OPERATIONS RESEARCH

Operations Research is relatively a new discipline, which originated in World War II, by Britain and
U.S.A., during the 1939-1945, for scientific methods to the planning of military operations and became
very popular throughout the world. India is one of the few first countries in the world who started using
operations research. Operations Research is used successfully not only in military/army operations but
also in business, government and industry. Now a day’s operations research is almost used in all the
fields.

Operational Research is the attack of modern science on complex problems arising in the direction and
management of large systems of men, machines, materials and money in industry, business, government
and defense. Its distinctive approach is to develop a scientific model of the system, incorporating
measurements of factors such as change and risk, with which to predict and compare the outcomes of
alternative decisions, strategies or controls. The purpose is to help management determine its policy and
actions scientifically.

Operations Research is the scientific knowledge through interdisciplinary team efforts for the purpose of
determining the best utilization of limited resources.

Operations Research is an art of winning the war without actually fighting.

Operations Research tries to optimize the total output by maximizing the profit and minimizing the cost.

Stages of Development of Operations Research

The stages of development of O.R. are also known as phases and process of O.R, which has six important
steps. These six steps are arranged in the following order:

Step I: Formulation of Problem

Step II: Construction of Mathematical Model
Step III: Deriving the solution from the model
Step IV: Testing or validating the model
Step V: Implement the solution
Step VI: Modifying the model

Step I: Formulation of problem

First of all one must formulate the problem in the form of an appropriate model. To do
so the following information will be required
 Who has to take the decision?
 What are the objectives?
 What are the controlled variables?
 What are the uncontrolled variables?
 What are the restrictions?
Since wrong formulation cannot yield a right decision, one must be considerably careful
while executing this phase.

Step II:Construction of Mathematical Model

This phase is concerned with the reformulation of the problem in an appropriate form
which is convenient for analysis. The most suitable form for this purpose is to construct
a mathematical model representing the system under study. Model must include 3
important factors
a. Decision Variable
b. Constraints or Restrictions
c. Objective function.
 Step III:Deriving the solutions from the model
After formulating the mathematical model for the problem under consideration, the next
phase is to derive a solution from this model. Here in OR we are always in search for an
optimal solution. Optimal solution is the one which maximizes or minimizes the
objective function.

Step IV:Provide a solution and test its reasonableness

This step is to get a solution with the help of model and input data. This solution is not
implemented immediately, instead the solution is used to test the model and to find there
is any limitations. Suppose if the solution is not reasonable or the behaviour of the
model is not proper, the model is updated and modified at this stage. The output of this
stage is the solution(s) that supports the current organizational objectives.

Step V: Implement the solution

At this step the solution obtained from the previous step is implemented. The
implementation of the solution involves many behavioural issues. Therefore, before
implementation the implementation authority has to resolve the issues. A properly
implemented solution results in quality of work and gains the support from the
management.

Step VI: Modifying the model

The model requires immediate modification as soon as the controlled variables (one or
more) changes significantly, otherwise the model goes out of control. As the conditions
are constantly changing in the world and the solution may not remain valid for a long
time.

Scopes &Applications of Operations Research

Today, almost all fields of business and government utilizing the benefits of Operations Research. There
are voluminous of applications of Operations Research. Although it is not feasible to cover all
theapplications of O.R. in brief.

DEFENCE:
In modern time war the military operations are carried out by airforce, army & navy therefore there is a
necessarity to formulate optimum strategies that may give maximum benefit operations research helps
military executives and managers to select the best strategies (course of action) to win the battle thus
operations research has got great scope in defence.

LIC:
Operations research techniques are also applicable to enable LIC officers to decide the premium rates of
various policies for the best interest of corporation.

AGRICULTURE:
With increase of population and consequent shortage of food, there is need to increase agriculture output
for a country. But there are many problems faced by the agriculture department of a country eg
a. Climatic Condition
b. Problem of optimal distribution of water from the resourses etc.
Thus there is a need of best policy under the given restrictions. Operations research is the technique to
determine best policy.

MANAGEMENT
The following are the abbreviated set of typical operations research applications in an organization just to
show how widely these techniques are used today:

1. Accounting:
 Assigning audit teams effectively
 Credit policy analysis
  Cash flow planning
 Developing standard costs
 Establishing costs for byproducts
 Planning of delinquent account strategy

2. Construction:
 Project scheduling, monitoring and control
 Determination of proper work force
 Deployment of work force
 Allocation of resources to projects

3. Facilities Planning:
 Factory location and size decision
 Estimation of number of facilities required
 Hospital planning
 International logistic system design
 Transportation loading and unloading
 Warehouse location decision

4. Finance:
 Building cash management models
 Allocating capital among various alternatives
 Building financial planning models
 Investment analysis
 Portfolio analysis
 Dividend policy making

5. Manufacturing:
 Inventory control
 Marketing balance projection
 Production scheduling
 Production smoothing

6. Marketing:
 Advertising budget allocation
 Product introduction timing
 Selection of Product mix
 Deciding most effective packaging alternative

7. Organizational Behavior / Human Resources:

 Personnel planning
 Recruitment of employees
 Skill balancing
 Training program scheduling
 Designing organizational structure more effectively

8. Purchasing:
 Optimal buying
 Optimal reordering
 Materials transfer

9. Research and Development:

 R & D Projects control
 R & D Budget allocation
 Planning of Product introduction
 DECISION THEORY
Thousands of business decisions are made every day – and not all will “MAKE” or “BREAK”
the organization. But each one adds a measure of success (or failure) to the operations, i.e. all
decisions have some influence- large or small- on performance. e.g An electronics manufacturer
must decide whether to invest in a new process or to stay with a “proven” one that is producing
defective chips at a rate of 1 in 3.

Does the ability to make good decisions come “naturally” or it can be learned? Management
scientists hold that education, scientific training, and experience can improve a person’s ability
to make decisions. The idea of management as a “science” is founded on its similarity to other
sciences as expressed below.
· Organized principles of knowledge,
· Use of empirical data,
· Systematic analysis of data,
· Repeatable results.
Business decision makers have always had to work with incomplete and uncertain data. In some
situations a decision maker has (or is assumed to have) complete information about the decision
variables; at the other extreme no information available. Managerial decisions are made all
along this continuum.

The Six Steps in Decision Theory:

1. Clearly define the problem.
2. List the possible alternatives.
3. Identify the possible outcomes or states of nature.
4. List the payoff or profit of each combination of alternatives and outcomes.
5. Select one of the mathematical decision theory models.
6. Apply the model and make your decision.

Types of Decision Making Environments:

Type 1: Decision Making Under Certainty (We already know)
In the environment of decision making under certainty, decision makers know
with certainty the consequence of every alternative or decision choice. Naturally,
they will choose the alternative that will maximize their well-being or will result
in the best outcome.

Type 2: Decision Making Under Uncertainty (Probability is not given)

In decision making under uncertainty, there are several possible outcomes for
each alternative, and the decision maker does not know the probabilities of the
various outcomes.
In this environment, probability is not given. So we have the five situations under
which we can make decisions
A. Criterion of pessimism (Maximin or Minimax)
This criteria is based on the conservative approach to assume that, the
worst possible is going to happen. The decision maker considers each
 strategy and locates the minimum pay off for each and then selects that
alternative which maximise the minimum pay off. This is known as
maximin criterion Thus, this criterion involves two steps.
Step I Find the minimum assured pay off for each alternative (course
of action)
Step II Choose that alternative which corresponds to the maximum of
the above minimum pay off

When dealing with the cost, the maximum cost associated with each
other alternative is considered and the alternative that minimise this
maximum cost is chosen. This is known as minimax criterion and it
involves two steps.
Step I Determine the maximum possible cost for each alternative.
Step II Choose that alternative which corresponds to the minimum of
the above costs.

B. Ceriterion of optimism (Maximax or minimin )

This criterion is based on extreme optimism. In this criterion, the
decision maker ensures that he should not miss the opportunity to
achieve the greatest possible pay off or lowest possible cost.

In maximax criterion, the decision maker selects that particular

strategy which corresponds to the maximum pay off for each strategy.
Thus, the maximax criterion consists of the following two steps

Step I Determine the maximum possible way off for each alternative.
Step II Select that alternative which corresponds to the maximum of the
above maximum pay offs.

In the decision problems dealing with costs, the minimum for each
alternative is considered and then the alternative which minimizes the
above minimum cost is selected. This is termed as minimin principle. This
is known as minimin criterion and it involves two steps.

Step I Determine the minimum possible way off for each alternative.
Step II Select that alternative which corresponds to the minimum of the
above minimum pay offs.

C. Laplace Criterion (equally likely decision criterion)

This criterion is based on, what is known as the principle of
insufficient reason. Since the probabilities associated with the
occurrence of various events are unknown, there is not enough
information to conclude that these probabilities will be different.
Hence it is assumed that all states of nature will occur with equal
probability. That is, each state of nature is assigned an equal
probability. As states of nature of mutually exclusive and collectively
exhaustive, the probability of each of these must be 1/(number of
states of nature).
 This criterion involves following steps.
Step I Assign equal probabilities 1/(number of states of nature) to each
pay off a strategy.
Step II Determine the expected pay off value for each alternative
Step III Select that alternative which corresponds to the maximum (and
minimum for cost) of the above expected expected pay offs.

D. Hurwicz criterion (Criterion of Realism)

This criterion suggests that a rational decision maker should neither be
completely optimistic nor be pessimistic and therefore, must display a
mixture of both. Hurwicz, who suggests this criterion, introduced the
idea of a coefficient of optimism (denoted by α) to measure the
decision maker’s degree of optimism. This coefficient lies between 0
and 1, where 0 represents a completely pessimistic attitude about the
future and 1, completely optimistic attitude about the future.The
working procedure is-
Step 1: Decide the coefficient of optimism α and then the coefficient
of pessimism (1-α).
Step 2:Determine the maximum as well as minimum pay off for each,
alternative and obtain the quantities.

H = α × (maximum of each alternative) + (1-α) × (minimum of each alternative)

Step 3: Select an alternative with value of H as maximum. For α=1,

the Hurwicz criteria is equal to the maximin or minimax
criteria. For α = 0, it is equal to maximax or minimin criteria.

E. Savage Criterion (criterion of regret, minimax regret criterion,

opportunity loss decision criterion)
While the above criterions do not take into account the cost of
opportunity loses by making the wrong decision, the Savage criterion
does so. The savage criterion is based on the concept of regret (or
opportunity loss) and calls for selecting the course of action that
minimises the maximum regret. This criterion is assume that decision
maker feels regret after adopting a wrong course of action (alternative)
resulting in an opportunity loss of pay off.
Step I From the given pay off matrix, develop an opportunity loss (or
regret) matrix
(a) Find the best pay off corresponding to each state of nature
(maximum for profit and minimum for cost)
(b).ith regret =( maximum pay off –ith pay off) for jth event if the
pay offs represent profits = (minimum pay off – ith pay off)
for jth event if the pay offs represent costs.
Step II Determine the maximum regret amount for each alternative.
Step III Choose that alternative which corresponds to the minimum
regrets.
Type 2: Decision Making Under Risk (Probability is given)
In decision making under risk, there are several possible outcomes for each
alternative, and the decision maker knows the probability of occurrence of each
outcome. The decision maker usually attempts to maximize his or her expected
well-being. Decision theory models for business problems in this environment
typically employ two equivalent criteria: maximization of expected monetary
value and minimization of expected loss.

In decision making under risk probabilities are given. That means we are aware of
success or failure of decision to some extent. We select the alternative with the
highest expected value. We also use the probabilities with the opportunity loss
table to minimize the expected opportunity loss. In decision making under risk,
we will discuss about Expected Monetary Value, Expected Value of Perfect
Information, and Expected Opportunity Loss.

a. Expected Monetary Value

The EMV means the long run average value of that would result if the decision
were repeated a large number of times. The EMV for an alternative is just the sum
of possible payoffs of the alternatives, each weighted by the probability of that
payoff occurring.

We can calculate EMV with the following formula.

EMV (alternative i) = (Payoff of first state of nature) X (probability of
first state of nature) + (Payoff of second state of nature)
X (probability of second state of nature) + …..(Payoff of
i state of nature) X (probability of i state of nature)

b. Expected Value Of Perfect Information (EVPI)

It places an upper bound on what you should be willing to spend on information.
It is the increase in Expected Monetary Value. The formula is:
EVPI = expected profit with perfect information – maximum EMV

 Expected Value with Perfect Information (EPPI)

It is the expected or average return, in the long run, if we have perfect
information before a decision has to be made.
The formula is:
EPPI = (best payoff for first state of nature) X (probability of first
state of nature) + (best payoff for second state of nature) X
(probability of second state of nature) +…+ (best payoff for i
state of nature) X (probability of i state of nature)

c. Expected Opportunity Loss

The alternative approach to maximizing the EMV is to minimize expected
opportunity loss. Opportunity cost, sometimes called regret, refers to the
difference between the optimal profit or payoff for a given state of nature and
the actual payoff received.
 In other words, it’s the amount lost by not picking the best alternative in a
given state of nature.

First, we will construct opportunity loss table by determining the opportunity

loss for not choosing the best alternative for each state of nature.

DECISION TREES
In some cases, the choice of the optimal act is not made in one stage, and the decision problem
involves a sequence (not necessarily in time) of acts, events, acts, events, etc. There may be a
number of basic alternatives, each leading to one of a number of situations depending on the
outcome of a certain random process. At each such situation, a number of other alternatives may
be available which also lead to a new set of situations depending on another set of events... and
so on, with acts followed by events, followed by acts, events, etc. The sequence of acts and
events may be depicted in the form of a decision tree. The decision problem is to find the most
preferred branch of that tree.

A decision tree is a graphical model describing decisions and their possible outcomes. Decision
trees consist of three types of nodes:
1. Decision node: Often represented by squares showing decisions that can be made.
Lines emanating from a square show all distinct options available at a node.
2. Chance node: Often represented by circles showing chance outcomes. Chance
outcomes are events that can occur but are outside the ability of the decision maker to
control.
3. Terminal node: Often represented by triangles or by lines having no further decision
nodes or chance nodes. Terminal nodes depict the final outcomes of the decision making
process.
ANALYSIS OF DECISION TREE:
The general approach used in the decision tree analysis is the “Roll Back Process”, i.e.
here we move from right to left. The expected return (Expected Monetary Value, EMV)
is calculated at each node starting from the extreme right node. If it is a chance node then
EMV of this node is the sum of the products of the respective payoffs. The expected
return (EMV) of a decision node is the maximum EMV’s along all decision branches
emanating this decision node. Thus starting from the extreme right we move along the
path that yields the maximum pay-off (EMV) for each of the decision.

