Albici Articole

I
CONTENTS

METALURGIA INTERNATIONAL vol. XV (2010), special issue no.1
ISSN 1582-2214

MATERIAL SCIENCE RESEARCH AND DEVELOPMENT

Stefan DRAGOMIR, Gheorghe FLOREA, Bogdan FLOREA,
Constantin MIHOLCA: VIBRATION AND DIAGNOSTIC
FOR A COLD ROLLING MILLS
...5

Radu Cristian IVNU: A METHOD FOR OBTAINING
COPPER POWDER FROM ELECTRONIC SCRAPBY
MECHANICAL PROCESSING AND
ELECTROMETALLURGY
...............................................................................................10

Radu Cristian IVNU: A NEW ENVIRONMENTALLY
FRIENDLY METHOD FOR THE RECOVERY OF
USEFUL MATERIALS THROUGH PROCESSING
WASTE PRINTED CIRCUITS BOARDS
...............................................................................................15
Sorin CANANAU: SURFACE CHARACTERIZATION
FOR COATED MATERIALS USING ELECTRON
MICROSCOPY
...20

Sandu ALB, Camelia ALB, Ada DELEAN, Sorina SAVA,
Anca MESAROS, Smaranda BUDURU: TREATMENT
OPTIONS FOR THE RESTORATION OF
ENDODONTICALLY TREATED TEETH
...24

Ioan DORO, Flavia Diana NISTOR, Horia Tudor
ANDREICA: REAL AND VIRTUAL
...29

ENVIRONMENTAL ISSUES

Giani GRADINARU, Cristian - Marian BARBU: CAUSAL
INFLUENCE OF STOCHASTIC EMISSION OF
GREENHOUSE GASES GENERATED BY THE
ROMANIAN MINING INDUSTRY
...34

Mircea BOSCOIANU, Gabriela PRELIPCEAN, Marian
MIHALCEA, Mihaela SIMA: AN ECONOMETRIC
FRAMEWORK FOR DETERMINING THE
INFLUENCES OF SOCIO-ECONOMIC ACTIVITIES
ON NATURAL ENVIRONMENT
...37

Ruxandra Mlina PETRESCU-MAG, Ioan Valentin
PETRESCU-MAG: ENVIRONMENTAL PROTECTION
THROUGH PUBLIC AUTHORITIES INTERVENTION
IN THE PRIVATE ACTIVITIES. THE CASE OF SPAIN
AND ROMANIA
...............................................................................................43

Ioana Maria GHIDIU BTA, Cristina PARTAL: ANALYSIS
OF VOLUME OF TIMBER HARVESTED IN ELATION
WITH FOREST COVER, THE PERIOD 1991 - 2008
...49

Diana Andreia HRISTACHE, Silvia Elena POPESCU
(IACOB), Claudia Elena PAICU, Constantin POPESCU: AN
APPROACH OF SUSTAINABLE DEVELOPMENT
FROM THE PERSPECTIVE OF THE
COMMUNICATIONAL PARADIGM
...58

Teodor CRISTIAN, Andreea POPA, Irina POPA: FROM
UNCONTROLLED CONSUMPTION TO
SUSTAINABLE CONSUMPTION
...61

Florina BRAN, Oana DAVID: ISSUES REGARDING
REGIONAL DEVELOPMENT AND NATURAL
RESOURCES IN THE APUSENI MOUNTAINS -
ROSIA MONTANA
...65

Florian GRIGORE, Vladimir ROJANSCHI, tefan-Gabriel
DUDUMAN: ASSESSMENT OF COMPLIANCE
OPERATORS IN THE FIELD OF METALLURGY IN
RELATION TO ENVIRONMENTAL LEGISLATION
REQUIREMENT OF ISO 14001
...72

II

Oleg MARGINA, Andreea POPA, Teodor CRISTIAN:
SOLUTIONS FOR THE INDUSTRIAL POLLUTION
CONTROL
...77

Dacinia Crina PETRESCU, Florina BRAN, Ruxandra Mlina
PETRESCU-MAG: THE WATER FOOTPRINT AND
ITS IMPACT ON SUSTAINABLE WATER
CONSUMPTION
...81

ECONOMICAL MANAGEMENT

Constantin ANGHELACHE, Dinu MARIN, Cristian Marian
BARBU: ESTIMATION OF THE REGRESSION
FUNCTIONS TRANSFORMATION
...87

Cristina Otilia ENOVICI, Denisa Elena PARPANDEL,
Mihaela ALBICI: COST CALCULATION IN
FORESTRY THROUGH THE INTRODUCTION OF
THE STANDARD-COST METHOD
...............................................................................................93

Ovidiu NICOLESCU, Ciprian NICOLESCU:
DETERMINANTS OF THE NATIONAL SMEs
STRATEGY
.............................................................................................100

Ion PETRESCU: THE MANAGER IN THE PROCESS
OF THE SUSTAINABLE DEVELOPMENT
.............................................................................................105

Camelia TEFNESCU, Stelian PNZARU, Laura POPA:
CONSIDERATIONS ON THE TOPIC OF QUALITY
MANAGEMENT IN INDUSTRIAL PRODUCTION
.110

Cezar MIHLCESCU, Beatrice SION: IDENTITY
MANAGEMENT IN AN ONLINE WORLD
.114

Gheorghe CARAIANI: ELECTRONIC CONTRACTING
IN INTERNATIONAL TRANSACTIONS
.117

Floarea GEORGESCU: IAS 7: THE CASH FLOW
SITUATIONS - TRANSPOSITION ACCOUNTING OF
CALCULATED REVENUE AND EXPENDITURE
.123

Floarea GEORGESCU : THE STRATEGIC
DIRECTIONS OF THE SUSTAINABLE
DEVELOPMENT IN ROMANIA
.131

Alina Irina POPESCU: SMEs COMPETENCE
BUILDING TO CREATE COMPETITIVE
ADVANTAGES
.134

Constantin BRTIANU, Ana RAMONA: THE
COMPANYS STRATEGIC MANAGEMENT
CONCEPT
.139

Irina POPA, Oleg MARGINA, Georgian ARDELEANU:
ECONOMY OF THE FUTURE THE SUSTAINABLE
ECONOMY
.148

Rocsana ONI, Radu BUCEA-MANEA:
OPTIMIZATION MODELS IN THE DECISION
MAKING PROCESS
.152

Victoria STANCIU, Adrian PAN, Florin BRAN:
BUSINESS CONTINUITY AND DESASTER
RECOVERY PLANS - ORGANISATUIONS
RESPONSE TO THE NATURAL DISASTERS
.155

