average loss

Classical Probability Assessment

Relevance Frequency of Occurrence Probability

N = number of observances
DECISION TREE ANALYSIS - Does not provide insight into why
certain events are likely while others
- diagram that illustrates the correct
are not, but it can be used to develop
ordering of actions and events in a
prediction models that illustrate the
decision-analysis problem
chance of an event occurring in
- Each act or event is represented by a
certain situations
node
- facilitates the evaluation and TERMINOLOGIES
comparison of the various options and
ROOT NODE
their results
- compiles the whole sample, it is then
IMPORTANCE OF USING DECISION TREE ANALYSIS divided into multiple sets which
comprise of homogeneous variables
- Determine the level of risk that each
DECISION NODE
option entails - Data can be utilized to
- sub-node which diverges into further
build predictive models or to analyze
possibilities, can be denoted as a
an expected value
decision node
- Demonstrate how particular acts or
TERMINAL NODE
occurrences may unfold in the context
- final node showing the outcome
of other events
which cannot be categorized any
- Concentrate your efforts - They can be
further, is termed as a value or
utilized in a multitude of industries,
terminal node
including goal setting, project
BRANCH
management, manufacturing,
- denotes the various alternatives
marketing, and more
available with the decision tree maker
ADVANTAGES OF USING DECISION TREE ANALYSIS SPLITTING
- division of the available option
- used to make complex decisions (depicted by a node or sub-node) into
easier multiple sub-nodes is termed as
- Decision-makers can use decision- splitting
making tools like tree analysis to PRUNING
experiment with different options - Just the reverse of splitting, where the
before reaching a final decision decision tree maker can eliminate one
- very useful when there is any or more sub-nodes from a particular
uncertainty regarding which course of decision node
action will be most advantageous or
when prior data is inadequate or
partial
- assist business owners and other
decision-makers in considering the
potential ramifications of different
solutions

DECISION/CHOICE NODE (SQUARES)

DISADVANTAGES OF USING DECISION TREE ANALYSIS - Decision maker takes a decision
- only show patterns connected with PROBABILITY/CHANCE NODE (CIRCLES)
decisions - decision maker evaluates the outcome
- No information on aspects like of his decision
implementation, timeliness, and BRANCHES
prices, more research may be needed - lines or segments that connect the
to figure out if a particular plan is nodes
viable a. decision branch –strategy
 b. chance branch – state of nature EXAMPLE 2:
c. terminal branch
A glass factory that specializes in crystal is developing
a substantial back-log and for this the firm’s
management is considering three courses of action;
the correct choice depends largely upon the future
demand, which may be low, medium, or high

1. Show this decision situation in the form of a

decision tree
2. Indicate the most preferred decision
3. Its corresponding expected value

DECISION NODE ANALYSIS PROCESS

1. determine your options S1 = Sub – contracting

- A problem to be addressed, a goal to S2 = being overtime
be achieved, and additional criteria
that will influence the outcome S3 = construct new facility
2. Examine the most effective course of action
- Taking into account the potential
rewards as well as the risks and
expenses that each alternative may
entail
3. Determine how a specific course of action to
examine multiple possible outcomes
4. Use each alternative course of action to
examine multiple possible outcomes
5. Evaluate which choice will be most effective
- Compare the potential outcomes of
each branch, implement and track the
effects to ensure assessment of
benefits and drawbacks

EXAMPLE 1:

EXAMPLE 3:
EXAMPLE 4: