DATA LINK INSTITUTE OF BUSINESS AND TECHNOLOGY

SCHOOL OF COMPUTER SCIENCE AND INFORMATION TECHNOLOGY

COURSE TITLE: INTRODUCTION TO MANAGEMENT SCIENCE

INTRODUCTION TO MANAGEMENT

In today’s tough and uncertain economy, a company needs strong managers to

lead its staff toward accomplishing business goals. But managers are more than

just leaders they’re problem solvers, cheerleaders, and planners as well. And

managers don’t come in one-size-fits-all shapes or forms. Managers fulfill many

roles and have many different responsibilities at each level of management within

an organization. Organizations abound in today’s society. Groups of individuals

constantly join forces to accomplish common goals. Sometimes the goals of these

organizations are for profit, such as franchise restaurant chains or clothing

retailers. Other times, the goals are more altruistic, such as nonprofit churches

or public schools. But no matter what their aims, all these organizations share

two things in common: They’re made up of people, and certain individuals are in

charge of these people. Managers appear in every organization at least in

organizations that want to succeed.

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These individuals have the sometimes unenviable task of making decisions,

solving difficult problems, setting goals, planning strategies, and rallying

individuals. And those are just a few of their responsibilities! To be exact,

managers administer and coordinate resources effectively and efficiently to

achieve the goals of an organization.

In essence, managers get the job done through other people. "Management is the

organizational process that includes strategic planning, setting objectives,

managing resources, deploying the human and financial assets needed to achieve

objectives, and measuring results. Management also includes recording and

storing facts and information for later use or for others within the organization.

Management functions are not limited to managers and supervisors. Every

member of the organization has some management and reporting functions as

part of their job.

It is very difficult to give a precise definition of the term ‘management’. Different

scholars from different disciplines view and interpret management from their

own angles. The economists consider management as a resource like land, labour,

capital and organization. The bureaucrats look upon it as a system of authority to

achieve business goals.

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DEFINITION OF MANAGEMENT
First definition
Management is the coordination of all resources through the process of planning,
organizing, directing and controlling in order to attain stated objectives.
By: Henry L. Sisk.
Second definition
Management is principally the task of planning, coordinating, motivating and
controlling the efforts of others towards a specific objective.
By: James L. Lundy
Third definition
Management is the art of knowing what you want to do and then seeing that it
is done in the best and cheapest way.
By: F.W. Taylor

Fourth definition
To manage is to forecast and to plan, to organize and to command, to
coordinate and to control.
By: Henry Fayol

CONCEPT OF MANAGEMENT

Management as an Activity

Management as an activity is just like teaching, studying and playing.

Interpersonal activities

Decisional activities

Informative activities

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Management as a Process:

Management as a process because it involves a series of interrelated functions,

such as planning, organizing, staffing, directing and controlling functions,

Management as a process has the following implications:

Social Process: Management involves interactions among people. Goals can

be achieved only when relations between people are productive.

Integrated Process: Management brings human, physical and financial

resources together to put into effort.

Continuous Process: Management involves continuous identifying and solving

problems.

Management as an Economic Resource

Like land, labour and capital, management is an important factor of production

FUNCTION OF MANAGEMENT

Planning, Leading, Organizing, & Controlling (PLOC)

Planning

Defining goals and objectives

Deciding what type of activities the company will engage in

Determining the resources needed to achieve the organization’s goals &

objectives.

Examples of planning are strategic planning, marketing planning, business

planning, succession planning, project planning, sales planning, etc.

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Planning: This step involves mapping out exactly how to achieve a particular

goal. Say, for example, that the organization's goal is to improve company sales.

The manager first needs to decide which steps are necessary to accomplish that

goal. These steps may include increasing advertising, inventory, and sales staff.

Leading

A manager needs to do more than just plan, organize, and staff her team to

achieve a goal. She must also lead. Leading involves motivating, communicating,

guiding, and encouraging. It requires the manager to coach, assist, and problem

solve with employees.

It also involves the following

Attracting people to the organization.

Specifying job responsibilities

Grouping jobs into work units

Allocation of resources

Creating good working conditions

Organizing

After a plan is in place, a manager needs to organize her team and materials

according to her plan. Assigning work and granting authority are two important

elements of organizing.

Directing, motivating, and communication with employees, individually & in

groups.

Conflict resolution.

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Controlling

After the other elements are in place, a manager's job is not finished. He needs to

continuously check results against goals and take any corrective actions necessary

to make sure that his area's plans remain on track. All managers at all levels of

every organization perform these functions, but the amount of time a manager

spends on each one depends on both the level of management and the specific

organization.

Monitoring performance of people & units.

Provision of feedback or information about progress.

Identification of performance problems & actions to correct problems

Staffing: After a manager discerns his area's needs, he may decide to beef up his

staffing by recruiting, selecting, training, and developing employees. A manager

in a large organization often works with the company's human resources

department to accomplish this goal.

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MANAGEMENT ROLES

Definition of Role

A role can be defined as a set of expectations of how one will behave in a given

situation.

Management Role Categories (according to Mintzberg)

Interpersonal (Figurehead, leader, and liaison)

Informational (Monitor, disseminator, and spokesperson)

Decisional (Entrepreneur, disturbance handler, resource allocator, and

negotiator)

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TOPIC: INTRODUCTION TO MANAGEMENT

DEFINITION

Management science uses a scientific approach to solving management problems. It is used in a

variety of organizations to solve many different types of problems. It encompasses a logical

mathematical approach to problem solving. Management science, also known as operations

research, quantitative methods, etc., involves a philosophy of problem solving in a logical manner

It can further be defined as a discipline of applying advanced analytical methods to help make

better decisions. Devoted to solving managerial-type problems using quantitative models

History of Management Science

It was originated from two sources:

❖ Operational Research

❖ Management Information Systems

It is thus more emphasizing on the analysis of solution applications than learning their on how
models were derived.