Cristina PARTAL, Ioana Maria GHIDIU BTA, Angela
ANDREICA: RURAL DEVELOPMENT THROUGH
THE EUROPEAN FUNDS - THE NRDP OBJECTIVES
.............................................................................................158

Alina tefania CRETU, Roberta Mihaela STANEF:
EFFECTS OF GLOBAL FINANCIAL CRISIS
.165

Adriana DUESCU, Georgiana Oana STNIL, Daniela
SAHLIAN, Vlad DUESCU: THE EVALUATION OF
MANAGERIAL ABILITIES WITHIN DENTISTRY.
RESEARCH BASED ON PILOT SURVEY
.............................................................................................169

Romulus ANDREICA, Mohammad Hadi JARADAT,
Cristina ANDREICA: THE COST-BENEFIT ANALYSIS
IN THE MANAGEMENT OF THE INVESTMENT
PROJECTS
.173

Minodora URSACESCU: COMPETITIVE
INTELLIGENCE STRATEGIC MANAGEMENT
INSTRUMENT IN THE CONTEMPORARY
ORGANISATION
.176

III

SOCIAL ENGINEERING AND OTHER ACTIVITIES

Silvia CRISTEA, Camelia STOICA: THE ROMANIAN
REGULATION OF FAMILY ENTERPRISES, AND
HOW IT INVOLVES THE METALLURGICAL
INDUSTRY
.182

Ioana Nely MILITARU: ASPECTS OF NOVELTY
INTRODUCED BY THE TREATY OF LISBON
AMENDING THE TREATY ESTABLISHING THE
EUROPEAN COMMUNITY TREATY CALLED THE
FUNCTIONING OF THE EU TREATY
.186

Camelia STOICA: REGULATING THE CONCEPTS OF
EXECUTIVE AND NON EXECUTIVE POSITION IN
THE TRADE COMPANY LAW NO. 31/1990.
INFLUENCES ON METALLURGICAL COMPANIES
.191

Gabriel I. NASTASE, Dan C. BADEA, Dragos Ionut G.
NASTASE: GENERAL CONCEPTS OF POLITICAL
SCIENCE
.195

Luminia NICOLESCU: GOVERNANCE IN HIGHER
EDUCATION: THEORIES AND PRACTICES
APPLIED IN METALLURGICAL INDUSTRY
.201

Constantin BRATIANU: KNOWLEDGE GENERATION
IN THE ROMANIAN UNIVERSITIES AND HOW IT IS
PRESENT IN MATERIALS SCIENCE
DEPARTAMENTS
.206

Teodora DOMINTEANU: THE DECISION, IN VIEW OF
SPORT MANAGEMENT
.209

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Scientific advisors:

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Prof. Ion DUR, PhD
Prof. Eng. Rudolf URBAN, CSc
Prof. Miroslav KR, CSc PhD,
Prof. Flasar ZDENK, PhD
Prof. Enrico SCARSO, PhD
Prof. Ettore BOLISANI, PhD
Prof. Gheorghe MINCULETE, PhD
Prof. Marcel STOICA, PhD
Prof. Ion IONIT, PhD

Prof. Gheorghe BLIDARU, PhD
Prof. Ioan DONE, PhD
Prof. Hortensia GORSKI PhD
Prof. Vasilica NEGRU, PhD
Prof.ing. Paul Dan BRNDAU, PhD
Prof.ing. Livia Dana BEJU, PhD
Prof. Ioan COSMESCU, PhD
Prof. Gabriela PRELIPCEAN, PhD
Prof. Mircea BOSCOIANU, PhD
Assoc. Prof. Marioara PATEAN,PhD
Assoc. Prof. Rdu BLBIE, PhD
Assoc. Prof. Leontin STANCIU, PhD
Assoc. Prof. Sevdalina DIMITROVA,PhD
Assoc. Prof. Dipl. Eng. Lubo TANCL,PhD
Assoc. Prof. Marieta STANCIU, PhD
Assoc. Prof. Carmen RADUT, PhD
Assoc. Prof. Nelu CRNEANU, PhD
Dipl. Eng. Jaromir MARES, PhD
Assoc. Prof. Mihai CHIRI, PhD
Prof.Eng. Vladan Holcner, PhD
Dipl. Eng. Betislav TPNEK
Dipl. Eng. Pavel OTSAL
Ivana CECHOVA, PhD
Mgr. Radek NEDOMA, PhD
Nikolay MARIN, PhD
Antonella PADOVA, PhD
Nataa POMAZALOV, PhD
Dana ZERZNOV, PhD
Jana BERNKOV, PhD
Radka MOCOV, PhD
Gabriela BELOVA, PhD

Copyright: out of charge, all reproductions are authorized
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The authors take full responsibility of the content of their
articles.

ISSN 1843 6722

Reconstructing European Reality: Turkey and The Pictures in Our Heads, Valentina
PRICOPIE, Romanian Academy, Bucharest........................................................................ 428
Knowledge and Developing Knowledge-Based Systems, Carmen RDUT, Cristina
TENOVICI, Mihaela TURMACU, Constantin Brncoveanu University, Piteti ........... 435
Conformism vs. Autonomy in School. Comparative Study of the Teachers and Students
Options, Adriana RNOVEANU, Carol I National Defence University, Bucharest ..... 439
Lost: Bachelor Students!, Liviu ROSCA, Vlad Andrei BRSAN, Andreea PAROS,
Alexandra TTARU, Lucian Blaga University of Sibiu ................................................. 445
Leaders Becoming and Team Work, Benoni Sfrlog*, Daniel Constantin*, Daniel
Florin Giurc*, Iulia Clarisa Giurc**, *Nicolae Blcescu Land Forces Academy, Sibiu,
**01010 M.U. Tg. Mure....................................................................................................... 449
The Role of Integrated Marketing Communication in Dropout Prevention Social
Programs, Corina ERBAN, Academy of Economic Studies, Bucharest ........................... 454
Generating Effective Emotional Messages in Social Marketing Programs - Fear as a
Tool to Influence Social Behavior, Corina ERBAN, Ana Maria TULUC, Academy of
Economic Studies, Bucharest ................................................................................................. 460
Personnel: the Key Element of an Education Institution Dynamics, Rudolf URBAN,
Zdenk ZEMNEK, University of Defence, Brno, The Czech Republic ........................... 466
Higher Education Institutions in the Knowledge Economy, Diana Elena VASIU,
Hortensia GORSKI, Romanian-German University, Sibiu................................................. 473

