QUANTITATIVE TECHNIQUES

(Batch 2023-25)
 Course Objectives
1. To build a culture of informed decision making having multiple perspectives using Mathematical

Techniques.

2. To equip the students with theoretical and practical knowledge of functioning of Manufacturing &

Service Sector.

3. To develop analytical skills to handle complex business situations in different functional area of

business.

4. To indicate the Art of intellection selection amongst available alternatives to optimize business

function.
Syllabus
UNIT-I
• 1. Decision Theory & Decision Trees
(10.5 Hours)
(a) Introduction to Decision-Making Process
(b) Single Stages Decision-Making Problems
(c) Developing Pay-off & Regret tables
(d) Decision Rules using Uncertainty and Risk
(e) Multi-stage decision making Problems-Decision Trees
• (Only 2 stages problems excluding Posterior Probability and Utility
functions)
Syllabus
• UNIT- II
• 2. Theory of Games
(7.5 Hours)
• Introduction to Game theory and concept of Strategy
• Classification of Game Models
• Two person zero–sum games – Formulation of Payoff Table
• Solution of Games – Algebric Method – 2x2 and 3x3 Matrix
• (No graphical method)
• Dominance rule – Row-wise and Column-wise
• Limitations and Applications of Game Theory
Syllabus
• UNIT- III
3. Linear Programing
(10.5 Hours)
• Introduction to Linear Programming
• Formulation of Linear Programing Problem
• General statement of Linear Programming Problems-Maximization and
Minimization cases
• Assumptions, advantages and applications of Linear Programming
• Solution of Linear Programming Problem by Graphical method
• (Limited to First Quadrant cases only)
• MID TERM EXAM (It covers from unit 1 to 3 of the syllabus)
Syllabus
• UNIT- IV
4. Assignment Problem & Transportation Problem (12 Hours)
(a) Introduction to Assignment Problem
(b) Complete Enumeration Method (only theoretical approach)
(c) Hungarian Assignment Method (HAM) - Steps involves
(d) Unbalanced Assignment Problem and its solution
(f) Constrained Assignment Problem and its solution
(g) Unique v/s Multiple Optimal Solutions
(i) Maximization Case
(j) Introduction to Transportation Problem
(k) Solution to Transportation Problem – NWCR, LCM and VAM
(l) Testing the optimally using MODI method and Improving Solution by tracing the
Closed Loop (Excluding stepping stone method)
• QUIZ (It covers from unit 1 to 4 of the syllabus)
Syllabus
• UNIT - V
5. Queuing Theory
(4.5 Hours)
(a) Introduction of Queuing Theory, applications of Queuing Theory

(b) General structure of a queuing system

(c) Operating characteristics of queuing system
(d) Queuing Models (Probabilistic)
(Poisson exponential, single server model-infinite population)
(e) Cost Analysis
• Text Book:
• Quantitative Techniques in Management, Dr. N.D. Vohra, McGraw
Hill Publication, 5th Edition, 2020, ISBN: 978-93-5260-626-9.

Reference Books
1. Operations Research Theory and Applications, J.K Sharma, 5th Edition, 2013, MacMillan Publishers India Ltd;
ISBN: 978-9350-59336-3
2. Problems in Operations Research – Principles and Solutions, Er. Prem Kumar Gupta, Dr. D.S Hira, S.Chand
Company Pvt. Ltd, 4th edition, 2015, ISBN: 978-81-219-0968-6
3. Quantitative Techniques for Management, Render & stair, 1st Edition, 2013, Pearson Publications.
4. Introduction to Operations Research, Hillier, Libermann, Nag & Basu, Tata McGraw Hill Ltd., 9th edition,2012,
ISBN: 978-0-07-133346-7.
5. Operations Research R. Panneerselvam, 2nd edition, 2007, Prentice Hall of India, ISBN:-978-81-203-2928-7.
6. Quantitative Techniques, K. Shridhar Bhat,1st edition, 2011, Himalaya Publishing House ISBN: 978-93-5051-
043-8.
 UNIT-I
1. Decision Theory & Decision Trees
(10.5 Hours)
(a) Introduction to Decision-Making Process
(b) Single Stages Decision-Making Problems
(c) Developing Pay-off & Regret tables
(d) Decision Rules using Uncertainty and Risk
(e) Multi-stage decision making Problems-Decision Trees
• (Only 2 stages problems excluding Posterior Probability and
Utility functions)
Introduction

• Decision-making is the essence of management.

• In general, the process of making decisions calls for identifying the

alternatives, gathering all the relevant information about them and
selecting the best alternative on the basis of some criterion.

• We discuss in this chapter the process of decision-making where

outcomes are uncertain
Introduction

• The decision theory is used to determine optimal strategies when a

decision maker is faced with several decision alternatives and
various uncertain events

• A decision may be defined as the selection of an action by the

decision maker using some pre-defined strategies or criteria's.
Decision making process
Single stage decision making problems

• Steps
1. Identify various possible events and possible actions

2. Develop a pay-off matrix

3. Choosing a particular action according to some principle

Example
Example
Developing Pay-off Tables
Developing Pay-off Tables
Developing Pay-off Tables
Opportunity Lost or Regret Table
Opportunity Lost or Regret Table
Decision Rules
Decision Rules
Decision Rules
Decision Rules
Decision Rules
Decision Rules
Decision Rules
Decision Rules
Decision Rules
Decision Rules
Decision Rules
Decision Rules
Decision Rules
Decision Rules
Decision Rules
 When problem is in terms of profit: Decisions Under Uncertainty (Event probabilities are not given)
Laplace Principle Write the average profit of each action and select the maximum one
Maximin Principle Write the minimum profit for each action and select the maximum one
Maximax Principle Write the maximum profit for each action and select the maximum one
Hurwicz Principle Write α *(Maximax Principle) + (1-α) *(Maximin Principle) for each action and select the max one

Savage Principle Make the regret table. Write the maximum regret for each action and select the minimum one
Decisions Under Risk (Event probabilities are given)
Maximum likelihood Assume the event with the maximum probability will occur. Then select the maximum profit for
Principle that event

Expectation Principle: Write the expected profit for each action and select the maximum one.
Expected profit

Expectation Principle: Write the expected regret for each action and select the minimum one.
Expected opportunity loss

Expected Profit under perfect information (EPPI): Find the maximum profit for each event and multiplied with
their corresponding event probabilities and add all of them

Expected value of perfect information (EVPI): EPPI- Expected profit using Expectation Principle
 When problem is in terms of cost: Decisions Under Uncertainty (Event probabilities are not given)
Laplace Principle Write the average cost of each action and select the minimum one
Minimax Principle Write the maximum cost for each action and select the minimum one
Minimin Principle Write the minimum cost for each action and select the minimum one
Hurwicz Principle Write α *(Minimin Principle) + (1-α) *(Minimax Principle) for each action and select the minimum
one
Savage Principle Make the regret table. Write the maximum regret for each action and select the minimum one
Decisions Under Risk (Event probabilities are given)
Maximum likelihood Assume the event with the maximum probability will occur. Then select the minimum cost for that event
Principle

Expectation Principle: Write the expected cost for each action and select the minimum one.
Expected cost

Expectation Principle: Write the expected regret for each action and select the minimum one.
Expected opportunity
loss

Expected cost under perfect information (ECPI): Find the minimum cost for each event and multiplied with
their corresponding event probabilities and add all of them
Expected value of perfect information (EVPI): Expected cost using Expectation Principle - ECPI
Decision Rules- Problem
 Multi stage decision Making: Decision Tree
• Till now, our concern has been with the single stage problems wherein the decision-
maker has to select the best course of action only once.

• We will now consider the decision situations that involve multiple stages. They are
also called the sequential decision problems

• These problems include sequence of decisions in which following each decision, a

chance event may occurs which in turn influences the next decision.
 Multi stage decision Making: Decision Tree
• In analyzing multiple stage decision situations, we have to evaluate the
decision proceeding in a backward manner by evaluating the best
course of action at the later stages to decide the best action at the
earlier stages. (Called Rollback technique)

• For this purpose, the decision tree is a very effective tool to solve
multi-stage problems.
Decision Tree
• A decision tree is a graphic representation of the sequences of action-event
combinations available to the decision-maker.
• It depicts in a systematic manner all possible sequences of decisions and
consequences.
• Each such sequence is shown by a distinct path through the tree.
• A square represents a decision node or decision fork at which the decision-
maker has to take a decision, while a circle represents a chance node or
chance fork at which events (i.e., the states of nature) are branched out.
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
Multi stage decision Making: Decision Tree
UNIT- II

• Theory of Games (7.5 Hours)

• Introduction to Game theory and concept of Strategy

• Classification of Game Models

• Two person zero–sum games – Formulation of Payoff Table

• Solution of Games: Algebric Method – 2x2 and 3x3 Matrix-No graphical method

• Dominance rule – Row-wise and Column-wise

• Limitations and Applications of Game Theory

Game theory- Introduction
• There are several situations in which the outcome of a particular action is dependent
upon the action taken by another party.

• Examples include a chess game being played by two players, a war between two countries
and competing firms operating in a market,

• In such cases, the parties involved are the players who have conflicting interests so that
a gain to one party is a loss to the other, with each of them having a certain number of
strategies to choose from, and the outcome depends upon the particular pair of
strategies chosen by the parties.

• These situations are similar to games, so can be modelled as games. Hence to study these
situations are called Game Theory
Game theory- Introduction

• Game theory is the study of decision-making in situations where two

or more rational opponents are involved under conditions of
competition and conflicting interests.

• It deals with human processes in which a decision-maker is not in

control of the other decision-maker
Game theory- Introduction
• In a game situation, each of the players has a set of strategies available.

• There is a set of outcomes each of which is the result of the particular

choices of strategies made by the players on a given play of the game, and
pay-offs are accorded to each player in each of the possible outcomes.

• The players in a game strive for optimal strategies. An optimal strategy

provides the best situation in the game in the sense that it involves maximal
pay-off to the players.
 Example
Strategies for Player 2
Players 1 and 2

Company 1 Company 2 Advertise Not Advertise

Advertise 5 (p1), 5 (p2) 10 (p1), 2 (p2)

Strategies
for Player
1 Not Advertise 2 (p1), 10 (p2) 8 (p1), 8 (p2)

Pay-offs for each

player and for
each strategy
 Example: Solution
Company 1 Company 2 Advertise Not Advertise

Advertise 5 (p1), 5 (p2) 10 (p1), 2 (p2) If P1 adv. then P2 Between 5 and 2,

will adv. So P1 gets P1 will pick 5
5 hence P1 will adv.