Other names for management science: quantitative methods, quantitative analysis and
decision sciences.

APPLICATIONS OF MANAGEMENT SCIENCE

Forecasting, capital budgeting, portfolio analysis, capacity planning, scheduling, marketing,

inventory management, project management, and production planning

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PROBLEM SOLVING APPROACHES

Managers tend to use a qualitative approach to problem solving when

1. The problem is fairly simple.

2. The problem is familiar.

3. The costs involved are not great.

Managers tend to use a quantitative approach when

1. The problem is complex.

2. The problem is not familiar.

3. The costs involved are substantial.

4. Enough time is available to analyze the problem.

Advantages of the Quantitative Approach

❖ Directs attention to the essence of an analysis: to solve a specific problem.

❖ Improves planning which helps prevent future problems

❖ Results in more objective decisions than purely qualitative analysis.

❖ Incorporates advances in computational technologies to managerial problem-solving

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THE MANAGEMENT SCIENCE PROCESS

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STEPS IN THE MANAGEMENT SCIENCE PROCESS

❖ Observation - Identification of a problem that exists (or may occur soon) in a system or

organization.

❖ Definition of the Problem - problem must be clearly and consistently defined, showing

its boundaries and interactions with the objectives of the organization.

❖ Model Construction - Development of the functional mathematical relationships that

describe the decision variables, objective function and constraints of the problem.

❖ Model Solution - Models solved using management science techniques.

❖ Model Implementation - Actual use of the model or its solution.

A MODEL:

An abstraction of reality, it is a simplified, and often idealized, representation of reality.

Examples: an equation, an outline, a diagram, and a map

❖ By its very nature a model is incomplete.

❖ Provides an alternative to working with reality

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TYPES OF MODEL

1. Symbolic models

✓ Use numbers and algebraic symbols

2. Mathematical models

✓ Decision variables

✓ Uncontrollable variables

3. Deterministic models

✓ Used for problems in which information is known with a high degree of certainty.

✓ Used to determine an optimal solution to the problem.

4. Probabilistic models

✓ Used when it cannot be determined precisely what values (requiring probabilities) will

occur (usually in the future).

EXAMPLE OF MODEL CONSTRUCTION

Information and Data:

Business firm makes and sells a steel product

Product costs $5 to produce

Product sells for $20

Product requires 4 pounds of steel to make

Firm has 100 pounds of steel

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Business Problem:

Determine the number of units to produce to make the most profit, given the limited amount of
steel available

Variables: X = # units to produce (decision variable)

Z = total profit (in $)

Model: Z = $20X - $5X (objective function)

4X = 100 lb of steel (resource constraint)

Parameters: $20, $5, 4 lbs, 100 lbs (known values)

Formal Specification of Model:

Maximize Z = $20X - $5X

Subject to 4X = 100

Solve the constraint equation:

4x = 100

(4x)/4 = (100)/4

x = 25 units

Substitute this value into the profit function:

Z = $20x - $5x

= (20)(25) – (5)(25)

= $375

(Produce 25 units, to yield a profit of $375)

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MICROSOFT SPEADHEET INTERFACE

Functions Screen

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Add-in Options

MODEL BUILDING

Break-Even Analysis

Is concerned with the interrelationship of costs, volume (quantity of output or sales), and profit.

Used to determine the number of units of a product to sell or produce that will equate

total revenue with total cost.

The volume at which total revenue equals total cost is called the break-even point.

Profit at break-even point is zero

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COMPONENTS OF BREAK-EVEN ANALYSIS

Volume: the level of output of a machine, department, or organization, or the quantity of sales.

Revenue: the income generated by the sale of a product. Total revenue = revenue per unit
(selling price per unit) multiplied by units (volume) sold.

Costs: costs that must be taken into account

NOTE

✓ Fixed costs are not related to the volume of output.

✓ Variable costs increase and decrease with output.

MODEL COMPONENTS

Total Cost (TC) - total fixed cost plus total variable cost.

TC = c f + vcv
Profit (Z) - difference between total revenue vp (p = unit price) and total cost, i.e.

Z = vp - cf - vcv

COMPUTING THE BREAK-EVEN POINT

The Break-Even Point

V= CF
P-Cv

Example: Queens Clothing Company

Fixed Costs: cf = 10000

Variable Costs: cv = 8 per pair

Price: p = 23 per pair

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The Break-Even Point is:

v = (10,000)/(23 -8)

= 666.7 pairs

ASSUMPTIONS OF BREAK-EVEN ANALYSIS

The revenue per unit is the same for all volumes.

The variable cost per unit is the same for all volumes.

Fixed cost is the same for all levels of volume.

Only one product is involved.

All output is sold.

All relevant costs are accounted for, and correctly assigned to either the fixed cost category or
the variable cost category

TOTAL REVENUE INCREASES LINEARLY AS VOLUME INCREASES

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FIXED COSTS

TOTAL VARIABLE COST

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TOTAL COST

BREAK EVEN POINT

Example one

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BREAK EVEN POINT

Example Two

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EXAMPLE ONE

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BREAK EVEN ANALYSIS

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CLASSIFICATION OF MANAGEMENT SCIENCE TECHNIQUES

CHARACTERISTICS OF MODELING TECHNIQUES

Linear Mathematical Programming: clear objective; restrictions on resources and

requirements; parameters known with certainty.

Probabilistic Techniques: results contain uncertainty.

Network Techniques: model often formulated as diagram; deterministic or probabilistic.

Other Techniques: variety of deterministic and probabilistic methods for specific types
of problems including forecasting, inventory, simulation, multi criteria, etc.