Administrative and Juridical Sciences
The Alternative Usage of Law, Claudia ANDRIOI, Eftimie Murgu University,
Reia...................................................................................................................................... 480
Preventive Actions according to the International Law, Gabriela BELOVA, Neofit
Rilski South-West University, Varna, Bulgaria ................................................................... 486
Obligation to Apply the Law by the Judge under the Accusation of Denial of Justice,
Iulia BOGHIRNEA*, Marta Claudia CLIZA**, Olivian MASTACAN***,*University of
Piteti, **Nicolae Titulescu University, Bucharest, ***Valahia University,
Trgoviste............................................................................................................................... 491
Some Considerations on the Classification of Civil Liability Depending on the Certainty
of Completion, Teodora-Aurelia DRGHICI, Nicolae Blcescu Land Forces Academy,
Sibiu ....................................................................................................................................... 496
Considerations regarding the Inheritance Law Report from the General Law Theory
Point of View, Ilioara GENOIU, Valahia University, Trgovite .................................... 506
The Irregular Deposit in the Regulation of the New Civil Code, Ilioara GENOIU,
Olivian MASTACAN, Valahia University, Trgovite .................................................... 512
Globalization in International Law and Organizations, Valentin GIUPAN,
Romanian Intelligence Service, Sibiu .................................................................................... 516
8
KNOWLEDGE AND DEVELOPING KNOWLEDGE-BASED SYSTEMS
Carmen RADUT, Cristina TENOVICI, Mihaela TURMACU

Constantin Brancoveanu University, Pitesti, Romania c_radut@yahoo.com

Abstract: This paper makes an overview on the analysis of knowledge and information fusion to
achieve knowledge management process. Fusion is defined as a process dealing with: the association,
correlation, and combination of data and information from single or multiple sources to achieve
refined, estimates and thorough and timely facts and their significance approached to compose the
basic elements of knowledge, notions about the field of knowledge, definitions, axioms and theorems,
but studies on the abilities and characteristics of KM process and its synergistic effect on knowledge
creation process acquisition and basic methods of knowledge acquisition. The process of building
knowledge base is called knowledge engineering (KE), and involves several tasks, and can be viewed
from two perspectives: restricted and extended. For example the perspective restrictive deal with:
acquisition, representation, knowledge validation, explanation, justification, and their maintenance.
KB is organized repository for collecting knowledge about a field and used for understanding,
formulating and solving problems. Basic elements that are usually included in the knowledge base are
facts (problem area), rules used to solve the problem, global strategy to solve the problem. The paper
highlights the main difficulties in the process of knowledge and how these difficulties can be
overcome.

Keywords: knowledge base, knowledge management, knowledge-based systems

1. Introduction
Knowledge is the combination of data and
information, to which is added expert opinion,
skills and experience, to result in a valuable
asset which can be used to aid decision
making. Knowledge may be explicit and/or
tacit, individual and/or collective
The knowledge management concept, it
should be considered the process of
knowledge in organizations such as storing,
collecting, structuring, sharing, controlling,
creating, disseminating, codifying, using and
exploiting. These processes which are based
on managing knowledge have been evaluated
non-hierarchical order in the knowledge
management literature and describe part of the
knowledge management definition.
Knowledge Management is the management
of activities and processes for leveraging
knowledge to enhance competitiveness
through better use and creation of individual
and collective knowledge resources.
Awad and Ghaziri (2004) say , there are four
processes of knowledge management which
are consist of capturing, organizing, refining
and transferring. After the capturing phase,
captured data or information should be
organized in a way that can be retrieved and
used to generate useful knowledge. One can
use indexing, clustering, cataloguing, filtering,
codifying and other methods can be used. The
third process of knowledge management is
refining. Data mining can be applied in this
phase. Data mining takes explicit knowledge
found in databases and transforms it into tacit
knowledge. The last phase of knowledge
management process is transfer. Knowledge
should be disseminated or transferred by
435
making knowledge available to employees via
tutorials or guidelines for effective use.
The authors Becerra-Fernandez, Gonzalez and
Sabherwal (2004), define knowledge
management process in 4 four steps. The four
KM processes are carried out by seven KM
sub-processes:
a. knowledge discovery which may be
defined as the development of new tacit or
explicit knowledge from data and information
or from the synthesis of prior knowledge.
b. knowledge capture which may be defined
as the process of retrieving either explicit or
tacit knowledge that resides within people
(individuals or groups), artifacts (practices,
technologies or repositories) or organizational
entities (organizational units, organizations,
interorganizational networks).
c. Knowledge sharing is the third step of
Becerra-Fernandez, Gonzalez and Sabherwals
knowledge management processes; may take
place across individuals as well as across
groups, departments, or organizations. As a
result knowledge sharing step has got two
subprocesses in the names of socialization and
exchange.
d. knowledge application, means making
decisions and performing task perfectly in
organizations. It requires knowledge
utilizations benefits from two processes that
do not involve the actual transfer or exchange
of knowledge between the concerned
individuals-routines and directions that are
consist of sub-processes in this step
2. Model in knowledge management
The model in KM makes us to understand
knowledge management processes in
hierarchical order. The five basic processes can
be considered by managing knowledge. These
can be defined as creating, sharing, structuring,
using, and auditing in turn (figure 1).
Knowledge Creating. Two forms of
knowledge can appear while creating
knowledge. These are tacit and explicit
knowledge which are embedding in
organizations products, services and work
processes after creating. The explicit
knowledge can be defined as words, diagrams,
or photographs that can not convey
information that can be understood by direct
pointing, or demonstrating, or feeling
(Collins, 2001). Explicit knowledge is
technical or academic data or information that
is described in formal language, like manuals,
mathematical expressions, copyright and
patents. It is gained through formal education
or structured study and codifies, stores,
hierarchy of databases and accesses with high
quality, reliable, fast information retrieval
systems (Smith, 2001). Therefore, explicit
knowledge is easy to structure and retrieval.