Not Advertise 2 (p1), 10 (p2) 8 (p1), 8 (p2) If P1 not adv. then

P2 will adv. So P1
gets 2

Between 5 and 2, P2 If P2 adv. then If P2 not adv.

will pick 5 hence P2 will P1 will adv. So then P1 will
adv. P2 gets 5 adv. So P2 gets
2
Game Models
• There are several game theory models which can be classified on the basis of
factors like the number of players involved, the sum of gains or losses and
the number of strategies employed in the game
(1): In a game situation, interests of two or more than two participants may be in
conflict. The former of these is called a two-person game and the latter one is
known as an n-person game,
(2): In a game, if the sum of gains and losses is equal to zero, it is called zero-
sum or constant-sum game.
(3): A game is said to be finite if each player has the option of choosing from
only a finite number of strategies otherwise it is called infinite.
TWO-PERSON FINITE ZERO-SUM GAMES AND CONSTANT SUM
GAMES
• A two-person zero-sum game and constant sum game is the one which involves two persons (players)
and where the gain made by one equals the loss incurred by the other.

• Example: 2 advertising firms competing for the same target audience.

Note: ***We write Pay-offs from the point of view of Player 1 since we can deduce plyer 2 payoff
from player 1 payoff***

• Zero sum game: P1 P2 Strategy A Strategy B

Strategy A 10 -6
Strategy B -5 6

• Constant Sum game:

P1 P2 Strategy A Strategy B
• Suppose sum of payoff of Strategy A 40 60
both player will always be 80 Strategy B 70 20
 Example- Zero sum game
• Two firms are considering the same three strategies in a bid to gain the share in the market: low

advertising, high advertising and quality improvement.

• Low advertising both by firm A and by firm B shall lead to 12 points in favour of firm A, while low

advertising by A and high advertising by B would lead to a shift of 8 points in favour of B. And so on.
Example- Solution
• Now the problem before us is to determine the best strategy for A and B, assuming that they both know the
information contained in the pay-off matrix and that each one is not aware of the move the other is likely to take.

• The conservative approach to the selection of the best strategy would call for assuming the worst and acting
accordingly.

• In reference to the pay-off matrix, if firm A employs strategy a1, it would expect the firm B to employ strategy
b2, thereby reducing A’s pay-off from the strategy a1 to its minimum value, equal to –8, representing a loss to
firm A.

• If firm A employs strategy a2, it would assume the competing firm would employ strategy b3 that would give A a
3 percent increase in the share of market.

• Similarly, corresponding to its strategy a3, firm A would expect the firm B to use b1, which puts the firm A at a
loss of 10 points.
Example- Solution
• The firm A would like to make the best use of the situation by choosing the maximum of these minimal
pay-offs.

• Obviously, among the three alternate strategies open to it, firm A would choose the one which would
ensure it the highest of the minimum rewards associated with these.

• This decision rule of selection is called the maximin strategy.

• Since the minimal pay-offs corresponding to a1, a2 and a3 are, respectively, –8, 3 and –10, firm A would
select a2 as its strategy.
 Example- Solution
• Similarly, the firm B would also employ a cautious approach in choosing its strategy. When firm B adopts b1, it
can expect firm A to employ a1 which would ensure it (firm A) the maximum advantage.

• In a similar way, adoption of b2 and b3 would, in firm B’s expectation, be associated with employment of a2.

• To minimise the advantage accruing to A, the firm would select a strategy that would yield the least advantage
to its competitor— the strategy b3. The decision of B is said to be in accordance with the minimax strategy.
 Example - Solution
• Corresponding to maximin rule of firm A and the minimax rule of firm B, the pay-off is 3.

• This amount is the worth, or the value, of the game, V, and represents the final pay-off to the
winning player by the losing player.

• Since the pay-off matrix is drawn from A’s point of view, if the value of the game is positive, as
is in the present case, it is favourable to A while if the game value is negative, the game is
favourable to B.

• The game is said to be fair or equitable if its value is equal to zero, for then it favours none.
Saddle Point
• In the example, maximin strategy, a2 of A, and the minimax strategy, b3 of B, both
lead to the same pay-off.

• The situation, therefore, is one of equilibrium.

• The maximin value is equal to the minimax value and the game is solved. The
point of equilibrium is known as the saddle point.

• Strategies corresponding to the saddle point is optimal strategy

Multiple Saddle Point
Multiple Saddle Point
When No Saddle Point Exists

• Games without saddle points are not strictly determined.

• The solution to such problems calls for employing mixed strategies.

• A mixed strategy represents a combination of two or more strategies

that are selected one at a time, according to predetermined
probabilities.
Mixed Strategies Formula
Problem
• Two competing firms must simultaneously determine the amount they would spend advertising
their two flagship brands during the next month. Their profits are dependent on the success of the
advertising campaigns. The total profit earned by the two firms is always ₹ 100 million in a month.
If firm A’s advertising budget is low and firm B’s is also low, then firm A earns a profit of ₹ 70
million. If firm A’s level is low and B’s is high the firm A’s profit is ₹ 40 million. If firm A’s
advertisement budget is high and so is firm B’s then A’s profit is ₹ 60 million. But if firms A’s level
is high and firm B’s level is low then A’s profit is ₹ 55 million. Find the value and optimal
strategies for this constant-sum game.
3 X 3 Game

• Solve the following game:

Dominance Rule

• In a game, sometimes a strategy of a player may be preferable to some

other strategy/strategies.

• Such a strategy is said to dominate the other one(s).

• This concept of domination is usefull in simplifying the games by

deleting the weaker strategies and thus helps in finding solutions to the
games.
Dominance Rule
• Let us consider the pay-off matrix in respect of our first illustration of two firms A and B, which is
reproduced hereafter.
Dominance Rule
 Dominance Rule
• Thus, by using the dominance rule on one player’s strategies we can get a reduced game.