STEPS IN DECISION TREE ANALYSIS

For the solution of a multistage problem, by decision tree analysis, stepwise procedure is
as follows:
Step 1: Construct the decision tree representing all decision points, possible course
of action, states of nature.
Step 2: At each decision point determine the probability and the payoffs associated
with each course of action and show in the diagram at appropriate places.
Step 3: Starting from extreme right end, compute the expected payoffs (EMV) for
each course of action.
Step 4: Select the course of action that yields the best expected payoff (EMV) for
each of the decisions.
Step 5: Proceed backwards to the next decision point.
Step 6: Repeat the step 3 and step 4, till the first decision point is reached.
Step 7: Finally select that course of action from the extreme right to left which
yields the maximum possible EMV at the first decision point.
 2. LINEAR PROGRAMMING PROBLEM
2.1 INRODUCTION

The term linear means that all the relations is the particular problem are linear and the term
programming refers to the process determining a particular programme or plan or plan of action.

The linear function which is to be optimized is called the objective function and the conditions
of the problem expressed as simultaneous linear equations (or inequalities) are referred as
constraints.

2.2 GENERAL LINEAR PROGRAMMING PROBLEM

Objective Function

Maximum (or minimum) Z = c1x1 + c2x2 +…….+ cnxn

Subject to

a11x1 + a12x2 +…….a1nxn (≤, =, ≥) b1

a21x1 + a22x2 +…….a2nxn (≤, =, ≥) b2

…… Constraints

……

am1 x1 + am2x2 +…….amnxn (≤, =, ≥) bm

Non-negative restrictions

x1, x2, ……, xn ≥ 0

2.3 SOME IMPORTATNT DEFINITIONS

1. Feasible Solution (FS)

A feasible solution to a linear programming problem is the set of values of the variables
which satisfies the set of constraints and the non –negative restrictions of the problem.
2. Optimum (or Optimal) Solution
A feasible solution to a LPP is said to be optimum (or optimal) solution is it also
optimizes the objective function Z of the problem.
3. Basic Feasible Solution (BFS)
A feasible solution which satisfies the non-negative restriction are known as basic
feasible solution.

4. Decision (or Basic) Variables

Decision variables refer to the activities that are competing one another for sharing the
resources available. These variables are usually inter-related in terms of utilisation of
resources and need simultaneous solutions.
 5. Non-degenerate BFS
A BFS of a linear programming problem is said to be non-degenerate BFS if none of the
basic variables is zero.
6. Degenerate BFS
A BFS of a linear programming problem is said to be degenerate BFS is at least one of
the basic variables is zero.

2.4 GRAPHICAL METHOD

Linear programming problems involving only two decision variables can easily be solved by
graphical method. There are two approaches

 Corner Point Method

 Iso-profit (or Iso-cost) Method

2.4.1 CORNER POINT METHOD

Step 1: Convert inequalities into the equation.

Step 2: Put x1 = 0 in the equation and find the value of x2 and then put x2 = 0 and find the
value of x1.

Step 3: Plot a graph representing all the constraints of the problem.

Step 4: Find feasible solution by putting x1 = 0 and x2 = 0 in the constraints (or

inequalities) if the condition is true the shade the region towards the origin and if the
condition is false the shade the region away from the origin. The feasible region is the
intersection (or common area) of all the regions represented by the constraints of the
problem and is restricted to first quadrant.

Step 5: The feasible region obtained in step 4 may be bounded or unbounded. Compute
the coordinates of all the corner points of the feasible region.

Step 6: Find out the value of the objective function at each corner (solution) point
determined in step5.

Step 7: Select the corner point that optimizes (maximizes or minimizes) the value of the
objective function. It gives the optimum feasible solution.

2.4.2 ISO-PROFIT (OR ISO-COST) METHOD

Step 1: Convert inequalities into the equation.

Step 2: Put x1 = 0 in the equation and find the value of x2 and then put x2 = 0 and find the
value of x1.

Step 3: Plot a graph representing all the constraints of the problem.

Step 4: Find feasible solution by putting x1 = 0 and x2 = 0 in the constraints (or

inequalities) if the condition is true the shade the region towards the origin and if the
condition is false the shade the region away from the origin. The feasible region is the
 intersection (or common area) of all the regions represented by the constraints of the
problem and is restricted to first quadrant.

Step 5: The feasible region obtained in step4 may be bounded or unbounded. Compute
the coordinates of all the corner points of the feasible region.
𝑥 𝑎
Step 6: Consider Z = 0 and compute 𝑥1 = 𝑏 which implies (a, b) now join this point with
2
the origin (0,0) with a dotted line. This dotted line is known as iso-profit line. Move this
iso-profit line parallel to itself farther (closer) from (to) the origin.

Step 7: Identify the optimum solution as the coordinates of that poibnt on the feasible
region touched by the highest possible iso-profit line (or lower possible iso cost line).

Step 8: Compute the optimum feasible solution.

2.5 SIMPLEX METHOD

If there are more the two basic variables then graphical methods fails and to overcome this
problem George Dantzig in 1947 developed the method known as simplex method or simplex
algorithms.

Computational procedure of the Simplex method for the solution of LPP

Step 1: Objective function must be of maximization, if it is of minimization the n convert into

maximization problem.

𝑴𝒊𝒏𝒊𝒎𝒖𝒎 𝒁 = 𝒄𝟏 𝒙𝟏 + 𝒄𝟐 𝒙𝟐 + ⋯ … … … … + 𝒄𝒏 𝒙𝒏

Maximize the function (Multiply the entire equation with -1)

𝒁′ = −𝒁 = − 𝒄𝟏 𝒙𝟏 − 𝒄𝟐 𝒙𝟐 − ⋯ … … … … − 𝒄𝒏 𝒙𝒏

Step 2: Make all the bi’s positive if any of the bi’s is negative, multiply the corresponding
constraints by -1 also convert the inequality.

Step 3: Convert the constraints into equations by introducing slack or surplus variables. Also
introduce artificial variables in the constraints where surplus variables are inserted and
which do not form the column of the identity matrix.

Slack Variable: If the left side of the inequalities is less than the right hand side then
add Si to left hand side to convert inequality into equality this added
variable is known as Slack Variable.

Surplus Variable: If the left side of the inequalities is more than the right hand side then
subtract Si to left hand side to convert inequality into equality this new
variable is known as Surplus Variable.

Step 4: To find initial basic feasible solution we formulate the simplex table and if all the
constraints have ≤ sign then directly we can find BFS but in case we have ≥ sign in the
LPP artificial variable is also introduced to get identity matrix then we follow two phase
 method to get the optimum solution. In phase 1 we proceed to get starting BFS by
considering the cost ‘0’of all the variables except the artificial whose cost would be ‘-1’.

Step 5: Construction of Simplex table

Cj c1 c2 cn 0 0 0
Minimum
Basic Ratio
Variable CB XB x1 x2 ............. xn S1 S2 ............. Sn XB/xj
S1 0 b1 a11 a12 a1n 1 0 ............. 0
S2 0 b2 a21 a22 a2n 0 1 .............. 0
............. ..... ..... .... ..... ..... ...... ....... ............ ........
Sn 0 bm am1 am2 amn 0 0 ............. 1
Δj Δ1 Δ2 Δn 0 0 0
Where,

Δj=CB×xj - Cj

Most negative value in Δj will give you an incoming vector and xj in Minimum ratio is the values
of incoming vector

Step 6: Test for starting BFS for optimality: This is done by computing Δj for each variable xj.
The value Δj = 0, if xj is a basic variable.

i. If Δj ≥ 0for each the solution under test is optimal.

a. If none of Δj is negative, but any are zero then other optimal solution exist with
the same value of Z.
b. If all of Δj are positive (for all –basic variables), the solution under test is unique
optimal solution.

ii. If Δj < 0for each the solution under test is not optimal.
a. If corresponding to most negative Δj, all the element in the column xj are negative
or zero, then the solution under test will be unbounded.
b. If the value of at least one artificial variable appearing in the basis is non-zero and
the optimality condition is satisfied, then we shall say that the problem has no
feasible solution.