Figure 1: The KM processes
Knowledge Creating
Explicit
Knowledge
Tacit
Knowledge
Knowledge Sharing
Technical comm.infr. Social comm.infr.
Knowledge Structuring
Information Storaging Information Mapping Information Retrieving
Knowledge Auditing
Measuring Intellectual
Capital
Auditing Knowledge Assets
Knowledge Useing
Service Product Process
436
Knowledge Sharing. The ways and tools
for effective knowledge sharing as follows:
formal social communication network,
informal social communication network,
teamwork, communities of practices,
organizational learning and, formal
structured technological communication
networks.
Knowledge sharing involves creating
knowledge by individuals and groups with
their interactivity and connectivity in
organizations. Knowledge sharing is carried
out by social and technical communication
channels (Alavi and Leidner, 2001).
Knowledge Structuring. After
constructing a perfect infrastructure system
for knowledge sharing; data, information
and knowledge should be structured in
order to store in organizations database for
the future needs. Structuring knowledge is
based on sorting, organizing, codifying,
analyzing, and reporting information that
provides information retrieval what
organization needs in the future. Knowledge
structuring is frequently processed by
technical communication infrastructure
which includes structuring databases,
organizing data for analyzing, taxonomy of
data, clustering/ managing databases
(Awad and Ghaziri: 2004).
Knowledge Using. Organizations use
knowledge for three reasons: 1) Knowledge
can be used for determining organizations
work processes and making strategies for
sustainable competitive advantage. 2)
Knowledge can be used for designing and
marketing product. 3) Knowledge plays a
critical role of organizations services
quality (Nonaka, 1995).
Knowledge auditing means what amount
of knowledge can be used in organizations
products, services and processes. This
knowledge management life cycle stage
refers to the capacity of information
processing in organizations. In other words,
what amount of information and knowledge
are created, shared, stored, and used in
organization in a certain time helps us to
determine information capacity in
organizations. The knowledge audit
provides value when company is doing one
or more of the following: devising a
knowledge-based strategy, architecting a
knowledge management blueprint or
roadmap, planning a build a knowledge
management system, planning research and
development, seeking to leverage its people
assets facing competition from knowledge
intensive competitors that are far ahead on
the learning curve, striving to strengthen its
own competitive weakness looking for
direction for planning a market entry or
exist strategy (Tiwana, 2000).
Another critical factor for auditing
knowledge in organization is measuring
intellectual capital, intangibles such as
information, knowledge and skills that can
be leveraged by an organization to produce
an asset of equal or greater importance than
land, labor and capital.
2.1. A knowledge-based system (KBS)
The knowledge-based system (KBS) is a
software system that contains a significant
amount of knowledge in an explicit,
declarative form. The area of KBS
development has matured over the past two
decades. It started with first-generation
expert systems with a single flat knowledge
base and a general reasoning engine,
typically built in a rapid-prototyping fashion.
This has now been replaced by
methodological approaches that have many
similarities with general software
engineering practice. Similar to other
software systems, a methodological
approach is essential for KBS development.
The business modelling, conceptual
modelling, and communication modelling
provide the requirements for building the
KBS software. KBS design and
implementation is not inherently different
from general software design. Exploratory
prototypes may be required to find out
whether the system behaves in the manner
expected by the users and domain
specialists. For this reason, much emphasis
is placed on KBS design on clear, almost
transformational, routes from analysis to
437
design. This is in line with modern
developments in object-oriented system
development. Also, knowledge changes
over time and continuous maintenance is
often required. This creates the need for
editing tools that enable a domain specialist
to update the knowledge in the system
(figure 2).

Figure 2: Activities in KBS construction

2.2. Business modelling
Business modelling is concerned with modelling
business processes in which we are interested
from a knowledge point of view. The reason for
creating business models is that they provide a
description of the overall context in which the
knowledge model must function. It allows for an
analysis of the actual needs for knowledge-
intensive applications, and gives a first inventory
of the knowledge that needs to be modelled. In
this section, we briefly describe the components
of a business model.
3. Conclusions
Knowledge-based technology has become an
accepted technology. Different and more severe
requirements count nowadays when developing
knowledge-based solutions compared to the
early days. What started from laboratory
systems developed into full production systems
supporting up to thousands of users and batch
jobs and supporting mission-critical industrial
and space travel processes. The development
environments have a corresponding reliability.

Bibliography
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conceptual foundations and research issues, MIS Quarterly, 2001
Awad, M.A., Ghaziri, H.M., Knowledge Management. Upper Saddle River, New Jersey:
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Nonaka I., Takeuchi H., The Knowledge-Creating Company: How Japanese Companies
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438
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L LA AN ND D F FO OR RC CE ES S A AC CA AD DE EM MY Y

THIS EVENT IS ORGANIZED BY NICOLAE BLCESCU LAND FORCES ACADEMY IN
COLLABORATION WITH THE NATIONAL AUTHORITY FOR SCIENTIFIC RESEARCH

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T Th he e K Kn no ow wl le ed dg ge e- -B Ba as se ed d O Or rg ga an ni iz za at ti io on n

APPLIED TECHNICAL SCIENCES AND
ADVANCED MILITARY TECHNOLOGIES

C CO ON NF FE ER RE EN NC CE E P PR RO OC CE EE ED DI IN NG GS S 3 3

25-27 NOVEMBER 2010

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P PU UB BL LI IS SH HI IN NG G H HO OU US SE E
S SI IB BI IU U, , 2 20 01 10 0

Scientific advisors:

P Pr ro of f. .E En ng g. . G Gh hi i B B R RS SA AN N, , P Ph hD D
P Pr ro of f. .E En ng g. . O Oc ct ta av vi ia an n B BO OG GD DA AN N, , P Ph hD D
P Pr ro of f. .E En ng g. . C Cl la au ud di iu u K KI IF FO OR R, , P Ph hD D
P Pr ro of f. .E En ng g. . G Gh he eo or rg gh he e O OL LA AR RU U, , P Ph hD D
P Pr ro of f. .E En ng g. . T Tu ud do or r P PA AL LA AD DE E, , P Ph hD D
P Pr ro of f. .E En ng g. . A An nd dr re ei i P PO OG G N NY Y, , P Ph hD D
P Pr ro of f. .E En ng g. . G Gh he eo or rg gh he e S SA AM MO OI IL LE ES SC CU U, , P Ph hD D
P Pr ro of f. .E En ng g. . A Al le ex xa an nd dr ru u S SO OT TI IR R, , P Ph hD D
S SR R I I V Va as si il le e C C R RU U A A U U, , P Ph hD D
A As ss so oc c. .P Pr ro of f. .E En ng g. . B Be ea az zi it t A AL LI I, , P Ph hD D
A As ss so oc c. .P Pr ro of f. .E En ng g. . P Pa au ul l B BE EC CH HE ET T, , P Ph hD D
A As ss so oc c. .P Pr ro of f. .E En ng g. . V Va as si il le e D DO OB BR RE EF F, , P Ph hD D
A As ss so oc c. .P Pr ro of f. .E En ng g. . L Lu um mi in ni i a a G GI IU UR RG GI IU U, , P Ph hD D
A As ss so oc c. .P Pr ro of f. .E En ng g. . A A. .M M. . G GO ON N A AL LV VE ES S- -C CO OE EL LH HO O, , P Ph hD D D DH HC C
D Di ip pl l. .E En ng g. . J Ja ar ro om m r r M MA AR RE E , , P Ph hD D
A As ss so oc c. .P Pr ro of f. .E En ng g. . S Si im mo on na a M MI IC CL L U U , , P Ph hD D
A As ss so oc c. .P Pr ro of f. .E En ng g. . D D n nu u M MO O T TE EA AN NU U, , P Ph hD D
A As ss so oc c. .P Pr ro of f. .E En ng g. . G Gh he eo or rg gh he e R RA A I IU U, , P Ph hD D

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ISSN 1843 6722

Mathematical Modelling of Projectile Motion inside Barrel of Artillery System, Vasile
TITICA**, Doru SAFTA**, Ioan ION**, Mdlin BARBU*, *01557 M.U. Sibiu,
**Military Technical Academy, Bucharest............................................................................ 159
A New Partial Sorting Algorithm, Paul VASILIU, Mircea cel Btrn Naval
Academy, Constana .............................................................................................................. 163
A New Fast Sorting Algorithm, Paul VASILIU, Mircea cel Btrn Naval Academy,
Constana ............................................................................................................................... 168
Linear Filtering Problems, Ramona-Anamaria VASIU, Romanian-German University
of Sibiu................................................................................................................................... 172

Decision Support Systems and CBRN in Military Operations
Decisions in Risk and Uncertainty Conditions, Mihaela ALBICI, Delia TESELIOS,
Cristina ENOVICI, Constantin Brncoveanu University, Piteti ................................. 176
How Management Theory Must Work in the Logistics Systems of Industrial
Organisations, Dorel BADEA, Silviu Mihai PETRIOR, Nicolae Blcescu Land Forces
Academy, Sibiu...................................................................................................................... 182
Technological Risk Analysis. Impact Analysis for Industrial and Transport Accidents,
Cosmin-Laureniu BALCU*, Monica Oriana BEJENARU*, Ionela NISTOR*, Lucian
TREFA*, Dnu MOTEANU**, *Inspectorate for Emergency Situations, Sibiu,
**Nicolae Blcescu Land Forces Academy, Sibiu............................................................. 188
Zirconia Ceramics Obtained from Ultrafine Powders, Mariana BARBARESSO,
Military Equipment and Technologies Research Agency, Clinceni ...................................... 193
Mathematical Model for the Designing of the Graduates Building-Up Level of Using
Competence Descriptors, Ghi BRSAN*, Daniel CONSTANTIN*, Vasile
NSTSESCU**, *Nicolae Blcescu Land Forces Academy, Sibiu, **Military Technical
Academy, Bucharest............................................................................................................... 197
Aspects regarding the Engineering Missions Support at Land Force Level, Eugen
BOAMB, Radu DUMITRU, Military Technical Academy, Bucharest...................................... 203
The Use of Optimization Techniques in Multidimensional Modeling and Analysis of
Data Stored within the Interactive Information System of the Organization, Florian BUE,
Gheorghe-Florin BUE, University of Petroani ................................................................ 208
Decisional Process Optimization for Increasing the Management Efficiency of the
Medium Size Organizations, Dorin CHIRCA, Training Center for Communication and
Information Technology, Sibiu ............................................................................................. 216
Consideration regarding the Testing of the New Individual Decontaminating Kit Based
on Solid Sorbents Exclusively, Georgiana CIOFRNGEANU*, Georgeta Livia MITRU*,
Alexandru BOBE TUREAC*, Viorel ORDEANU**, Bogdan PATRINICHI**,
*CBRN Defence and Ecology Scientific Research Centre (CCACBRNE), Bucharest,
**Army Medical Research Centre (CCMM), Bucharest..................................................... 222
5
DECISIONS IN RISK AND UNCERTAINTY CONDITIONS
Mihaela ALBICI, Delia TESELIOS, Cristina ENOVICI

University Constantin Brncoveanu, Piteti, Romnia, mturmacu@yahoo.com

Abstract: Decision making results from the occurrence of a troubling issue which requests a certain
solution. Decision making must start when the issue is rightly posed which involves the analysis of
available data, the selection of significant ones and the necessary formalization. The next step is
solving the issue by means of operations, instruments and logical, algorithmic and heuristic
techniques. Decision making itself intervenes in the selection of solutions obtained which can be
unique optimal or interval solutions sub-optimal solutions. The last step means assessing and
upgrading the solution. A decisions objectiveness is assimilated with a risk situation when it is
objectively obvious that there are chances that potential natures states ( a nature state is a potential
configuration of decisional environment which along with the knowledge about individual actions
entirely generates all consequences[1] ) might occur as well as regarding the results associated to
each state. As far as risk situation is concerned, decisions subjectivity corresponds to uncertainty,
when either the chances of nature states occurrence cannot be objectively appreciated or one does
not have any data about nature states. Uncertainty means partially or totally knowing the
probabilities to accomplish an actions potential results. Economic decision making is the action
direction chosen consciously when managing an enterprise among a certain number of possibilities
with the purpose to achieve goals in maximum efficiency contexts.

