BIT EXAM 1
CHAPTER 1
What is Management Science?
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A scientific approach to solving management problems
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Encompasses a number of mathematically oriented techniques
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Involves the philosophy of approaching a problem in a logical manner
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Many applications of management science have been frequently credited
with increasing the efficiency and productivity of business firms
The management science approach to problem solving
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Observation
problem definition
model construction
solution
implementation
feedback (goes back to steps 2,3,4)
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Observation: identification of a problem that exists (or may occur soon) in
a system or organization
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Definition of the problem: problem must be clearly and consistently
defined, showing its boundaries and interactions with the objectives of the
organization
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Model construction: development of the functional mathematical
relationships that describe the decision variables, objective function and
constraints that describe the decision
o
Components:
Management science model: an abstract representation of an
existing problem situation
Variable: symbol used to represent an item that can take on any
value
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Dependent variable
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Independent variable
Parameters: known, constant values that are often coefficients of
variables in equations
Data: pieces of information from the problem environment
A model is a
Functional relationship
: includes variables,
parameters, and equations
Objective function: a function associated with an optimization
function that tells us how good a solution is
Constraint: a condition that a solution to an optimization problem
must satisfy
Decision variable: quantity a decision maker controls
o
Maximize Z=$20x5x subject to 4x=100
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Model solution: models solved using management science techniques
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Management science solution can be either a recommended decision
or information that helps a manager make a decision
o
Example:
Information and data:
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Business firms makes and sells a steel product
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Product costs $5 to produce
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Sells for $20
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Product requires $4 pounds of steel to make
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Firm has 100 pounds of steel
Business problem:
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Determine the number of units to produce to make the most
profit, given the limited amount of steel available.
Z=20x5x subject to 4x=100
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Model implementation: actual use of the model or is solution
Modeling Example: BreakEven Analysis; used to determine the number of units of
product to produce/sell that will equate total revenue with total cost (point where profit is
zero/breakeven point)
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Three components:
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Volume: level of sales or production by a company (expressed as:
quantity, dollar volume of sales, or percentage of total capacity avail.)
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Cost:
Fixed costs: are independent of volume and remain constant
Variable costs: depend on the number of items produced
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Profit: difference between total revenue and total cost
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Total Variable Cost = vc
v
o
c
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 Fall '07
 LLClark
 Linear Programming, Optimization, objective function, Linear programming models

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