Step 7: To find incoming (or entering) and outgoing vectors.

To improve the above solution we find the incoming vector and outgoing vector.

To find incoming vector: The most negative value of Δj will be the incoming vector.

To find outgoing vector: The outgoing vector is taken corresponding to the minimum
ratio on moving back the first 1 in the identity matrix of the row of minimum ratio will be
the outgoing vector. Put “-“ in place where the minimum ratio is negative or infinite.

Step 8: The point where incoming vector ( ) and minimum ratio ( ) intersect is called key
element and now make key element 1 and remaining element of the incoming vector 0.
If key element is not 1 then divide all the elements of this row by this key element. Then
subtract appropriate multipliers of this row from all the other rows and obtain zero at all
 the position of incoming vector. Now construct new (revised) simplex table. In this way
we get improved basic feasible solution.

Step 9: Now test the above improved BFS for optimality as in step 6. If this solution is not
optimal the repeat steps (7) and (8) in succession, until an optimal solution is finally
obtained.

2.6 DEGENRACY IN SIMPLEX METHOD

A BFS of LPP is said to be degenerate BFS if at least one of the basic variables is zero. So
far we have considered the LPP in which the minimum ratio rule we get only one vector to
be deleted from the basis, but there are LPP where we get more than one vector which may
be deleted from the basis. i.e. minimum occurs for more than one value of i, then the
problem is to select the vectors to be deleted from the basis. Such problem is called the
problem of degeneracy.

2.6.1 Computational Procedure to resolve degeneracy

𝑥
If Δk is the incoming vector and minimum { 𝑥𝐵 , 𝑥𝑘 > 0} is not unique i.e. the same minimum
𝑘
ratio occurs for more than one value in more than one row.

Then to select the vector to be deleted from the basis (i.e., outgoing vector) proceed as
follows:
𝑥11 𝑖𝑛 𝑖−𝑡ℎ 𝑟𝑜𝑤
1. Compute Minimum{ }if the minimum is unique, say attained i =𝑖𝑟 , then the
𝑥𝑘 𝑖𝑛 𝑖−𝑡ℎ 𝑟𝑜𝑤
ir –th vector is taken, as the outgoing vector and the element where this ir-th row is
intersected by the column xk. It this minimum is not unique, then proceed to next step.
𝑥12 𝑖𝑛 𝑖−𝑡ℎ 𝑟𝑜𝑤
2. Compute Minimum{ }if the minimum is unique, say attained i =𝑖𝑠 , then the
𝑥𝑘 𝑖𝑛 𝑖−𝑡ℎ 𝑟𝑜𝑤
is –th vector is taken, as the outgoing vector and the element where this is-th row is
intersected by the column xk. It this minimum is not unique, then proceed to next step.
𝑥13 𝑖𝑛 𝑖−𝑡ℎ 𝑟𝑜𝑤
3. Compute Minimum{ }if the minimum is unique, say attained i =𝑖𝑡 , then the
𝑥𝑘 𝑖𝑛 𝑖−𝑡ℎ 𝑟𝑜𝑤
it –th vector is taken, as the outgoing vector and the element where this it-th row is
intersected by the column xk. It this minimum is not unique, then proceed to next step.
4. Continue the same procedure until we get the minimum ratio.

2.7 DUALITY IN LINEAR PROGRAMMING

Associated with every linear programming problem (maximization or minimization) there

always exists another linear programming problem which is based upon the same data and
having the same solution. The original problem is called the primal problem while the
associated one is called its dual problem. It is important to note that either of the two linear
programming problems can be treated as primal and the other as its dual.

The concept of duality is based on the fact that any linear programming problem must be
first put in its standard form before solving the problem by simplex method.
 Definition 1: (Standard Primal Problem)

Maximize Z = 𝑐1 𝑥1 + 𝑐2 𝑥2 + ⋯ … … … … + 𝑐𝑛 𝑥𝑛

Subject to

a11x1 + a12x2 +…….a1nxn ≤ b1

a11x1 + a12x2 +…….a1nxn ≤ b2

……..

am1x1 + am2x2 +…….amnxn ≤ bm

Non-negative restrictions

x1, x2, ……, xn ≥ 0

Dual Problem

Minimize ZD = 𝑏1 𝑤1 + 𝑏2 𝑤2 + ⋯ … … … … + 𝑏𝑛 𝑤𝑚

Subject to

a11w1 + a21w2 +…….an1 wm ≥ c1

a21w1 + a22w2 +…….an2 wm ≥ c2

……..

a1nw1 + a2nw2 +…….amnwm ≥ cn

Non-negative restrictions

w1, w2, ……, wn ≥ 0

Definition 2: (Standard Primal Problem)

Minimize Z = 𝑐1 𝑥1 + 𝑐2 𝑥2 + ⋯ … … … … + 𝑐𝑛 𝑥𝑛

Subject to

a11x1 + a12x2 +…….a1nxn ≥ b1

a11x1 + a12x2 +…….a1nxn ≥ b2

……..

am1x1 + am2 x2 +…….amnxn ≥ bm

Non-negative restrictions

x1, x2, ……, xn ≥ 0

Dual Problem

Maximize ZD = 𝑏1 𝑤1 + 𝑏2 𝑤2 + ⋯ … … … … + 𝑏𝑛 𝑤𝑚

Subject to

a11w1 + a21w2 +…….an1 wm ≤ c1

a21w1 + a22w2 +…….an2 wm ≤ c2

……..

a1nw1 + a2nw2 +…….amnwm ≤ cn

Non-negative restrictions

w1, w2, ……, wn ≥ 0

REMARK:

1. All the constraints involve the sign ≤ if it is a problem of maximization.

2. All the constraints involve the sign ≥ if it is a problem of minimization.
3. Dual of the dual of a given primal, is the primal itself.
 3. TRANSPORTATION PROBLEM
3.1 INTRODUCTION

The transportation problem is a particular class of linear programming problem in which the
objective is to transport a commodity or to provide services from several supply origins to
different demand destinations at a minimum total cost.

The transportation problem can be described as follows.

Important Definition

1. Feasible Solution
When the total availability is equal to the total requirement i.e ∑ai = ∑bj then it is called
feasible solution.

2. Basic Feasible Solution

The number of basic variables of the general transportation problem at any stage of
feasible solution must be m + n – 1.

3. Optimal Solution
A feasible solution is said to be optimal if it minimizes the total transportation cost.

4. Non-Degenerate Basic Feasible Solution

When total number of positive allocation is exactly m + n – 1 independent individual
positive allocations, then it is known as non-degenerate BFS.