• Then we can use domination on the strategies of the other player to further reduce the
game, if possible.

• In this way, moving forward and backward we reduce the game as much as possible.

• If the game is reduced to a 1 X 1 game,

• When the saddle point does not exist then, if after the application of dominance rule, a
game becomes of the order 2 X 2 or 3 X 3, then the mixed strategies can be determined
by using the analytical method discussed in the previous section
l
How to solve any game model:
Step 1: First write the matrix form if not given. Write payoff from the point of view of one player (call
it player 1). Its strategy must be written in rows. Player 1 must maximize its profit.

Step 2: After that, identify the saddle point. If found, then saddle point is the solution of the game and
STOP.

Step 3: If saddle point is not present, use dominance rule to reduce matrix as much as possible.

Step 4: After that, use mixed strategy method for 2X2 games and 3X3 games to calculate the
probabilities of the mixed strategies.

Note: The game will be wither zero sum or constant sum game. In both cases, the above steps are used
to solve the game.
Problem:
Problem
Solution
Problem:
Applications

• There are several situations in which the outcome of a particular

course of action is dependent upon the action taken by another party.

• Examples include a chess game being played by two players, a war

between two countries, competing firms operating in a market, and the
management and workers’ union negotiations, and so on.
Limitations
• We have considered is based on the assumption that each of the individuals involved not only acts
rationally so that his preference ordering of the outcomes is determined by the order of magnitudes of
their associated pay-offs, but also he assumes that the opponent is also rational in that sense.

• It is also assumed that both the players are having complete and equal knowledge about the strategies
available to them and the resulting pay-offs. It can easily be visualised that in real-world situations, it
is only but rarely that each of the persons would have complete knowledge about all the strategies
available to his competitor, as also of the exact pay-off values associated with various combinations
of strategies.
Limitations

• The solution to the games is based on the application of conservative

principles of maximin and minimax strategies. This also rests on the
assumption that complete information about strategies and the associated pay-
offs is available and is certain. In real conditions, complete information may
not generally be available and so these principles may not work.

• Even otherwise, the business managers do not always adopt conservative

approach to their decisions and prefer to take risks.
UNIT- III

Linear Programing
Introduction to Linear Programming

• Formulation of Linear Programing Problem

• General statement of Linear Programming Problems-Maximization and Minimization

cases

• Assumptions, advantages and applications of Linear Programming

• Solution of Linear Programming Problem by Graphical method

• (Limited to First Quadrant cases only)

Introduction to Linear Programming

• A lot of problems faced by a managers involve allocation of resources to various

activities, with the objective of increasing profits or decreasing costs.

• When resources are in abundance, no difficulty is experienced. But, practically in all

situations, the resources are limited.

• The manager has to take a decision as to how to best allocate the resources among
the various activities so to optimize the objective (either maximize the profit or
minimize the cost).
Introduction to Linear Programming

• Objective is modelled by objective function and limitations are modelled by constraints

• Mathematical programming involves optimization of a certain function, called the

objective function, subject to certain constraints

• Linear Programming is a mathematical technique that seeks to optimize (i.e.

maximize or minimize) an objective function subject to a given set of constraints
wherein both the objective function and the constraints are linear in nature.
Introduction to Linear Programming-Applications

• How to allocate the advertising budget among various alternate advertising

media which have different degrees of effectiveness in reaching audiences and
involve different costs?

• In case of a multi-product firm, what product-mix will yield the maximum

profit, when different products are known to have different profitability
coefficients and different resource requirements?

• How should the given funds be allocated between different investment

opportunities that yield varying returns and involve different degrees of risk?
 Introduction to Linear Programming-Applications
• How should a dietician decide about the foods that contain varying proportions of ingredients like
carbohydrates, vitamins, proteins, etc. to be given to the patients so that their nutrition requirements are
met with at the minimum cost?

• How should the land on an agricultural farm be allocated between different crops which involve
different costs on account of labour, manure, seeds, etc. and have different yields, resulting in unequal
profitability of the agricultural products produced?

• How should the HR manager of a hospital decide about the employment of nurses that involves
lowest cost and yet meets the requirements at different times of the 24-hour day?

• Linear programming applications may include production scheduling, inventory policies,

investment portfolio, allocation of advertising budget etc.
 FORMULATION OF LINEAR PROGRAMMING PROBLEMS
• The formulation of an LPP involves developing a mathematical model of the problem given.

• An LP model involves specification of the goal of the problem and the constraints in mathematical terms.

• LINEAR PROGRAMMING FORMULATION STEPS

STEP 1: For this, we first identify the activities regarding which a decision is to be made. These are represented
by what are known as decision variables.

STEP 2: Using the decision variables and other relevant information, we develop the objective function (which
specifies the goal). The objective function may be of the ‘maximisation’ or ‘minimisation’ type.

STEP 3: Identify the constraints of the problem and write in mathematical form.
 FORMULATION OF LINEAR PROGRAMMING PROBLEMS:
The Maximisation Case example

• Example: A firm is engaged in producing two products, A and B. Each unit of

product A requires two kg of raw material and four labour hours for processing,
whereas each unit of product B requires three kg of raw material and three hours of
labour, of the same type. Every week, the firm has an availability of 60 kg of raw
material and 96 labour hours. One unit of product A sold yields ₹ 40 and one unit of
product B sold gives ₹ 35 as profit.