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BUSINESS USE OF MANAGEMENT SCIENCE

Some application areas:

✓ Project Planning
✓ Capital Budgeting
✓ Inventory Analysis
✓ Production Planning
✓ Scheduling

Interfaces: Applications journal published by Institute for Operations Research and

Management Sciences (INFORMS)

DECISION SUPPORT SYSTEMS (DSS)

A decision support system is a computer-based system that helps decision makers addresses
complex problems that cut across different parts of an organization and operations.

FEATURES OF DECISION SUPPORT SYSTEMS

❖ Interactive

❖ Use databases & management science models

❖ Address “what if” questions

❖ Perform sensitivity analysis

Examples include:

ERP – Enterprise Resource Planning

OLAP – Online Analytical Processing

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LINEAR PROGRAMMING: AN OVERVIEW

Objectives of business decisions frequently involve maximizing profit or minimizing

costs.

Linear programming uses linear algebraic relationships to represent a firm’s decisions,

given a business objective, and resource constraints.

Steps in application:

1. Identify problem as solvable by linear programming.

2. Formulate a mathematical model of the unstructured problem.

3. Solve the model.

4. Implementation

MODEL COMPONENTS

Decision variables: mathematical symbols representing levels of activity of a firm.

Objective function: a linear mathematical relationship describing an objective of the
firm, in terms of decision variables - this function is to be maximized or minimized.
Constraints: requirements or restrictions placed on the firm by the operating
environment, stated in linear relationships of the decision variables.
Parameters: numerical coefficients and constants used in the objective function and
constraints.

SUMMARY OF MODEL FORMULATION STEPS

Step 1: Clearly define the decision variables

Step 2: Construct the objective function

Step 3: Formulate the constraints

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LP MODEL FORMULATION A MAXIMIZATION EXAMPLE

Product mix problem – TEMA JOINT Pottery Company

How many bowls and mugs should be produced to maximize profits given labor and
materials constraints?

Product resource requirements and unit profit:

Resource Requirements

Labor Clay Profit

Product
(Hr./Unit) (Lb./Unit) ($/Unit)

Bowl 1 4 40

Mug 2 3 50

A Maximization Example

Resource Availability: 40 hrs of labor per day

120 lbs of clay

Decision x1 = number of bowls to produce per day

Variables: x2 = number of mugs to produce per day

Objective Maximize Z = $40x1 + $50x2

Function: Where Z = profit per day

Resource 1x1 + 2x2  40 hours of labor

Constraints: 4x1 + 3x2  120 pounds of clay

Non-Negativity x1  0; x2  0

Constraints:

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Complete Linear Programming Model:

Maximize Z = $40x1 + $50x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

FEASIBLE SOLUTIONS

A feasible solution does not violate any of the constraints:

Example: x1 = 5 bowls

x2 = 10 mugs

Z = $40x1 + $50x2 = $700

Labor constraint check: 1(5) + 2(10) = 25 < 40 hours

Clay constraint check: 4(5) + 3(10) = 70 < 120 pounds

INFEASIBLE SOLUTIONS

An infeasible solution violates at least one of the constraints:

Example: x1 = 10 bowls

x2 = 20 mugs

Z = $40x1 + $60x2 = $1400

Labor constraint check: 1(10) + 2(20) = 50 > 40 hours

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GRAPHICAL SOLUTION OF LP MODELS

❖ Graphical solution is limited to linear programming models containing only two decision
variables (can be used with three variables but only with great difficulty).

❖ Graphical methods provide visualization of how a solution for a linear programming

problem is obtained.

Coordinate Axes Graphical Solution of Maximization Model

X2 is mugs

X1 is bowls

Maximize Z = $40x1 + $50x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

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LABOR CONSTRAINT (GRAPHICAL SOLUTION OF MAXIMIZATION MODEL)

Maximize Z = $40x1 + $50x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

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LABOR CONSTRAINT AREA (GRAPHICAL SOLUTION OF MAXIMIZATION
MODEL)

Maximize Z = $40x1 + $50x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

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CLAY CONSTRAINT AREA (GRAPHICAL SOLUTION OF MAXIMIZATION
MODEL)

Maximize Z = $40x1 + $50x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

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BOTH CONSTRAINTS (GRAPHICAL SOLUTION OF MAXIMIZATION MODEL)

Maximize Z = $40x1 + $50x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

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FEASIBLE SOLUTION AREA (GRAPHICAL SOLUTION OF MAXIMIZATION
MODEL)

Maximize Z = $40x1 + $50x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

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OBJECTIVE FUNCTION SOLUTION = $800

GRAPHICAL SOLUTION OF MAXIMIZATION MODEL

Maximize Z = $40x1 + $50x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

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ALTERNATIVE OBJECTIVE FUNCTION SOLUTION LINES

GRAPHICAL SOLUTION OF MAXIMIZATION MODEL

Maximize Z = $40x1 + $50x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

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OPTIMAL SOLUTION (GRAPHICAL SOLUTION OF MAXIMIZATION MODEL)

Maximize Z = $40x1 + $50x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

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OPTIMAL SOLUTION COORDINATES (GRAPHICAL SOLUTION OF
MAXIMIZATION MODEL)

Maximize Z = $40x1 + $50x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

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EXTREME (CORNER) POINT SOLUTIONS (GRAPHICAL SOLUTION OF
MAXIMIZATION MODEL)

Maximize Z = $40x1 + $50x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

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OPTIMAL SOLUTION FOR NEW OBJECTIVE FUNCTION (GRAPHICAL
SOLUTION OF MAXIMIZATION MODEL)

Maximize Z = $70x1 + $20x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

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IRREGULAR TYPES OF LINEAR PROGRAMMING PROBLEMS

For some linear programming models, the general rules do not apply.