3.2 FINDING AN INITIAL BASIC FEASIBLE SOLUTION

There are three methods that can be used to find a BFS for a balanced transportation
problem:
1. Northwest Corner method
2. Minimum cost (Matrix Minima or Lowest cost) method
 3. Vogel’s approximation method (Unit cost penalty method)
The difference among these three methods is the quality of the initial basic feasible solution
they produce, in the sense that a better that a better initial solution yields a smaller objective
value. Generally the Vogel Approximation Method produces the best initial basic feasible
solution, and the North West Corner Method produces the worst, but the North West Corner
Method involves least computations.
3.2.1 North West Corner Method:
The method starts at the North West (upper left) corner cell of the tableau (variable C11).
Step -1: Allocate as much as possible to the selected cell, and adjust the associated amounts
of capacity (supply) and requirement (demand) by subtracting the allocated amount.
Step -2: Cross out the row (column) with zero supply or demand to indicate that no further
assignments can be made in that row (column). If both the row and column becomes zero
simultaneously, cross out one of them only, and leave a zero supply or demand in the
uncrossed out row (column).
Step -3: If exactly one row (column) is left uncrossed out, then stop. Otherwise, move to the
cell to the right if a column has just been crossed or the one below if a row has been
crossed out. Go to step -1.

3.2.2 Least Cost Method

The least cost method is also known as matrix minimum method in the sense we look for the
row and the column corresponding to which Cij is minimum. This method finds a better
initial basic feasible solution by concentrating on the cheapest routes. Instead of starting the
allocation with the northwest cell as in the North West Corner Method, we start by
allocating as much as possible to the cell with the smallest unit cost. If there are two or more
minimum costs then we should select the row and the column corresponding to the lower
numbered row. If they appear in the same row we should select the lower numbered column.
We then cross out the satisfied row or column, and adjust the amounts of capacity and
requirement accordingly. If both a row and a column is satisfied simultaneously, only one is
crossed out. Next, we look for the uncrossed-out cell with the smallest unit cost and repeat
the process until we are left at the end with exactly one uncrossed-out row or column.
3.2.3 Vogel Approximation Method (VAM):
VAM is an improved version of the least cost method that generally produces better
solutions. The steps involved in this method are:
Step 1: For each row (column) with strictly positive capacity (requirement), determine a
penalty by subtracting the smallest unit cost element in the row (column) from the
next smallest unit cost element in the same row (column).
Step 2: Identify the row or column with the largest penalty among all the rows and columns.
If the penalties corresponding to two or more rows or columns are equal we select
the topmost row and the extreme left column.
Step 3: We select Xij as a basic variable if Cij is the minimum cost in the row or column
with largest penalty. We choose the numerical value of Xij as high as possible
 subject to the row and the column constraints. Depending upon whether ai or b j is
the smaller of the two ith row or jth column is crossed out.
Step 4: The Step 2 is now performed on the uncrossed-out rows and columns until all the
basic variables have been satisfied.
3.3 OPTIMALITY TEST
After getting the initial FS of a transportation problem, we test this solution for optimality
i.e. we check whether the feasible solution obtained, minimizes the total transportation cost
or not. There we start the optimality test to BF consisting of (m + n – 1) allocations in
independent positions.
In general there are following two methods used for the test of optimality of the solution
1. The stepping stone method
2. The modified distribution (MODI) method
3.3.1 The Stepping Stone Method
This is a procedure for determining the potential of improving upon each of the non-basic
variables in terms of the objective function. To determine this potential, each of the non-
basic variables is considered one by one. For each such cell, we find what effect on the total
cost would be if one unit is assigned to this cell. With this information, then, we come to
know whether the solution is optimal or not. If not, we improve that solution.

We can summaries the Stepping Stone method in following steps :

1. Construct a transportation table with a given unit cost of transportation along with the rim
conditions
2. Determine a initial basic feasible solution (allocation) using a suitable method as
discussed earlier
3. Evaluate all unoccupied cells for the effect of transferring one unit from an occupied cell
to the unoccupied cell. This transfer is made by forming a closed path that retains the SS
and DD condition of the problem.
4. Check the sign of each of the net change in the unit transportation costs. If the net
changes are plus or zero, then the an optimal solution has been arrived at, otherwise go to
step 5 .
5. Select the unoccupied cell with most negative net change among all unoccupied cells.
6. Assign a many units as possible to unoccupied cell satisfying rim conditions. The
maximum number of units to be assigned are equal to the smaller circled number among
the occupied cells with the minus value in a closed path.
7. Go to step 3, and repeat the problem until all unoccupied cells are evaluated and the net
change result in positive or zero.
3.3.2 The Modified Distribution (MODI) Method

The Modified Distribution Method, also known as MODI method or u-v method, which provides
a minimum cost solution (optimal solution) to the transportation problem. The following are the
steps involved in this method.
Step 1: Find out the basic feasible solution of the transportation problem using any one of the
three methods discussed in the previous section.
Step 2: Find the set of numbers ui, i=1,2,…..m and vj, j=1,2,…..n. by using allocated cell
ui + vj = cij if xij > 0 -+
Step 3: Find the cell evaluation ui + vj for each unoccupied cell (i, j) and enter at the upper right
corner of the corresponding cell (i, j).
Step 4: Find the cell evaluation dij = cij – (ui- + vj) for each unoccupied cell (i, j) and enter at the
lower right corner of the corresponding cells.

(Cij) (Cij) (ui+v j)

ALLOCATION (dij)

Step 5: Examine the cell evaluation dij for unoccupied cells and conclude that
a. If all d ij > 0, then the solution under test is optimal and unique.
b. If all dij ≥ 0, with at least dij = 0 then the solution under test is optimal and the
alternative optimal solution exists.
c. If at least one dij < 0, then the solution is not optimal. Then proceed to step 6.
Step 6: Considering the negative dij form a loop such that its corners must contain allocations
now assign θ to negative dij and alternative sign θ to the allocations lying on loop. Now
considering negative θ we find the minimum value and put equal to 0 and accordingly
make changes to all the cells lying on a loop
Step 7: Form a new BFS then repeat the step (2) to (5) to test the optimality to this new BFS.
Continue improving the BFS interactively using step (2) to (6) till the optimal solution is
attained.
3.4 Degeneracy in Transportation Problems

In a transportation problem, degeneracy occurs whenever the number of independent

individual allocation is less than (m + n – 1). In such cases, to resolve degeneracy, we
allocate an extremely small amount (close to zero) to one or more empty cells of the matrix
(generally lowest cost cells if possible) so that it does not form a loop. We denote this small
amount by Δ (delta) or ϵ (epsilon).

It is clear that after introducing ϵ satisfying the above condition, the original solution of the
problem is not changed. It is merely a technique to apply the optimality test and is omitted
ultimately.
3.5 Unbalanced Transportation Problems

A transportation problem is said to be an unbalanced transportation problem, if the sum of

all available amount (quantities) is not equal to the sum of all requirements, i.e. ∑ ≠ ∑ .

An unbalanced transportation problem is converted into balanced transportation problem, by

introducing a fictitious source or destination which will provide the surplus supply and
demand. The cost of transportation and unit from the fictitious source (or to the destinations)
is taken to be zero. After converting the unbalanced transportation problem to balanced
transportation problem, by the introduction of fictitious source or destination, it is solved by
the earlier methods.

3.6 Profit Maximization problem

Till now we discussed cost minimization transportation problems. But in some cases in the
transportation matrix, the profits are given in place of cost and we are required to find the
allocations to maximize the profit. Such problems can be termed as profit maximization
problems. Such problems can be solved in any of the following two ways.