• Formulate this problem as a linear programming problem to determine as to how

many units of each of the products should be produced per week so that the firm can
earn the maximum profit.
FORMULATION OF LINEAR PROGRAMMING PROBLEMS

• The objective function: In this problem the number of units of products A and B to be produced
defines the level of activities while the goal is maximisation of profit, which would be obtained by
producing (and selling) these products. If we let x1 and x2 represent the number of units produced
per week of the products A and B, respectively, the total profit, Z, would be equal to 40x1 + 35x2,
because the unit profit on the two products is, respectively, ₹ 40 and ₹ 35. Accordingly, Z = 40x1 +
35x2 should be the objective function relating the profit and the output level of each of the two
items. Notice that the function is a linear one. Further, since the problem calls for a decision about
the optimal values of x1 and x2, these are known as the decision variables.
FORMULATION OF LINEAR PROGRAMMING PROBLEMS

• The constraints: As has been laid, another requirement of linear programming is that the
resources must be in limited supply. The mathematical relationship which is used to
explain this limitation is inequality. The limitation itself is known as a constraint.

• Each unit of product A requires two kg of raw material while each unit of product B needs
three kg. The total consumption would be 2x1 + 3x2, which cannot exceed the total
availability of 60 kg every week. We can express this constraint as 2x1 + 3x2 <= 60.
Similarly, it is given that a unit of A requires four labour hours for its production and one
unit of B requires three labour hours. With an availability of 96 hours a week, we have 4x1
+ 3x2 <= 96 as the labour hour constraint.
FORMULATION OF LINEAR PROGRAMMING PROBLEMS

• It is important to note that for each of the constraints, inequality rather than equation has been used.
This is because the profit maximising output might not use all the resources to the full—leaving
some unused. Hence, the <= sign. However, the inequalities used are not strict ones. A strict
inequality is expressed as, for example, a < b (or a > b). Here, the inequalities are loose–thus
permitting a to be smaller (or greater) than, or equal to, b. It may be noticed that all the constraints,
like objective function, are also linear in nature.

• Non-negativity condition Quite obviously, x1 and x2, being the number of units produced, cannot
have negative values. Thus, both of them can assume values only greater-than-or-equal-to zero.
This is the non- negativity condition, expressed symbolically as x1 >= 0 and x2 >= 0.
FORMULATION OF LINEAR PROGRAMMING PROBLEMS
FORMULATION OF LINEAR PROGRAMMING PROBLEMS:
The Minimization Case
FORMULATION OF LINEAR PROGRAMMING PROBLEMS:
The Minimization Case
FORMULATION OF LINEAR PROGRAMMING PROBLEMS:
The Minimization Case
Solution to the Linear Programing Problem(LPP): Graphical Method

• The Graphical Method:

• Step 1: Formulate the linear programming—decision variables, objective function and
constraints.

• Step 2: Draw a graph that includes all the constraints and identify the feasible region.

• Step 3: Identify all corner points in the feasible region. Calculate the objective function
at all corner points. The point which gives the maximum value of the objective function
will be the solution for maximization problem and the point which gives the minimum
value will be the solution for the minimization problem
Note: The graphical approach is only used when two variables are involved in an Linear Programing
Problem.
 Maximization Case
• Example: A firm is engaged in producing two products, A and B. Each unit of product A requires
two kg of raw material and four labour hours for processing, whereas each unit of product B
requires three kg of raw material and three hours of labour, of the same type. Every week, the firm
has an availability of 60 kg of raw material and 96 labour hours. One unit of product A sold yields
₹ 40 and one unit of product B sold gives ₹ 35 as profit.

• Solution -Step 1: Formulate the linear programming

Step 2: Draw a graph that includes all the constraints and identify the feasible region.
• Now, since both the constraints are to be satisfied, we have to consider the area on the graph that is bound by
both the constraints.

• A point like C on the graph would be unacceptable because only first of the constraints would be satisfied and
not the other.

• Similarly, a point like D would also not be acceptable as it represents a combination of x1 and x2 which
satisfies the second, and not the first, of the constraints.

• In fact, all points lying in the shaded area are the points of interest.

• They represent the combinations of x1 and x2 that would satisfy the given constraints.

• This region of acceptable values of the decision variables in relation to the given constraints called the
feasibility region.

• In general terms, then, all inequalities of a linear programming problem, when plotted on the graph, define a
space such that all points that lie within or on the boundaries of that space simultaneously satisfy all the
constraints, and the space is known as the feasible region.
• In LP, any specification of the values of the decision variables is called a solution. This is
irrespective of whether it is desirable or not and whether it is achievable or not.

• Different types of solutions are distinguished by using appropriate adjectives. Thus, as

indicated here, each point in the feasible region would yield a pair of values of x1 and x2
as will satisfy all the constraints and a solution that satisfies all the constraints is called a
feasible solution.

• As such, corresponding to each point in the feasible region we get a feasible solution.
The feasible region of an LPP, therefore, gives a set containing an infinite number of
feasible solutions.

• On the other hand, any point other than the one from this region will also produce a
solution termed as infeasible solution.
Step 3: Identify all corner points in the feasible region. Calculate the objective
function at all corner points.
Minimization Case
Minimization Case
Minimization Case: Solution
Introduction to Linear Programming

• The linear programming method is a technique for choosing the best

from a set of feasible alternatives.
• In order to apply linear programming, certain requirements have to be
met.
Requirements
1. There should be an objective which is clearly identifiable and measurable in quantitative terms. It

could be, for example, maximisation of sales or profit, minimisation of cost and so on.