Special types of problems include those with:

▪ Multiple optimal solutions

▪ Infeasible solutions

▪ Unbounded solutions

Multiple Optimal Solutions Beaver Creek Pottery

Figure 2.20 Examples with Multiple Optimal Solutions

The objective function is parallel to a constraint line.

Maximize Z=$40x1 + 30x2

Subject to: 1x1 + 2x2  40

4x2 + 3x2  120

x1, x2  0

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Where:

x1 = number of bowls x2 = number of mugs

An Infeasible Problem

Figure 2.21 Graph of an Infeasible Problem

Every possible solution violates at least one constraint:

Maximize Z = 5x1 + 3x2

Subject to: 4x1 + 2x2  8

x1  4

x2  6

x1, x2  0

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An Unbounded Problem

Figure 2.22 Graph of an Unbounded Problem

Value of the objective

Function increases indefinitely:

Maximize Z = 4x1 + 2x2

Subject to: x1  4

x2  2

x1, x2  0

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CHARACTERISTICS OF LINEAR PROGRAMMING PROBLEMS

❖ A decision amongst alternative courses of action is required.

❖ The decision is represented in the model by decision variables.

❖ The problem encompasses a goal, expressed as an objective function that the decision
maker wants to achieve.

❖ Restrictions (represented by constraints) exist that limit the extent of achievement of the
objective.

❖ The objective and constraints must be definable by linear mathematical functional

relationships.

❖ Properties of Linear Programming Models

❖ Proportionality - The rate of change (slope) of the objective function and constraint
equations is constant.

❖ Additivity - Terms in the objective function and constraint equations must be additive.

❖ Divisibility -Decision variables can take on any fractional value and are therefore
continuous as opposed to integer in nature.

❖ Certainty - Values of all the model parameters are assumed to be known with certainty
(non-probabilistic).

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Problem Statement

Example Problem No. 1

❖ Hot dog mixture in 1000-pound batches.

❖ Two ingredients, chicken ($3/lb) and beef ($5/lb).
❖ Recipe requirements:
o at least 500 pounds of “chicken”
o at least 200 pounds of “beef”
❖ Ratio of chicken to beef must be at least 2 to 1.
❖ Determine optimal mixture of ingredients that will minimize costs.

Solution

Example Problem No. 1

Step 1:

Identify decision variables.

x1 = lb of chicken in mixture

x2 = lb of beef in mixture

Step 2:

Formulate the objective function.

Minimize Z = $3x1 + $5x2

Where Z = cost per 1,000-lb batch

$3x1 = cost of chicken

$5x2 = cost of beef

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Step 3:

Establish Model Constraints

x1 + x2 = 1,000 lb

x1  500 lb of chicken

x2  200 lb of beef

x1/x2  2/1 or x1 - 2x2  0

x1, x2  0

The Model: Minimize Z = $3x1 + 5x2

Subject to: x1 + x2 = 1,000 lb

x1  50

x2  200

x1 - 2x2  0

x1,x2  0

Example Problem No. 2

Figure 2.23 Constraint Equations

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Solve the following model graphically:

Maximize Z = 4x1 + 5x2

Subject to: x1 + 2x2  10

6x1 + 6x2  36

x1  4

x1, x2  0

Step 1: Plot the constraints as equations

Example
Problem No. 2

Figure 2.24 Feasible Solution Space and Extreme Points

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Maximize Z = 4x1 + 5x2

Subject to: x1 + 2x2  10

6x1 + 6x2  36

x1  4

x1, x2  0

Step 2: Determine the feasible solution space

Figure 2.25 Optimal Solution Point

Maximize Z = 4x1 + 5x2

Subject to: x1 + 2x2  10

6x1 + 6x2  36

x1  4

x1, x2  0

Step 3 and 4: Determine the solution points and optimal solution

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 INTEGER PROGRAMMING (IP) MODELS

INTEGER PROGRAMMING GRAPHICAL SOLUTION

Integer Programming Models

Types of Models

Total Integer Model: All decision variables required to have integer solution values.

0-1 Integer Model: All decision variables required to have integer values of zero
or one.

Mixed Integer Model: Some of the decision variables (but not all) required to have
integer values.

A Total Integer Model

(EXAMPLE)

■ Machine shop obtaining new presses and lathes.

■ Marginal profitability: each press $100/day; each lathe $150/day.

■ Resource constraints: $40,000 budget, 200 sq. ft. floor space.

■ Machine purchase prices and space requirements:

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 Required
Machine Floor Space (ft. 2) Purchase Price

Press 15 $8,000

Lathe 30 4,000

Integer Programming Model:

Maximize Z = $100x1 + $150x2

subject to:

$8,000x1 + 4,000x2  $40,000

15x1 + 30x2  200 ft2

x1, x2  0 and integer

x1 = number of presses

x2 = number of lathes

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A 0 - 1 INTEGER MODEL
❖ Recreation facilities selection to maximize daily usage by residents.

❖ Resource constraints: $120,000 budget; 12 acres of land.

❖ Selection constraint: either swimming pool or tennis center (not both)

Expected Usage Land Requirement

Recreation
(people/day) Cost ($) (acres)
Facility
Swimming pool 300 35,000 4
Tennis Center 90 10,000 2
Athletic field 400 25,000 7
Gymnasium 150 90,000 3

A 0 - 1 Integer Model

Integer Programming Model:

Maximize Z = 300x1 + 90x2 + 400x3 + 150x4

Subject to:

$35,000x1 + 10,000x2 + 25,000x3 + 90,000x4  $120,000

4x1 + 2x2 + 7x3 + 3x4  12 acres

x1 + x2  1 facility

x1, x2, x3, x4 = 0 or 1

x1 = construction of a swimming pool

x2 = construction of a tennis center

x3 = construction of an athletic field

x4 = construction of a gymnasium

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A Mixed Integer Model
■ $250,000 available for investments providing greatest return after one year.