1. Change the profit maximization problem to cost minimization problem by multiplying

each element of the profit matrix by -1 and then proceed to solve as usual.
2. Find the maximum profit element from the entire profit matrix and then subtract all
profit elements from the maximum profit element hence the profit maximization
problem is changed into cost minimization problem and then proceed to solve as usual.
 4. ASSIGNMENT PROBLEM

4.1 INTRODUCTION

Assignment problem is the special case of Transportation problem in which the objective is to find the
optimum allocation of a number of tasks (jobs) to an equal number of facilities (persons). Here we make
the assumption that each person can perform each job but with varying degree of efficiency. For example
a departmental head may have four persons available for assignment and four jobs to fill. Then his interest
is to find the best assignment which will be in the best interest of the department.

4.2 ASSIGNMENT PROBLEM

The problem can be stated in the form of n×n, matric [cij] called the cost or the effectiveness matrix,
where cij is the cost of assigning i-th facility (person) to the j-th job.

Given n facilities, n jobs and the effectiveness of each facility to each job, here the problem is to assign
each facility to one and only one job so that the measure of effectiveness if optimized. Here the
optimization means Minimized.

4.3 Difference Between a Transportation and an Assignment Problem

Transportation Problem Assignment Problem

 In transportation method,  In assignment problem

management is searching for a management aims at assignment
distribution route, which can lead jobs to various people.
to minimization of cost and  Number of sources and destinations
maximization of profit. needs to be equal. Hence the cost
 Number of sources and destinations matrix needs to be a square matrix.
need not be equal. Hence the cost  The values of supply and demand in
matrix is not necessarily to be a square 1 in assignment problem.
matrix.  The problem is unbalanced when
 Total supply and total demand is number of rows is not equal to
equal. number of columns.
 The problem is unbalanced when total  In an assignment problem only
of supply is not equal to total of one allocation can be made in
demand. particular row or a column
 In transportation problem many
allocations can be done in a
particular row or particular column.

4.4 Hungarian Method (Reduced Matrix Method)

The objective of this section is to examine a computational method – an algorithm - for deriving solutions
to the assignment problems. The following steps summarize the approach:
Steps in Hungarian Method

Step 1. Identify the minimum element in each row and subtract it from every element of that row.

Step 2. Identify the minimum element in each column and subtract it from every element of that column.

Step 3. Make the assignments for the reduced matrix obtained from steps 1 and 2 in the following way:

a. For each row or column with a single zero value cell that has not be assigned or eliminated,
box that zero value as an assigned cell.
b. For every zero that becomes assigned, cross out (X) all other zeros in the same row and the
same column.
c. If for a row and a column, there are two or more zeros and one cannot be chosen by
inspection, then you are at liberty to choose the cell arbitrarily for assignment.
d. The above process may be continued until every zero cell is either assigned or crossed (X).

Step 4. An optimal assignment is found, if the number of assigned cells equals the number of rows (and
columns). In case you have chosen a zero cell arbitrarily, there may be alternate optimal solutions.
If no optimal solution is found, go to step 5.

Step 5. Draw the minimum number of vertical and horizontal lines necessary to cover all the zeros in the
reduced matrix obtained from step 3 by adopting the following procedure:

a. Mark all the rows that do not have assignments.

b. Mark all the columns (not already marked) which have zeros in the marked rows.
c. Mark all the rows (not already marked) that have assignments in marked columns.
d. Repeat steps 5 (i) to (iii) until no more rows or columns can be marked.
e. Draw straight lines through all unmarked rows and marked columns.

Step 6. Select the smallest element from all the uncovered elements. Subtract this smallest element from
all the uncovered elements and add it to the elements, which lie at the intersection of two lines.
Thus, we obtain another reduced matrix for fresh assignment.

Step 7. Go to step 3 and repeat the procedure until you arrive at an optimal assignment.

4.5 Unbalanced Assignment Problem

When number of rows is not equal to the number of columns then the problem is said to be an unbalanced
assignment problem to make it a balanced assignment problem we add a row or column whichever is less
with the cost zero in each cell.
 5. GAME THEORY
5.1 Introduction

Game theory is the study of human conflict and cooperation within a competitive situation. In some
respects, game theory is the science of strategy, or at least the optimal decision-making of independent
and competing actors in a strategic setting. The competitors are called the players.

The game theory is a mathematical theory that deals with the general features of competitive situation.
The competitive situation is called a game i.e. the term game represents a conflict between two or more
parties. The competitors are called the players.

5.2 Assumptions of game theory

1. There are finite numbers of competitors, called the player.

2. Each of the n players has available to him a list of finite number of possible courses of action.
3. A play is said to be played when each of the players choose a single course of action from the list
of courses of action available to him.
4. Every play i.e. combination of course of action determines an outcome.

5.3 Some Important Definitions

 Two-person Game
If a game involves two players then it is called two-person game.
 n person Game
If a game involves more than two players then it is called n person game.
 Zero Sum Game
If in a game, sum of the gains to one player is exactly equal to the sum of the losses to another
player so that sum of the gains and the losses equal to zero then the game is called zero sum game
otherwise it is called a non- zero sum game.
 Two Person Zero Sum Game
A game with only two players, say player A and Player B, is called two person zero sum game if
one player’s gain is equal to the loss of another player so that the total sum is zero.
 Strategy/ Course of Action
It is the list of all possible alternatives available to a player among which he has to make a
decision.
 Value of Game
It is the expected outcome per play when players follow their optimal strategy. It is denoted by
‘v’.
 Pure Strategy
It is the decision rule which is always used by the player to select the particular strategy. Thus,
each player knows in advance of all strategies out of which he always select only one particular
strategy regardless of the other player’s strategy.
 Mixed Strategy
Strategies to be selected from the list with some fixed probability are called mixed strategy.
 Payoff Matrix
The payoffs in terms of gains or losses when players select their particular strategies can be
represented in the form of a matrix is called a payoff matrix. Rows of the payoff matrix denotes
A’s strategies and the columns denote player B’s strategies.
 Player A Player B Strategies
Strategies B1 B2 ..... Bn
A1 a11 a12 ..... a1n
A2 a21 a22 ..... a2n
....
Am am1 am2 ..... amn

 Fair Game
A game is said to be a fair game if the value of the game is zero.
 Saddle Point
The point at which maximin is equal to minimax is known to be a saddle point.

5.4 Pure Strategies (Game with a Saddle Point)

Maximin Principle:

Step 1: Find minimum payoff corresponding to each row.

Step 2: From those minimum payoffs find the maximum payoff

Minimax Principle:

Step 1: Find Maximum payoff corresponding to each column.

Step 2: From those maximum payoffs find the minimum payoff.

If the maximin = minimax then saddle point exists and the point at which they intersect that position is
known as saddle point.

Value of game = maximin = minimax

5.5 Mixed Strategies (Solution without the saddle point)

There are various ways to obtain the solution of the game when saddle point does not exist.

1. Algebraic Method
2. Arithmetic method
3. Graphical Method

5.5.1 Algebraic Method

This method is applicable only for 2 × 2 matrix

B B
𝑎11 𝑎12
𝐴 [𝑎 𝑎22 ]
21

𝑎22 − 𝑎21
𝑃(𝐴1 ) =
(𝑎11 + 𝑎22 ) − (𝑎12 + 𝑎21 )
𝑎11 − 𝑎12
𝑃(𝐴2 ) =
(𝑎11 + 𝑎22 ) − (𝑎12 + 𝑎21 )
𝑎22 − 𝑎12
𝑃(𝐵1 ) =
(𝑎11 + 𝑎22 ) − (𝑎12 + 𝑎21 )
 𝑎11 − 𝑎12
𝑃(𝐵2 ) =
(𝑎11 + 𝑎22 ) − (𝑎12 + 𝑎21 )

(𝑎11 × 𝑎22 ) − (𝑎12 × 𝑎21 )

𝑣=
(𝑎11 + 𝑎22 ) − (𝑎12 + 𝑎21 )

5.5.2 Arithmetic Method

B
B1 B2
A1 a11 a12
A
A2 a21 a22

Arithmetic method provides an easy technique for obtaining the optimum strategies for each player in
(2×2) games without the saddle point. This method consists of the following steps:

Step 1: Find the difference of two numbers in column I and put it under the column II, neglecting the
negative sign if occurs.