2. The activities to be included should be distinctly identifiable and measurable in quantitative terms,

for instance, the products included in a production planning problem.

3. The resources of the system, which are to be allocated for the attainment of the goal, should also be

identifiable and measurable quantitatively.

4. Objective function and the constraint equations or inequalities, respectively, must be linear in nature.

5. There should be a series of feasible alternative courses of action available to the decision-maker.
ASSUMPTIONS UNDERLYING LINEAR PROGRAMMING

1. Proportionality: A basic assumption of linear programming

is that proportionality exists in the objective function and the constraint inequalities. For example, if one
unit of a product is assumed to contribute ₹ 10 towards profit, then the total contribution would be equal to
10 x1, where x1 is the number of units of the product. In effect, then, proportionality means that there are
constant returns to scale—and there are no economies of scale.

2. Additivity: Another assumption underlying the linear programming model is that in the objective
function and constraint inequalities both, the total of all the activities is given by the sum total of each
activity conducted separately. Thus, the total profit in the objective function is determined by the sum of
the profit contributed by each of the products separately. Similarly, the total amount of a resource used is
equal to the sum of the resource values used by various activities.
ASSUMPTIONS UNDERLYING LINEAR PROGRAMMING

3. Continuity: It is also an assumption of a linear programming model that the decision variables are continuous. As a
consequence, combinations of output with fractional values, in the context of production problems, are possible and
obtained frequently.

4. Certainty: A further assumption underlying a linear programming model is that the various param- eters, namely,
the objective function coefficients, the coefficients of the inequality/equality constraints and the constraint (resource)
values are known with certainty.

5. Finite Choices: A linear programming model also assumes that a limited number of choices are available to a
decision-maker and the decision variables do not assume negative values. Thus, only non- negative levels of activity
are considered feasible.
Examples
Problem:
• Problem: A local travel agent is planning a charter trip to a major sea port. The eight-day and seven-night package includes
the fare for round trip, surface transportation, board and lodging and selected tour options. The charter trip is restricted to
200 persons and past experience indicates that there will not be any problem for getting 200 clients. The problem for the
travel agent is to determine the number of Deluxe, Standard and Economy tour packages to offer for this charter. These
three plans differ according to seating and service for the flight, quality of accommodations, meal plans and tour options.
The following table summarises the estimated prices for the three packages and the corresponding expenses for the travel
agent. The travel agent has hired an aircraft for the flat fee of ₹ 2,00,000 for the entire trip. In planning the trip, the
following considerations must be taken into account:
Iso-profit lines (for maximization problems)
Iso-cost lines (for minimization problems)
Minimization Case: Solution
UNIT- IV
Assignment Problem & Transportation Problem
(a) Introduction to Assignment Problem
(b) Complete Enumeration Method
(c) Hungarian Assignment Method (HAM) - Steps involves
(d) Unbalanced Assignment Problem and its solution
(f) Constrained Assignment Problem and its solution
(g) Unique v/s Multiple Optimal Solutions
(i) Maximization Case
(j) Introduction to Transportation Problem
(k) Solution to Transportation Problem – NWCR, LCM and VAM
(l) Testing the optimally using MODI method and Improving Solution by tracing the
Closed Loop (Excluding stepping stone method)
Introduction to Assignment Problem
• There are many situations where the assignment of people, machines etc are
required.
• Assignment of workers to machines, clerks to various checkout counters, salesmen
to different sales areas and service crews to different districts, are typical examples
of these.
• Assignment is a problem because people possess varying abilities for performing
different jobs and, therefore, the costs of performing those jobs by different people
are different.
Introduction to Assignment Problem

• In an assignment problem, the question is how the assignments should

be made in order that the total cost involved is minimised (or the total
value is maximised when pay-offs are given in terms of, say, profits).
Introduction to Assignment Problem
Introduction to Assignment Problem
• There are various methods of solving an assignment problem such as:
(a) complete enumeration method;
(b) Hungarian assignment method.
• We shall discuss these methods now.
Complete Enumeration Method
• In this method, all possible assignments are listed out and the assignment
involving the minimum cost (or maximum profit if the problem is of the
maximisation type) is selected.

• This represents the optimal solution.

• In case there are more than one assignment patterns involving the same least
cost, they all shall represent optimal solutions—the problem has multiple
optima then
Complete Enumeration Method
 Hungarian assignment method.
• Hungarian Assignment Method (HAM) uses the fact that if we add or subtract any
constant from every element of a cost table, the given problem does not change and
remains essentially the same.

• The method entails converting the original cost table into a series of equivalent cost
tables, called Reduced Cost Tables or Opportunity Cost Tables, consisting of only
zeros and positive values.

• This is done until an optimal solution is obtained.

• The optimal solution that is derived only with the help of zeros from a reduced cost
table is also the optimal solution to the original problem
Hungarian assignment method.
Hungarian assignment method.
Hungarian assignment method.
Hungarian assignment method.
Hungarian assignment method.
Some Special Cases:
1. Unbalanced Assignment Problems

• Hungarian method of solving an assignment problem requires that

they are equal, the problem is a balanced problem, and when not, it is
called an unbalanced problem.

• In such situations, dummy column(s)/row(s), whichever is smaller in

number, are inserted with zeros as the cost elements.
Some Special Cases:
2. Constrained Assignment Problems
• Sometimes a worker cannot perform a certain job or is not to be
assigned a particular job.

• To solve this situation, the cost of performing that job by such person
is taken to be extremely large (which is written as M ).