■ Data:

▪ Condominium cost $50,000/unit; $9,000 profit if sold after one year.

▪ Land cost $12,000/ acre; $1,500 profit if sold after one year.

▪ Municipal bond cost $8,000/bond; $1,000 profit if sold after one year.

▪ Only 4 condominiums, 15 acres of land, and 20 municipal bonds available.

A MIXED INTEGER MODEL

INTEGER PROGRAMMING MODEL:

Maximize Z = $9,000x1 + 1,500x2 + 1,000x3

Subject to:

50,000x1 + 12,000x2 + 8,000x3  $250,000

x1  4 condominiums

x2  15 acres

x3  20 bonds

x2  0

x1, x3  0 and integer

x1 = condominiums purchased

x2 = acres of land purchased

x3 = bonds purchased

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 PROJECT MANAGEMENT
What Is a Project?

❖ A project is “a temporary endeavor undertaken to create a unique product, service, or

result” (PMBOK Guide, Fifth Edition)

❖ Operations is work done to sustain the business

❖ Projects end when their objectives have been reached or the project has been terminated

❖ Projects can be large or small and take a short or long time to complete

Examples of IT Projects

❖ A help desk or technical worker replaces ten laptops for a small department

❖ A small software development team adds a new feature to an internal software

application for the finance department

❖ A college campus upgrades its technology infrastructure to provide wireless Internet

access across the whole campus

❖ A cross-functional task force in a company decides what Voice-over-Internet-Protocol

(VoIP) system to purchase and how it will be implemented

TOP TEN TECHNOLOGY PROJECTS IN 2006

❖ VoIP

❖ Outsourcing

❖ Data networking

❖ Customer relationship management

❖ Collaboration

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 ❖ Supply chain management

❖ Desktop upgrades

❖ Application performance management

❖ Business analytics

❖ Compliance tracking

PROJECT ATTRIBUTES

❖ A project:

❖ Has a unique purpose

❖ Is temporary
❖ Is developed using progressive elaboration
❖ Requires resources, often from various areas
❖ Should have a primary customer or sponsor
❖ The project sponsor usually provides the direction and funding for the project
❖ Involves uncertainty

PROJECT AND PROGRAM MANAGERS

Project managers work with project sponsors, a project team, and other people involved
in a project to meet project goals

Program: group of related projects managed in a coordinated way to obtain benefits and
control not available from managing them individually

Program managers oversee programs and often act as bosses for project managers

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 WHAT IS PROJECT MANAGEMENT?

Project management is “the application of knowledge, skills, tools and techniques to project
activities to meet project requirements” Project managers strive to meet the triple constraint by
balancing project scope, time, and cost goals

THE TRIPLE CONSTRAINT OF PROJECT MANAGEMENT

Successful project management means meeting all three goals (scope, time, and cost) – and
satisfying the project’s sponsor!

ELEMENTS OF PROJECT MANAGEMENT

Primary elements of Project Management to be discussed:

❖ Project Planning
❖ Project Team
❖ Project Control

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PROJECT PLANNING

❖ Objectives

❖ Project Scope

❖ Contract Requirements

❖ Schedules

❖ Resources

❖ Personnel

❖ Control

❖ Risk and Problem Analysis

THE PROJECT TEAM

❖ Project team typically consists of a group of individuals from various areas in an

organization and often includes outside consultants.

❖ Members of engineering staff often assigned to project work.

❖ Project team may include workers.

❖ Most important member of project team is the project manager.

❖ Project manager is often under great pressure because of uncertainty inherent in project
activities and possibility of failure. Potential rewards, however, can be substantial.

❖ Project manager must be able to coordinate various skills of team members into a single
focused effort.

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PROJECT CONTROL

❖ Process of ensuring progress toward successful completion.

❖ Monitoring project to minimize deviations from project plan and schedule.

❖ Corrective actions necessary if deviations occur.

❖ Key elements of project control

❖ Time management

❖ Cost management

❖ Performance management

Earned value analysis

THE PROJECT NETWORK

CPM/PERT

Activity-on-Arc (AOA) Network

❖ A branch reflects an activity of a project.

❖ A node represents the beginning and end of activities, referred to as events.
❖ Branches in the network indicate precedence relationships.
❖ When an activity is completed at a node, it has been realized.

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The Project Network

Concurrent Activities

❖ Network aids in planning and scheduling.

❖ Time duration of activities shown on branches.

❖ Activities can occur at the same time (concurrently).

❖ A dummy activity shows a precedence relationship but reflects no passage of time.

❖ Two or more activities cannot share the same start and end nodes.

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THE PROJECT NETWORK
HOUSE BUILDING PROJECT DATA

THE PROJECT NETWORK

AOA NETWORK FOR HOUSE BUILDING PROJECT

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The Project Network

AON Network for House Building Project

Activity-on-Node (AON) Network

▪ A node represents an activity, with its label and time shown on the node

▪ The branches show the precedence relationships

▪ Convention used in Microsoft Project software

THE PROJECT NETWORK

PATHS THROUGH A NETWORK

Path Events

A 1→2→4→7

B 1→2→5→6→7

C 1→3→4→7

D 1→3→5→6→7

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PROJECT MANAGEMENT TOOLS AND TECHNIQUES

Project management tools and techniques assist project managers and their teams in various
aspects of project management

Some specific ones include:

❖ Project charter, scope statement, and WBS (scope)

❖ Gantt charts, network diagrams, critical path analysis, and critical chain scheduling (time)
❖ Cost estimates and earned value management (cost)

Super Tools

Super tools” are those tools that have high use and high potential for improving project success,
such as:

❖ Software for task scheduling (such as project management software)

❖ Scope statements
❖ Requirements analyses
❖ Lessons-learned reports

Tools already extensively used that have been found to improve project importance include:

❖ Progress reports
❖ Kick-off meetings
❖ Gantt charts
❖ Change requests

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GANTT CHARTS

❖ Gantt charts provide a standard format for displaying project schedule information by
listing project activities and their corresponding start and finish dates in a calendar format

❖ Symbols include:

❖ Black diamond’s: milestones

❖ Thick black bars: summary tasks

❖ Lighter horizontal bars: durations of tasks

❖ Arrows: dependencies between tasks

Gantt Chart for Project X

Adding Milestones to Gantt Charts

Many people like to focus on meeting milestones, especially for large projects

Milestones emphasize important events or accomplishments on projects

Normally create milestone by entering tasks with a zero duration, or you can mark any
task as a milestone

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Gantt Chart for Software Launch Project

CREATING THE WORK BREAKDOWN STRUCTURE (WBS)

A WBS is a deliverable-oriented grouping of the work involved in a project that defines the total
scope of the project

❖ WBS is a foundation document that provides the basis for planning and managing project
schedules, costs, resources, and changes

❖ Decomposition is subdividing project deliverables into smaller pieces

❖ A work package is a task at the lowest level of the WBS

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SAMPLE INTRANET WBS ORGANIZED BY PRODUCT

SAMPLE INTRANET WBS ORGANIZED BY PHASE

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INTRANET WBS IN TABULAR FORM

INTRANET WBS AND GANTT CHART IN MICROSOFT PROJECT

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Intranet Gantt chart Organized By Project Management Process Groups

APPROACHES TO DEVELOPING WBSS

Using guidelines: some organizations, like the DOD, provide guidelines for preparing
WBSs

The analogy approach: review WBSs of similar projects and tailor to your project

The top-down approach: start with the largest items of the project and break them down

The bottom-up approach: start with the specific tasks and roll them up

Mind-mapping approach: mind mapping is a technique that uses branches radiating out
from a core idea to structure thoughts and ideas

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 PROGRAM EVALUATION AND REVIEW TECHNIQUE (PERT)

PERT is a network analysis technique used to estimate project duration when there is a high
degree of uncertainty about the individual activity duration estimates

PERT uses probabilistic time estimates

❖ Duration estimates based on using optimistic, most likely, and pessimistic estimates of
activity durations, or a three-point estimate

PERT FORMULA AND EXAMPLE

❖ PERT weighted average =

Optimistic time + 4X most likely time + pessimistic time

❖ Example:

PERT weighted average =

8 workdays + 4 X 10 workdays + 24 workdays = 12 days

Where optimistic time= 8 days,

Most likely time = 10 days, and

Pessimistic time = 24 days

Therefore, you’d use 12 days on the network diagram instead of 10 when using PERT for the
above example

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PROJECT SUCCESS

There are several ways to define project success

❖ The project met scope, time, and cost goals

❖ The project satisfied the customer/sponsor

❖ The results of the project met its main objective, such as making or saving a certain
amount of money, providing a good return on investment, or simply making the
sponsors happy

WHAT HELPS PROJECTS SUCCEED

1. Executive support

2. User involvement

3. Experienced project manager

4. Clear business objectives

5. Minimized scope

6. Standard software infrastructure

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 INVENTORY MANAGEMENT

ELEMENTS OF INVENTORY MANAGEMENT (ROLE OF INVENTORY)

❖ Inventory is a stock of items kept on hand used to meet customer demand..

❖ A level of inventory is maintained that will meet anticipated demand.

❖ If demand not known with certainty, safety (buffer) stocks are kept on hand.

❖ Additional stocks are sometimes built up to meet seasonal or cyclical demand.

❖ Large amounts of inventory sometimes purchased to take advantage of discounts.

◼ In-process inventories maintained to provide independence between operations.

◼ Raw materials inventory kept to avoid delays in case of supplier problems.

◼ Stock of finished parts kept to meet customer demand in event of work stoppage.

◼ In general inventory serves to decouple consecutive steps.

ELEMENTS OF INVENTORY MANAGEMENT DEMAND

❖ Inventory exists to meet the demand of customers.

❖ Customers can be external (purchasers of products) or internal (workers using material).

❖ Management needs an accurate forecast of demand.

❖ Items that are used internally to produce a final product are referred to as dependent
demand items.

❖ Items that are final products demanded by an external customer are independent
demand items.

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ELEMENTS OF INVENTORY MANAGEMENT

INVENTORY COSTS

Carrying costs - Costs of holding items in storage

❖ Vary with level of inventory and sometimes with length of time held.

❖ Include facility operating costs, record keeping, interest, etc.

❖ Assigned on a per unit basis per time period, or as percentage of average

inventory value (usually estimated as 10% to 40%).

Ordering costs - costs of replenishing stock of inventory

❖ Expressed as dollar amount per order, independent of order size.

❖ Vary with the number of orders made.

❖ Include purchase orders, shipping, handling, inspection, etc.

Shortage (stockout ) costs - Associated with insufficient inventory.

▪ Result in permanent loss of sales and profits for items not on hand.

▪ Sometimes penalties involved; if customer is internal, work delays could result.

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INVENTORY CONTROL SYSTEMS

❖ An inventory control system controls the level of inventory by determining how

much (replenishment level) and when to order.

❖ Two basic types of systems -continuous (fixed-order quantity) and periodic

(fixed-time).

o In a continuous system, an order is placed for the same constant amount

when inventory decreases to a specified level.

o In a periodic system, an order is placed for a variable amount after a

specified period of time.

Inventory Control Systems (Continuous Inventory Systems)

❖ A continual record of inventory level is maintained.

❖ Whenever inventory decreases to a predetermined level, the reorder point, an order is

placed for a fixed amount to replenish the stock.