Step 2: Find the difference of two columns in column II and put it under the column I, neglecting the
negative sign if occurs.

Step 3: Repeat the above two steps for the two rows also.

The values thus obtained are called the oddments. These are the frequencies with which the players must
use their course of action in their optimum strategies. With the help of these frequencies we find the
probability of happening of A’s & B’s strategies.

5.5.3 Graphical method

Graphical method is used to solve (2×n)and (m×2) games i.e. a game with mixed strategies which has
only two pure strategies for one of the players. Since the optimal strategies for both players assign non-
zero probabilities to the same number of pure strategies, therefore if one player has only two strategies the
other player will also use two strategies only. Graphical method helps us to find which two strategies
should be used. Thus, the game reduced to 2×2 which can be solved by usual method given earlier.

Algorithm for solving 2 x n matrix games

1. Draw two vertical axes 1 unit apart. The two lines are on x axis. Take the points of the first row in
the payoff matrix on the vertical line axis 2 and the points of the second row in the payoff matrix
on vertical line axis 1.
2. The two point a1j on axis 2 is then joined to the points a2j on the axis 1 to give a straight line.
Draw ‘n’ straight lines for j= 1, 2, 3, ….n and determine the highest point of the lower envelope
obtained. This will be the maximin point.
3. The two or more lines passing through the maximin point determines the required 2× 2 payoff
matrix. This in turn gives the optimum solution by making use of analytical method.

Algorithm for solving m×2 matrix games

1. Draw two vertical axes 1 unit apart. The two lines are on x axis. Take the points of the first
column in the payoff matrix on the vertical line axis 2 and the points of the second column in the
payoff matrix on vertical line axis 1.
2. The two point ai2 on axis 2 is then joined to the point’s ai1 on the axis 1 to give a straight line.
Draw ‘m’ straight lines for i= 1, 2, 3, ….m and determine the highest point of the lower envelope
obtained. This will be the minimax point.
 3. The two or more lines passing through the minimax point determines the required 2× 2 payoff
matrix. This in turn gives the optimum solution by making use of analytical method.

5.6 Dominance Rule

Sometimes it is observed that one of the pure strategies of either player is always inferior to at least one of
those remaining. The superior strategies are said to dominate the inferior ones. In such cases of
dominance, we reduce the size of the pay-off matrix by deleting those strategies which are dominated by
others. The general rules for dominance are:

i. If all the element of a row, say kth row, are less than or equal to the corresponding elements of
any other row say rth row, then kth row is dominated by rth row.
ii. If all the element of a row, say kth column, is greater than or equal to the corresponding elements
of any other column say rth column, then kth column is dominated by rth column.
iii. Dominated rows and columns may be deleted to reduce the size of the pay-off matrix, as the
optimal strategies will remain unaffected.
iv. If some linear combination of certain rows dominate ith row, then the ith row will be deleted.
Similar arguments follow for columns.
 7. QUEUING THEORY

7.1 Introduction

A group of items waiting to receive service, including those receiving the service is known as a waiting
line or a queue. Queuing theory involves the mathematical study of “queues” or waiting lines. The
formation of waiting lines is a common phenomenon which occurs whenever the current demand for a
service exceeds the current capacity to provide that service. The queues of peoples may be seen at cinema
ticket window, bus stop, reservation office, counters of super market etc. the person waiting in a queue or
receiving the service is called the customer and the person by whom he is serviced is called a server.

7.2 Basic Queuing Process (System) and its Characteristics

The basic queuing process can be described as a process in which the customers arrive for service at a
service at a service counter (or station), wait for their turn in the queue if the server is busy in the service
of the other customer and are served when the server gets free. Finally the customer leave the system as
soon as he is served.

Characteristics of Queuing System

1. The input (or arrival pattern)

2. Queue (or waiting line)
3. The service discipline (or queue discipline)
4. The service mechanism (or service pattern)
Departure
Input Queue Service Mechanism
(Served Units)

Queue discipline

1. The Input (or arrival pattern)

The input describes the pattern in which the customers arrive for service. Since the units for
service (customers) arrive in a random fashion therefore, their arrival pattern can be described in
terms of probabilities.
2. Queue (or waiting line)
The units requiring service enter the queuing system. The maximum number of units permissible
in the system is called the capacity of the system. A queue can be finite or infinite.
3. The service discipline (or queue discipline)
The service discipline refers to the manner in which the members in the queue are chosen for
service.
 First Come First served (FCFS): Examples this service discipline may be seen at a
cinema ticket window, railway ticket counter etc.
 Last in First Out (LIFO): Examples warehouses, piles of plates etc
 Service in a random order (SIRO)
4. The service mechanism
 The pattern according to which the customer are served (follows exponential
distribution).
 Facilities given to the customers
 Single queue single server (eg doctor’s clinic, ATM etc)
 Single queue multi server (eg Saloon, cyber café etc)
 Multi queue and multi server (eg railway ticket counter etc)
 Complex queue (eg Mall)
7.3 Customer’s Behaviour

 Balking : A customer leaves the queue because the queue is too long and he has no time
to wait.
 Reneging: A customer leave the queue due to impatience.
 Priorities: Some customers are served before others, regardless of their arrival.
 Jockeying: If there are more than one queue then a customer may leave one queue and
join the other due to its length.

7.4 Some definitions

1. Queue length: number of customers waiting in a queue at any time.

2. Busy period: busy period of a server is the time during which server is busy.
3. Idle period: when all the units are served and the server is free.
4. Mean arrival rate: expected number of arrivals occurring in a time interval of length unity.
5. Mean service rate: expected number of customers being served in a time interval of length
unity.
6. Traffic intensity: ratio of mean arrival rate and the mean service rate.

7.5 Kendall’s Notation

Generally, queuing model may be completely specified in the following symbol (a/ b/ c): (d/ e)

a = probability law for the arrival (inter-arrival) time (I.e. Poisson distribution)

b = probability law according to which customers are served (i.e exponential distribution)

c = number of servers

d = capacity of the system

e = queue discipline

7.6 Assumption of Queuing models

1. The number of arrival rate is denoted by λ.

2. The arrival should follow Poisson distribution.
3. The service time has an exponential distribution.
4. The average service rate is denoted by µ.
5. Arrivals are from infinite population.
6. The queue discipline is first come first served (FCFS).
7. There is only a single service station.
8. The mean arrival rate is less than the mean service rate i.e. λ < µ.
9. The waiting space available for customers in the queue is infinite.