• Then the solution to the assignment problem proceeds in the manner

discussed earlier.
Some Special Cases:
3. Unique vs Multiple Optimal Solutions
• In the process of making assignments, it was stated earlier that we select a row/column with
only a single zero to make an assignment.

• However, a situation may arise wherein the various rows and columns, where assignments are
yet to be done, have all multiple zeros.

• In such cases, we get multiple optimal solutions to the given problem.

• When a problem has a unique optimal solution, it means that no other solution to the problem
exists which gives the same objective function value as the one obtained from the optimal
solution derived.

• On the other hand, in a problem with multiple optimal solutions, there exist more than one
solution which gives the same optimal solution
Some Special Cases:
4. Maximisation Case
 Transportation Problems
• Suppose that a manufacturer of refrigerators has three plants situated at places called A, B and C.

• Suppose further that his buyers are located in three regions X, Y and Z where he has to supply them the
goods.

• Also, assume that the demands in the three regions and the production in different plants per unit time
period are known and equal in aggregate, and further that the cost of transporting one refrigerator from
each plant to each of the requirement centers is given and constant.

• The manufacturer’s problem is to determine as to how he should route his product from his plants to the
market places so that the total cost involved in the transportation is minimized.

• In other words, he has to decide as to how many refrigerators should be supplied from A to X, Y and Z;
how many from B to X, Y and Z; and how many from C to X, Y and Z, to achieve it at the least cost.
Transportation Problems

• The places where the goods originate from (the plants in our example) are called
the sources or the origins and places where they are to be supplied are the
destinations.
• In this terminology, the problem of the manufacturer is to decide as to how many
units be transported from different origins to different destinations so that the total
transportation cost is the minimum.
Transportation Tableau
Transportation Tableau
Transportation
Tableau
Solution to Transportation Problem: Transportation Method

The transportation method involves the following three steps:

• Step 1: Obtaining an initial solution, that is to say, making an initial

assignment in such a way that a basic feasible solution is obtained.

• Step 2: Determine whether the solution is optimal or not, by determining

opportunity costs associated with the empty cells. If the solution is optimal
then exit, and if it is not optimal, proceed to step (iii).

• Step 3: Revise the solution until an optimal solution is reached.

Step 1: Obtaining the Initial Feasible Solution
• The first step in using the transportation method is to obtain a feasible solution,
namely, the one that satisfies the requirements of demand and supply.
• The initial feasible solution can be obtained by several methods.
• The commonly used are:

1. North-West Corner (NWC) Rule,

2. Least Cost Method (LCM) and
3. Vogel’s Approximation Method (VAM)
1. North-West Corner (NWC) Rule,
• The North-West Corner rule (NW Corner rule) may be stated as follows:

• Start with the North-West Corner of the transportation tableau and consider the
cell in the first column and the first row. Corresponding to this cell are the values
a1 and b1, respectively, in row 1 and column 1. Proceed as follows:

• If a1 > b1, then assign quantity b1 in this cell. This implies that we put x11 = b1. If
a1 < b1, then assign a1 in the cell so that x11 = a1.

• Now, if a1 > b1, then move horizontally to the next column in the first row; if a1 <
b1, move vertically in the same column to the next row; and if a1 = b1, then move
diagonally to the next column and next row.
1. North-West Corner (NWC) Rule,

• Once in the next cell, again compare the supply available at the source and
demand at the destination, corresponding to the cell chosen, and assign
lower of the two values.

• Move to the next cell appropriately as explained earlier and again assign the
quantity considering demand and available supply.

• Continue in the zigzag manner until the last source and last destination are
covered, so that the south-east corner of the tableau is reached.
Example
Example
2. Least Cost Method (LCM)
• In this method allocation is done at each step by selecting from the routes available, the one with the
minimum cost.

• To begin, we choose the cell which has the minimum cost, consider the supply available at the source
(ai) and the demand at the destination (bj) corresponding to that, and allocate the lower of the two (ai or
bj) to the cell.

• After this, we delete the row or column (or both if ai = bj) whichever is satisfied by this allocation. If the
row is deleted, then the column value (bj) is revised by subtracting the quantity assigned.

• Similarly, if the column is deleted, then the row total is revised.

• After this, we consider the routes remaining and again choose the one with the least cost, make
assignment and adjust the row/column total. We continue in this manner until all the units are assigned.
2. Least Cost Method (LCM)
• It may be mentioned that at any stage, if there is a tie in the minimum cost, so that two or
more routes have the same least cost of shipping, then, conceptually, either of them may be
selected.

• However, a better initial solution is obtained if the route chosen is the one where the largest
quantity can be assigned. Thus, if there are three cells for which the (least) cost value is
equal, then consider all of these one by one and determine the quantity (by reference to the
demand and supply quantities given) which can be dispatched, and choose the cell with the
largest quantity.

• If there is still a tie, then either of them may be selected.

 2. Least Cost Method (LCM)
• For Example 5.1, the initial solution by using the least cost method is obtained as shown in Table 5.4. To begin
with, the lowest of all cost elements is 6, for the cell CP, with corresponding supply and demand being 200 and
180 units, respectively. Accordingly, assign 180 to this cell, delete the column headed P and adjust the supply
in the row to 20.

• Of the remaining cost elements (excluding those of the deleted column), the least is 7, corresponding to the cell
CS. The quantity assigned to this cell is 20, being lower of demand (= 320) and supply (= 20). Delete the row C
and adjust the demand for S at 300.

• The least cost element in the remaining cells is 8, for BR. With the relevant supply and demand values equal to
300 and 350 units, respectively, assign 300 to the cell BR, delete the row B and adjust the demand for R at 50.