❖ The fixed amount is termed the economic order quantity, whose magnitude is set at a

level that minimizes the total inventory carrying, ordering, and shortage costs.

❖ Because of continual monitoring, management is always aware of status of inventory

level and critical parts, but system is relatively expensive to maintain.

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INVENTORY CONTROL SYSTEMS

PERIODIC INVENTORY SYSTEMS

❖ Inventory on hand is counted at specific time intervals and an order placed that brings
inventory up to a specified level.

❖ Inventory not monitored between counts and system is therefore less costly to track and
keep account of.

❖ Results in less direct control by management and thus generally higher levels of
inventory to guard against stockouts.

❖ System requires a new order quantity each time an order is placed.

❖ Used in smaller retail stores, drugstores, grocery stores and offices

ECONOMIC ORDER QUANTITY MODELS

❖ Economic order quantity, or economic lot size, is the quantity ordered when inventory
decreases to the reorder point.

❖ Amount is determined using the economic order quantity (EOQ) model.

❖ Purpose of the EOQ model is to determine the optimal order size that will minimize total
inventory costs.

❖ Three model versions to be discussed:

1. Basic EOQ model

2. EOQ model without instantaneous receipt

3. EOQ model with shortages

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Economic Order Quantity Models

Basic EOQ Model

◼ A formula for determining the optimal order size that minimizes the sum of carrying
costs and ordering costs.

◼ Simplifying assumptions and restrictions:

▪ Demand is known with certainty and is relatively constant over time.

▪ No shortages are allowed.

▪ Lead time for the receipt of orders is constant.

▪ The order quantity is received all at once and instantaneously

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Basic EOQ Model

Carrying Cost

❖ Carrying cost usually expressed on a per unit basis of time, traditionally one year.
❖ Annual carrying cost equals carrying cost per unit per year times average inventory level:

▪ Carrying cost per unit per year = Cc

▪ Average inventory = Q/2
▪ Annual carrying cost = CcQ/2.

Basic EOQ Model

Total Inventory Cost

Total annual inventory cost is sum of ordering and carrying cost:

TC = C D + C Q
o c
Q 2

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FORECASTING COMPONENTS

■ A variety of forecasting methods are available for use depending on the time frame of the
forecast and the existence of patterns.

■ Time Frames:

▪ Short-range (one to two months)

▪ Medium-range (two months to one or two years)

▪ Long-range (more than one or two years)

■ Patterns:

▪ Trend

▪ Random variations

▪ Cycles

▪ Seasonal pattern

FORECASTING COMPONENTS

PATTERNS

◼ Trend - A long-term movement of the item being forecast.

◼ Random variations - movements that are not predictable and follow no pattern.

◼ Cycle - A movement, up or down, that repeats itself over a lengthy time span.

Seasonal pattern - Oscillating movement in demand that occurs periodically in the short run and
is repetitive

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FORECASTING COMPONENTS FORECASTING METHODS

◼ Times Series - Statistical techniques that use historical data to predict future behavior.

◼ Regression Methods - Regression (or causal ) methods that attempt to develop a

mathematical relationship between the item being forecast and factors that cause it to
behave the way it does.

◼ Qualitative Methods - Methods using judgment, expertise and opinion to make forecasts.

FORECASTING COMPONENTS QUALITATIVE METHODS

◼ “Jury of executive opinion,” a qualitative technique, is the most common type of

forecast for long-term strategic planning.

▪ Performed by individuals or groups within an organization, sometimes assisted by

consultants and other experts, whose judgments and opinions are considered
valid for the forecasting issue.

▪ Usually includes specialty functions such as marketing, engineering, purchasing,

etc. in which individuals have experience and knowledge of the forecasted item.

◼ Supporting techniques include the Delphi Method, market research, surveys, etc.

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TIME SERIES METHODS

OVERVIEW

◼ Statistical techniques that make use of historical data collected over a long period of
time.

◼ Methods assume that what has occurred in the past will continue to occur in the future.

◼ Forecasts based on only one factor - time.

◼ Moving average uses values from the recent past to develop forecasts.

◼ This dampens or smoothes random increases and decreases.

◼ Useful for forecasting relatively stable items that do not display any trend or seasonal
pattern.

◼ Formula for:

n
 Di
MAn = i=1n
where:
n = number of periods in the moving average
Di = data in period i

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Example: Instant Paper Clip Supply Company forecast of orders for the month of November.

◼ Three-month moving average:

3
 Di 90+110+130

MA = i=1 = =110 orders

3 3 3

Five-month moving average:

5
 Di 90+110+130+75+50
MA = i=1 = =91 orders
5 5 5

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Figure 15.2 Three- and Five-Month Moving Averages

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 ❖ Longer-period moving averages react more slowly to changes in demand than do
shorter-period moving averages.

❖ The appropriate number of periods to use often requires trial-and-error experimentation.

❖ Moving average does not react well to changes (trends, seasonal effects, etc.) but is easy
to use and inexpensive.

❖ Good for short-term forecasting.

SIMULATION

Overview

■ Analogue simulation replaces a physical system with an analogous physical system that
is easier to manipulate.

■ In computer mathematical simulation a system is replaced with a mathematical model

that is analyzed with the computer.

■ Simulation offers a means of analyzing very complex systems that cannot be analyzed
using the other management science techniques in the text.

MONTE CARLO PROCESS

■ A large proportion of the applications of simulations are for probabilistic models.

■ The Monte Carlo technique is defined as a technique for selecting numbers randomly
from a probability distribution for use in a trial (computer run) of a simulation model.

■ The basic principle behind the process is the same as in the operation of gambling
devices in casinos (such as those in Monte Carlo, Monaco).

MONTE CARLO PROCESS USE OF RANDOM NUMBERS

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In the Monte Carlo process, values for a random variable are generated by sampling from a
probability distribution.