Keywords: decisions, risk, uncertainty, conditions

1. Introduction
Decision making always and necessarily
implies human actions, which, when facing
an external event (information) must
identify the events future status and set up
the potential action ways leading to
suggested goal accomplishment[6].
Decision theory involves three premises
that ensure judgments convergence [3]:
Currency utilitys being linear for
various decision makers. In 1738, Bernoulli
showed in Petersburg paradox that the
economic significance of an additional
currency unit is inversely proportional to
the number of currency units held. M.
Kalecki stated an increasing price law of
risk where he showed that if a price goes
up, the cost of assuming it goes up even
faster;
A decision maker does not disagree or
agree with risk accepting a risky situation
is not due to agreeing with risk, and
avoiding it is not the cause of disagreement;
In any circumstances, a decision maker
tries to maximize the value or anticipated
utility of reward.
If there are two or more nature states, the
way to make decisions depends on the
information about the prospects to
accomplish nature states.
Risk is a social, economic, political or
natural category whose origin lies in the
uncertainty that may or may not generate a
damage because of hesitation and
unconsciousness when making decisions.
Analyzing decisional issues in risk
conditions involves the assessment of
decision alternatives and their
176
consequences as decisions effects are not
surely known. In such cases, the optimal
action way is the one maximizing
anticipation, respectively showing a results
potential or anticipated value.
2. Mathematical hope
Decision making in risk conditions means
several nature states have accomplishment
probabilities comprised between 0 and 1.
If
1
p probability when accomplishing
1
N
state and
2
p probability when
accomplishing
2
N state are known,
decision making takes place in risk
conditions and solving means the set-up of
utilities mathematical hopes for each
alternative and the choice of alternative to
which maximum utility mathematical hope
corresponds.
Mathematical hope is the well-balanced
average size of an activitys results, the
shares being equal to the probabilities of
events or nature states.
( )
( )
=
j
j ij V
x p R S
i
m i , 1 = , (1)
( ) [ ] 1 , 0
j i
x p , ( )
=
j
j
x p 1
where:
j
x = random phenomena typical of
an issue; ( )
j
x p = probabilities of their
production; ( )
i
v S = mathematical hope of
results in
i
V variant;
ij
R = decisional
consequence related to variant i and
objective state j.
The optimal variant is the one meeting the
relationship:
( ) { }
i opt
v S V max = (2)
Application 1. A trade company launches a
new product on the market. The market
conjecture may be favourable, relatively
favourable or unfavourable to the new
product. The company has set up three
strategies referring to the launching lot size
estimating the economic results for each,
according to the market situation (Table 1).
The aim is to find out the launching
strategy that might lead to a maximum
profit using mathematical hope.
Table 1 The companys strategies values according to the market structure
Market
Lot
Very favorable Relatively favorable Unfavorable
1
L 1500 48 23 - 10
2
L 1300 34 18 - 8
3
L 1100 20 14 - 5
Nature state probability 0.3 0.5 0.2
( ) ( ) ( ) ( ) [ ]
6
1
10 9 , 23 10 2 , 0 23 5 , 0 48 3 , 0 = + + = L S
( ) ( ) ( ) ( ) [ ]
6
2
10 6 , 17 8 2 , 0 5 , 0 18 3 , 0 4 , 3 = + + = L S
( ) ( ) ( ) ( ) [ ] 12 5 2 , 0 14 5 , 0 3 , 0 3 , 20
3
= + + = L S
Using the method of mathematical hope,
the strategy bringing maximum profit is the
first one, namely launching a lot of 1,000
products.
3. Shannon entropy a measure of
uncertainty
When trying to formalize behaviour, it is
essential that facts should be inserted about
uncertaintys being inseparable from human
thinking and dominating most judgments.
Since one should give up the objective
measure concept, there has to be an
assessment, comparison, graduation or
relation. Incorporating these concepts with
subjective nature is a basic activity for the
better knowledge of the analyzed
phenomenon. Thus, a state which cannot be
measured but preferred to another goes up
to a higher knowledge level [4].
Uncertainty can be specified by means of
probabilities theory. The expected utility is
defined as a probabilistic construction
where the expectation operates by
including the uncertainty due to nature
states. The theory of expected utility was
originally created by Bernoulli, and the
axiomatic growth was stated by Von
Neumann and Morgenstern in 1944.
Therefore, utility function is defined on the
set of goods (goods generically mean the
complete list of products, services, revenue
or time units involved in decision making.
177
[1]), not on the corresponding
configurations. Arranging preferences is
done according to the expected value of
utility function.
In uncertain conditions, events are the
potential states of nature and therefore
decision making involves considering
their ( )
i
x p probabilities meaning a unit
partition. The amount of average
information a decision maker receives is the
well-balanced average of information
amounts that each nature state associates
with ( )
i
x p probabilities and it bears the
name of informational entropy which is a
concept defined by Shannon, involving
probabilities both in the stage of
information spring seen as a random
process, and in the stage of gathering the
results of transformations upon information.
Let
( )
m i
i
i
x p
x
x
, 1 =
= , 1
1
=
=
m
i
i
p (3)
be a discrete random variable with
i
x
values. A Shannon mere entropy associated
with x random variable or probabilistic
repartition ( )
m
p p p P ,..., ,
2 1
= is the
expression:
( ) ( ) ( ) ( )