• Now, with only one supply source remaining, the amount would be transferred to the current requirements at
warehouses Q, R and S: 150 to Q, 50 to R and 300 to S
3. Vogel’s Approximation Method (VAM)

• The Vogel's Approximation Method, commonly known as VAM, is

another cost-based method used for obtaining initial solution to a
transportation problem.

• It uses cost differentials rather than absolute costs to select the

appropriate cell to make allocations.
Vogel’s Approximation Method (VAM)
• First, consider every row of the cost matrix individually and find the difference
between two least cost cells in it.

• Then, repeat the exercise for every column.

• Consider all cost differences and identify the row or column with the largest value.

• Now, focus on the cell with the smallest cost in the row or column so chosen and
make allocation in that.

• The number of units allocated would be lower of the corresponding supply and
demand values.
Vogel’s Approximation Method (VAM)
• In case of a tie in the largest cost difference, although either of them may be chosen, it is
preferable to choose the cost difference corresponding to which the largest number of
units may be assigned or corresponding to which the cell chosen has minimum cost.

• To illustrate, suppose the largest cost difference is found to be tied for a row and a
column. In applying the first of the rules, determine the quantity (considering the
available supply and demand) which can be assigned in each case and select the one
where larger quantity can be assigned. In the other case, unit cost values of the two least
cost cells in the row and column, and choose the one which has a lower value.
 Vogel’s Approximation Method (VAM)
• Delete the row or column which has been satisfied by the allocation and adjust the quantity of
demand/supply. Recalculate the cost differences for the reduced matrix and proceed in the same
manner as discussed earlier. Continue with the process until all the units have been assigned. The
initial solution to Example 5.1 using VAM is obtained in Table 5.6.
 Vogel’s Approximation Method (VAM)
• To begin with, the cost differences between the pairs of least cost cells are taken for each row and column
(iteration I). The largest of these being 6 (= 13 – 7), the column designated S is selected. In the lowest-cost
cell of this column, CS, a value 200 is assigned and the row C is deleted. The requirement at warehouse S is
revised at 120.

• In iteration II, the cost differences are recalculated. The largest value is for the column headed P and the least
cost cell is BP. Considering supply and demand values, 180 is allocated to this cell, column headed P is
deleted and the supply at B revised down to 120.

• In the next iteration, the highest cost difference is 4 which is in respect of the column headed R. Here the least
cost cell is BR, wherein a quantity 120 in the cell BR and the row designated B is deleted. The column total is
put at 230.

• Finally, only one row is left and, therefore, no cost differences need to be recalculated. The allocations for
each of the cells remaining are made having reference to the requirements: 150 to AQ, 230 to AR and 120 to
AS.
Vogel’s Approximation Method (VAM)
 Step 2 of Solution to Transportation Problem:
Testing the Optimality

• After obtaining the initial basic feasible solution, the next step is to test whether it is
optimal or not.

• For this, we use a method called the modified distribution method (MODI).

• It is based on the concept of dual variables that are used to evaluate the empty cells.

• Using these dual variables, the opportunity cost of each of the empty cells is
determined.

• The opportunity cost values indicate whether the given solution is optimal or not.
Modified Distribution Method (MODI)
• Step 1 Add to the transportation tableau a column on the RHS titled ui and a row in the
bottom of it labelled vj. The objective is to obtain a value for each row and column.

• Step 2 Calculate the ui and vj values with the help of occupied cells only. For this, assign
a value arbitrarily to a row or column variable ui or vj. (ui for the ith row containing a
maximum number of allocation can also be taken as zero).

• Step 3 Use cij = ui + vj to the occupied cells to obtain ui and vj .

• Step 4 Compute the improvement index, dij for all unoccupied cells by using

dij =cij -(ui + vj )

• Step 5 If all dij >= 0, then the optimal solution is reached, otherwise select the
unoccupied cell which is having the most negative dij index to enter into allocation cell
Example
P Q R supply
A 6 3 5 22
B 5 9 2 15
C 5 7 8 8
demand 16 12 17 45

Apply NWR to obtain initial solution

P Q R supply
A 6 3 5 22
16 6
B 5 9 2 15
6 9
C 5 7 8 8
8
demand 16 12 17 45
Step 3: Improving the solution
• Step 1: By beginning with the chosen unoccupied cell, we construct a loop via occupied
cells. Starting with the a plus (+) sign at the new occupied cell, put a minus (-) and a plus (+)
sign at each occupied cell of the loop alternatively

• Step 2: Now to improve the current solution further, select the smallest value of all occupied
cell appearing in the loop with a minus (-) sign. This smallest number is added to all the
cells on the closed loop with a plus (+) sign and subtract from all cells on the path assigned
with a minus sign.

• In doing so, at least one of the occupied cell will become unoccupied and thus we will have
an improved solution .

• Step 3: Repeat the steps 2 and steps 3 of transportation method till all dij >= 0
Step 3: Improving the solution: Closed loop formation

• The following points may also be noted in connection with the closed loops.

(a). An even number of at least four cells must participate in a closed loop and an
occupied cell can be considered only once and not more.

(b). All cells that receive a plus or a minus sign, except the starting empty cell, must
be the occupied cells.

(c). Closed loops may or may not be square or rectangular in shape. In larger
transportation tables, the closed loops may have peculiar configurations and a loop
may cross over itself
Step 3: Improving the solution
Step 3: Improving the solution
Step 3: Improving the solution
Problem
Solution