7.7 List of formulae for MODEL I (M/ M/ 1) : (∞/ FCFS)

1. Traffic Intensity (busy period or utilization) =

2. Expected (average) number of units in the system L s.
=
1−
3. Expected (average) queue length Lq

=
1−
4. Expected waiting time in the queue Wq.
λ
=
(1 − ) ( − λ)
5. Expected waiting in the system Ws.
1
=
−λ
6. Expected length of non-empty queue.
(L / L > 0)=
7. Probability the queue size exceeds N.
( ≥ )=
8. Probability that there are exactly n calling units in the system
= (1 − )
 6. SEQUENCING PROBLEM

6.1 INTRODUCTION

To determine an appropriate order (sequence) for a series of jobs to be done on a finite number of
service facilities in some pre-assigned order, so as to optimize the total cost (time) involved.

6.1.1 Definition

Sequencing gives us an idea of the order in which things happen or come in event. Suppose there
are n jobs (1,2,….n), each of which has to be processed one at a time at m machines (A, B,….m).
The order of processing each job through each machine is given. The problem is to find a sequence
among (n!)m number of all possible sequences for processing the jobs so that the total elapsed time
for all the jobs will be minimum.

6.1.2 Basic Terminology

a. Number of Machines: It means the service facilities through which a job must pass before it is
completed.

b. Processing Order: It refers to the order in which various machines are required for completing
the jobs.

c. Processing Time: It means the time required by each job to complete a prescribed procedure on
each machines.

d. Idle time on a machine: this is the time for which a machine remains idle during the total
elapsed time.

e. Total Elapsed Time: This is the time between starting the first job and completing the last job,
which also includes the idle time, if it occurs.

f. No passing Rule: It means, passing is not allowed, i.e., maintaining the same order of jobs over
each machine. If each n-jobs is to be processed through 2 machines M1 and M2 in the order
M1M2, then this rule will mean that each job will go to the machine M1 first then to and M2.

6.1.3 Principal Assumptions

1. No machines can process more than one operation at a time.

2. Each operation once started must be performed till completion.
3. Each operation must be completed before starting any other operation.
4. Time intervals for processing are independent of the order in which operations are performed.
5. There is only one machine of each type.
6. A job is processed as soon as possible, subject to the ordering requirements.
7. All jobs are known and are ready for processing, before the period under consideration begins.
8. The time required to transfer the jobs between machines is negligible.
 REPLACEMENT
The primary objective of replacement is to direct the organization towards profit maximization or cost
minimization. Deciding the replacement policy that determines the optimal replacement age of
equipment, instead of using with higher maintenance costs for long time, is the main objective of
replacement problem. For instance, in order to replace an:

 Item whether to wait till its failure or replacing at an early age with higher cost.
 Equipment whether to replace the inefficient equipment with a similar type of equipment or with
a modern one.

In case of high cost equipment, the decision is whether to replace it immediately or later. The term
“failure” has a wider meaning in business than what it has in our daily life. Failures can be discussed
under two categories viz., Gradual Failures, and Sudden Failures.

GRADUAL FAILURE

The mechanism under this category is progressive. That is, as the life of an item increases, its efficiency
deteriorates, causing:

 Increased expenditure for operating costs

 Decreased equipments‟ productivity
 Decrease in the value of the equipment

Example: bearings, pistons, piston rings, „Automobile Tyres‟, mechanical systems like machines,
machine tools, flexible manufacturing equipment etc. fall under this category.

SUDDEN FAILURE

This type of failure can be observed in the items that do not deteriorate gradually with age but which fail
suddenly after some period of service. The time period between installation and failure will not be
constant for any particular equipment.

The replacement situations generally are divided into the following types:

1. Replacement of capital equipment whose performance decreases with time, e.g., machine tools,
vehicles in a transport organization, airplanes, etc.
2. Group replacement items that fail completely, e.g., electrical bulbs,etc.

REPLACEMENT OF ITEMS THAT DETERIORATE

Determining the optimal replacement period for an item can be explained by considering an example of a
vehicle owner whose aim is to find the best age at which the old vehicle is to be replaced by a new one.
The vehicle owner intends to ship cargo as cheaply as possible. The associated costs are:

(i) The running costs and (ii) the capital cost of the vehicle

These costs can be summarized as average cost per month. It can be observed that the average monthly
cost will go on decreasing, with increase in time. However, there will be an age at which the rate of
increase in running cost is considerably higher than the savings in average capital costs. Thus, at this age
it is justifiable to replace the vehicle.
REPLACEMENT OF ITEMS THAT FAIL COMPLETELY

Consider a system usually made up of a large number of low cost items that are prone to failure with age
e.g. failure of a resistor in television, radio, computer etc. In some cases the failure of a component may
cause the complete failure of the system. In such cases, the cost of overall failure will be quite higher than
the cost of component itself. E.g. the cost of a condenser or tube in an aircraft is little, but its failure may
result in total collapse of the airplane. When dealing with such situations, two types of replacement
policies shall be considered.

 Individual replacement: In this policy, an item is replaced immediately after its failure.
 Group replacement: In this policy, decision is about the age when all the items should be
replaced, irrespective of whether the items have failed or not. In this policy the items that fail
before the optimal time, will be replaced individually.
 PERT & CPM
PERT – Program Evaluation & Review Technique – It is generally used for those projects where time required to
complete various activities are not known as a priori. It is probabilistic model & is primarily concerned for
evaluation of time. It is event oriented.

CPM – Critical Path Method – It is a commonly used for those projects which are repetitive in nature & where one
has prior experience of handling similar projects. It is a deterministic model & places emphasis on time & cost for
activities of a project.

PERT and CPM have been used for a variety of projects, including the following types.
1. Construction of a new plant
2. Research and development of a new product
3. NASA space exploration projects
4. Movie productions
5. Building a ship
6. Government-sponsored projects for developing a new weapons system
7. Relocation of a major facility
8. Maintenance of a nuclear reactor
9. Installation of a management information system
10. Conducting an advertising campaign

Rules of Network Construction

1. Try to avoid the arrows that cross each other.
2. Use straight arrows.
3. No event can occur until every activity preceding it has been completed.
4. An event cannot occur twice, i.e. there must be no loops.
5. An activity succeeding an event cannot be started unit that event has occurred.
6. Use arrows from left to right.
7. Dummies should be introduced only, if it is extremely necessary.
8. The network has only one entry point called the start event and one point of emergence called the end or
terminal event.

Numbering the Events (Fulkerson’s Rule)

1. The initial event which has all outgoing arrows with no incoming arrow is numbered “1”.
2. Delete all the arrows coming out from node “1”. This will convert some more nodes into initial events.
Number these events as 2, 3, 4, ....
3. Delete all the arrows going out from these numbered events to create more initial events. Assign the next
numbers to these events.
4. Continue until the final or terminal node, which has all arrows coming in with no arrow going out is
numbered

Distinction between PERT and CPM

Project Crashing

There are usually compelling reasons to complete the project earlier than the originally estimated duration of critical
path computed on the normal basis of a new project.

Direct Cost: This is the cost of the materials, equipment and labour required to perform the activity. When the time
duration is reduced the project direct cost increases.
Activity Cost Slope = (Cc- Nc)÷(Nt-Ct)
Where,
Cc = Crash Cost = Direct cost that is anticipated in completing an activity within crash time.
Nc = Normal Cost = This is the lowest possible direct cost required to complete an activity
Nt = Normal Time = Min. time required to complete an activity at normal cost.
Ct = Crash Time = Min. time required to complete an activity.

Indirect Cost: It consists of two parts: fixed cost and variable cost. The fixed cost is due to general and
administrative expenses, insurance, etc. Variable indirect cost consists of supervision, interest on capital, etc. The
total project cost is the sum of the direct & the indirect costs. Optimum duration is the project duration at which total
project cost is lowest.