= =
= =
m
i
i i i
m
i
i
x p x p x h x p H
1 1
ln ,
1
1
=
=
m
i
i
p . (4)
where ) (
i
x h = relative importance of
information.
Defining entropy according to the amount
of information, to the information based on
probabilities and taking account of the fact
that probabilities classical theory is one of
the methods to approach decision making in
uncertain conditions make entropy an
operational instrument for decision making
when uncertainty is present.
Decisional subjectivity corresponds to
uncertainty when either the chances of
nature states occurrence cannot be
objectively assessed partial uncertainty,
or there are no data on nature states pure
uncertainty. The preferences associated
with each decision maker intervene in both
situations.
There are two main categories of subjective
influences upon individual decision
making:
- The influences exerted by other players of
decision making;
- Subjective probabilities.
According to Knight [5], the first category
includes involvement as a measure of
existing internal and external concerns,
direction which can generate conflicts due
to divergent trends and the way to exert
authority.
Among the elements in the process of
subjective estimation of decisional
probabilities, one should mention the
decreasing balance of remote events in a
geometrical progression, the selective
perception of reality, the varying degree of
informations representativeness, the scope
of decision making reasonableness concept.
Decisional reasonableness is regarded in
three ways: logically subject to the
principles of decisional identity, excluded
third party and sufficient reasoning,
informationally a decision may seem
irrational if its assessor does not have the
additional information that a decision
maker has and the regulatory and social
way the rules of economic behaviour are
regarded as restrictions by economic
decision making.
Several specifications have been made
regarding significant parties, making
generalization come true [2] in terms of
probabilities subjective approach:
- Decision makers estimate that an event
which has not occurred within a longer
period of time has higher occurrence
probability in the future;
- Decion makers overestimate the
probabilities of favourable events and
underestimate the probabilities of
unfavourable ones;
- Decision makers tend to overestimate the
occurrence of low probability events and
underestimate the occurrence of events
having high emergence probability.
If nature is one of the participants, decision
making can enter the realm of uncertainty
178
when there are no data about the
probabilities to achieve nature states.
4. Criteria used for solving decisional
matters in uncertain conditions
a. The pessimistic criterion (the rule of
Abraham Wald 1950)
It starts from the idea that the best variant is
the one supposing maximum advantages
when optimal conditions are most
unfavourable. Thus, considering the
decisional matrix as in Table 2:

Table 2 Decisional matrix
j i
C V
1
C
2
C .
n
C
1
V
2
V
-
-
-
n
V
11
R
12
R R1n
21
R
22
R .
n
R
2

- - -
- - -
- - -
1 m
R
2 m
R
mn
R
where:
i
V =decisional variant;
i
C = natures
objective state;
ij
R =decisional consequence
related to variant i and objective state j. The strategy chosen
( )
ij
j i
opt
R V min max = (5)
or, in other words, the possible minimum
efficiency maximizes. Some authors also
identify a choice for exceedingly prudent
managers:
=
ij
j i
R v min min . It is thought
that such prudence can be associated to
small companies whose survival depends
on the size of losses.
b. The optimistic criterion aims at
choosing the optimal variant when optimal
conditions are most favourable.
( )
ij
j i
opt
R V max max = (6)
c. The criterion of average optimism (the
rule of Leonid Hurwicz 1951) associates
each strategy with a pair of complementary
probabilities ( ) 1
2 1
= + p p so that
1
p
should describe the most advantageous
situation and
2
p the least advantageous
one.
1
p coefficient is also called players
optimism. Applying the criterion supposes
several iterations:
- adopting optimism coefficient:
1 0
1
< < p
- setting up
i
H elements according to the
formula:
( )
i i i
a p A p H
1 1
1 + = (7) (
i i
p A p H
1 1
1 + =
where:
i
A = the element of maximum
utility;
i
a = the element of minimum
utility on each line;
- choosing the best variant which
corresponds to the variant having the
highest
i
H :

i
i
opt
H V max = (8)
It is important to notice that if extreme
values are given to
1
p optimism
coefficient, one reaches the solutions given
by the pessimistic ( ) 0
1
= p or optimistic
criterion ( ) 1
1
= p :
i i i i
A a A H = + = 0 1 (9)
ij
j i
i opt
R A V max max max = = (10)
i i i i
a a A H = + = 1 0 (11)
ij
j i
i opt
R a V min max max = = (12)
The result of this criterion depends on the
value of optimism coefficient which is
closely related to decision makers
behaviour. By comparing
i
H values, the
optimism coefficient can be set up which
involves the fact that a variant becomes
more preferred than another. It is
interesting that if a strategy corresponds to
more than two decisional consequences
leaving the most advantageous and
disadvantageous ones aside, the others
receive zero obtaining probability.
According to Hurwiczs criterion, a
decision maker behaves as if there were
only two potential extreme manifestations.
179
d. The proportionality criterion stated by
Bayes Laplace in 1825 starts from the
idea that each state of objective conditions
has the same occurrence probability and
the best variant is the one for which the
mathematical average of results d. d)
The proportionality criterion stated by
Bayes Laplace in 1825 starts from the
idea that each state of objective conditions
has the same occurrence probability and
the best variant is the one for which the
mathematical average of results
corresponding to the considered state is
most favourable.
=
=
n
j
ij opt
R
n
V
1
1
max (13)
e. The criterion to minimize regrets stated
by Leonard F. Savage 1951. A strategy
must be therefore chosen after assessing
the difference between the best results
value corresponding to nature state and the
other results value according to which the
best variant is the one involving the least
regret.
This criterions functioning involves:
- setting the regrets matrices where every
element is obtained by subtracting the
maximum element in the column from its
original value (the regrets matrix is
obtained according to the dimensional
matrix).
ij
j
ij ij
R R r max = (14)
- setting the maximum values of regrets
obtained and, among them, the minimum
value in each variant.
( )
ij
j i
opt
r V max min = (15)
This criterion applies to certain investment
projects during a longer period of time.

Application 2. An arms factory produces
the following types of military weapons:
assault rifles, machine guns, grenade
launchers and pistols. It is intended that the
selling of products to be made as follows:
direct sales (own stores); sales through
agents and sales on foreign markets.
Considering the situation of the internal
and external market, there are estimated
the following rates of increasing the profits
by product category and sales methods
(Table 3).