Example: Computer World demand data for laptops selling for $4,300 over a period of 100
weeks.

Table 14.1 Probability Distribution of Demand for Laptop PC’s

◼ The purpose of the Monte Carlo process is to generate the random variable, demand, by
sampling from the probability distribution P(x).

◼ The partitioned roulette wheel replicates the probability distribution for demand if the
values of demand occur in a random manner.

◼ The segment at which the wheel stops indicates demand for one week.

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 A Roulette Wheel for Demand

When the wheel is spun, the actual demand for PCs is determined by a number at rim of the
wheel.

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Select number from a random number table:

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❖ Repeating selection of random numbers simulates demand for a period of time.

❖ Estimated average demand = 31/15 = 2.07 laptop PCs per week.

❖ Estimated average revenue = $133,300/15 = $8,886.67.

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 n
E(x) = P(x )x

 i i

i=1
where:

xi = demand value i
P(xi) = probability of demand

n = the number of different demand values

therefore:

E(x) =(.20)(0)+(.40)(1)+(.20)(2)+(.10)(3)+(.10)(4)
= 1.5 PC's per week

◼ The more periods simulated, the more accurate the results.

◼ Simulation results will not equal analytical results unless enough trials have been
conducted to reach steady state.

◼ Often difficult to validate results of simulation - that true steady state has been reached
and that simulation model truly replicates reality.

◼ When analytical analysis is not possible, there is no analytical standard of comparison

thus making validation even more difficult.

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TRANSPORTATION, TRANSSHIPMENT, AND ASSIGNMENT PROBLEMS

OVERVIEW

■ Part of a class of LP problems known as network flow models.

■ Special mathematical features that permit very efficient, unique solution methods
(variations of traditional simplex procedure).

■ Detailed description of methods is contained on the companion website

■ Text focuses on model formulation and solution with Excel and QM for windows.

THE TRANSPORTATION MODEL: CHARACTERISTICS

■ A product is transported from a number of sources to a number of destinations at the
minimum possible cost.

■ Each source is able to supply a fixed number of units of the product, and each
destination has a fixed demand for the product.

■ The linear programming model has constraints for supply at each source and demand at
each destination.

■ All constraints are equalities in a balanced transportation model where supply equals
demand.

■ Constraints contain inequalities in unbalanced models where supply does not equal
demand.

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Transportation Model Example

Problem Definition and Data

How many tons of wheat to transport from each grain elevator to each mill on a monthly basis in
order to minimize the total cost of transportation?

Transport Cost from Grain Elevator to Mill ($/ton)

Grain Elevator A. Chicago B. St. Louis C. Cincin n
1. Kansas City $6 $8 $ 10
2. Omaha 7 11 11
3. Des Moines 4 5 12

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TRANSPORTATION MODEL EXAMPLE

TRANSPORTATION NETWORK ROUTES

Transportation Model Example

Model Formulation

Minimize Z = $6x1A + 8x1B + 10x1C + 7x2A + 11x2B + 11x2C + 4x3A + 5x3B + 12x3C

Subject to:

x1A + x1B + x1C = 150

x2A + x2B + x2C = 175

x3A + x3B + x3C = 275

x1A + x2A + x3A = 200

x1B + x2B + x3B = 100

x1C + x2C + x3C = 300

xij  0

xij = tons of wheat from each grain elevator, i, i = 1, 2, 3,

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to each mill j, j = A,B,C

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 NETWORK FLOW MODELS
■ The Shortest Route Problem

■ The Minimal Spanning Tree Problem

■ The Maximal Flow Problem

NETWORK COMPONENTS

■ A network is an arrangement of paths (branches) connected at various points (nodes)

through which one or more items move from one point to another.

■ The network is drawn as a diagram providing a picture of the system thus enabling visual
representation and enhanced understanding.

■ A large number of real-life systems can be modeled as networks which are relatively easy
to conceive and construct.

■ Network diagrams consist of nodes and branches.

■ Nodes (circles), represent junction points, or locations.

■ Branches (lines), connect nodes and represent flow.

■ Four nodes, four branches in figure.

■ “Atlanta”, node 1, termed origin, any of others destination.

■ Branches identified by beginning and ending node numbers.

■ Value assigned to each branch (distance, time, cost, etc.).

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FIG 7.1 Network of Railroad Routes

THE SHORTEST ROUTE PROBLEM

DEFINITION AND EXAMPLE PROBLEM DATA

Problem: Determine the shortest routes from the origin to all destinations.

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THE SHORTEST ROUTE PROBLEM

SOLUTION APPROACH

Determine the initial shortest route from the origin (node 1) to the closest node (3).

Figure 7.2 Networks with Node 1 in the Permanent Set

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Determine all nodes directly connected to the permanent set.

Figure 7.3 Networks with Nodes 1 and 3 in the Permanent Set

Redefine the permanent set.

Figure 7.4 Networks with Nodes 1, 2, and 3 in the Permanent Set

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Figure 7.5 Networks with Nodes 1, 2, 3, and 4 in the Permanent Set

Figure 7.6 Networks with Nodes 1, 2, 3, 4, & 6 in the Permanent Set

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Figure 7.7 Networks with Nodes 1, 2, 3, 4, 5 & 6 in the Permanent Set

Figure 7.8 Network with Optimal Routes

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Table 7.9 Shortest Travel Time from Origin to Each Destination

THE SHORTEST ROUTE PROBLEM

SOLUTION METHOD SUMMARY

1. Select the node with the shortest direct route from the origin.

2. Establish a permanent set with the origin node and the node that was selected in step 1.

3. Determine all nodes directly connected to the permanent set of nodes.

4. Select the node with the shortest route from the group of nodes directly connected to the
permanent set of nodes.

5. Repeat steps 3 & 4 until all nodes have joined the permanent set.

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