Table 3 Decisional matrix
Natures objective
state
Decisional
variant

Own stores

Sales through agents

Sales on foreign
markets
Assault rifle 30 18 -9
Machine gun 45 -27 6
Grenade launcher 54 12 -15
Pistol 62 15 -14

To be determined the optimal version that
leads to a maxim profit.
a) The pessimistic criterion:
max (-9, -27, -15, -14) = -9
The optimal version: selling assault rifle
on the external market
b) The optimistic criterion:
max (30, 45, 54, 62) = 62
The optimal version: selling pistols in own
stores.
c) The criterion of average optimism:
p
1
=0.5
We calculate the H
i
elements as follows:
H
1
= [0.5*30 + 0.5*(-9)] = 10.5
H
2
= [0.5*45 + 0.5*(-27)] = 9
H
3
= [0.5*54 + 0.5*(-15)] = 19.5
H
4
= [0.5*62 + 0.5*(-14)] = 27
The optimal version:
V
optim
= max{10.5; 9; 19.5; 27} = 27
V
optim
= V
4
180
d) The proportionality criterion:
S
n
=
=
n
j
ij
R
n
1
1

S
n
=
3
1
*(30+18-9) = 13
S
n
=
3
1
*(45-27+6) = 8
S
n
=
3
1
*(54+12-15) = 17
S
n
=
3
1
*(62+15-14) = 21
V
optim
= V
4
e) The criterion to minimize regrets:
r
ij
=
20 3 0
21 6 8
0 45 17
15 0 32

V
optim
= min(32, 45, 21, 20) = 20
V
optim
= V
4
5. Conclusions
Decision, the most efficient adjusting and
self-regulation tool in a dynamic
environment, involves choosing among
two or more posible variants the optimal
one. A decisin efficiency represents the
result of its transposing into facts, that is
the relation between the usefull economic-
social effect and the economic-social effect
used for its foundation and its taking
judging the decisin efficiency takes place
in a mobile environment: a judiciously
taken decisin can lead to bad effects when
the conditions for which it was taken
change: and viceversa more favorable
conditions can cause good effects in
unproper decisions.

References
[1] Albici, M., Belu, N., Tenovici, C., Economic decisions in uncertainty conditions,
University Library of Munich, Germany, 2009, http://mpra.ub.uni-muenchen.de/17954.
[2] Andronic, B., C., Company Performance, Polirom Publishing House, Iai, 2000, p. 157.
[3] Belu, N., Albici, M., Economic decisions in risk conditions, University Library of
Munich, Germany, 2009, http://mpra.ub.uni-muenchen.de/17611
[4] Cooke, S., Slack, N., Making Management Decisions, Prentice Hall International, U.K., 1991.
[5] Coea, M., Nastovici, L., Risk Assessment. Analysis Methods and Techniques at Micro-
and Macro-Economic Level, Lux Libris, Braov, 1987.
[6] Gil Aluja, J., Towards a New Concept of Economic Research, Fuzzy Economic Review,
no. 10/1985, Spain.
[7] Knight, F.,H., Risk, Uncertainty and Profit, University of Chicago Press, Chicago, 1985.
[8] Prez, R., Como decidir, Editorial Cangallo, Buenos Aires, 1981
[9] Puiu, A., Management. Analize i studii comparative, Ediia a doua, Ed. Independena
Economic, Piteti, 2004

181
www.hrmars.com/journals
InternationalJournalofAcademicResearchinAccounting,FinanceandManagementSciences
January2012,Volume1,Issue1

Placeoftheeuroandtheeuropeanmonetarysystem
ontheinternationalscene
MihaelaALBICI
ConstantinBrancoveanuUniversity
FacultyofManagementMarketinginEconomicAffairs,
Pitesti,Romania
THTTUmturmacu@yahoo.comUTTH
DeliaTESELIOS
ConstantinBrancoveanuUniversity
FacultyofManagementMarketinginEconomicAffairs,
Pitesti,Romania
HTUdelia_teselios@yahoo.comUTH

ABSTRACT All national authorities always world economic powers battled for holding world
supremacy in the markets. Main tool which focuses all their attention is the currency,
whether national or regional basis. It want such as this to be one international currency
giventheadvantagesarisingfromthisStatute.Inthisbattleatpresenttwomajoractors
are involved, namely the US dollar and euro. The present work is intended as a brief
overviewofthisstruggletohighlighttheroleoftheeuroontheinternationalscene.
KEYWORDS international currency,euro,internationalrole,americandollar

JELCODES F30,F31,
1.INTRODUCTION:
Sincetheadventofthefirstcoinsascentralelementfortheconversionoftheirtradeflows,issuers
havestruggledtomakeitsowncurrencytoholdsupremacy.Incurrenttimesthissupremacyisownedby
the American currency, dollar, and the second international currency, the euro is accepted in recent
times,despitetheturmoilbypassing,seemstogaingroundinfrontofit.However,thebigchallengeisto
reachfirstplaceastheinternationalcurrency,buttoremainthere.
In order to highlight the place and the role that owns the single currency and by implication the
European Monetary System on the international scene in my view is that we should start with a brief
overviewofwhatinvolvesthestatusofinternationalcurrency.
2.ROLEOFEUROASINTERNATIONALCURRENCY:
I began by choosing a definition of what it is the concept of international currency, which to me
seemedveryconvincinginthisregard,namelythedatebyHartmannandIssingintheiroperasince2002PF
1
FP .
Bythatdefinitionitissaidthataninternationalcurrencyisacurrencywhichisusedbothbyresidentsof
theissuingcountryorregion,butalsobynonresidents.Italsonotedthatinternationalroledependson
TP
1
PT Hartmann P. and Issing O. The International Role of the Euro, Journal of Policy Modeling 24, North
Holland, 2002, pp.315-345
theweightofacoinwithwhichitisusedbynonresidentStatestoweightsoftheothercurrenciesused
bythem.Moreover,theincreasingtrendsofexchangeratesandinterestratesexpressedinthecurrency
beinganalyzedtodeterminetrendsofincreasingthesameindicatorsexpressedinothercurrencies.
In order for a currency to fulfill this role by international currency it must meet three important
functions to find its usefulness both in public sector activities and those of the private sector, of course
taking into account specific to each of the sectors characteristics, so these functions we have played
brieflyinthefollowingfigure:
Asshowninthefigureabove,astheunitofaccountintheofficial(governmental)andtheeurois
used as a reference currency (anchor), while in the private environment is used as the denomination
currency. As the unit of account, international currency is used in the pricing of goods, but also to the
issuanceofbondsorthedefinitionofabankloan.Whatmakesitdifferentfromthemeansofpaymentis
that the prices could be established in a particular currency while payments are set in a different
currency. National authorities shall use the international currency as the currency reporting when he
lashedititsowncurrency.
Asstoreofvalue,theinternationalcurrencyisusedbothbythepublicsectorandprivatesector
tomaintainthevalueofsavings.Themotivationoftheprivatesectortoprivateinvestorsdesiringstartsto
find that zerosum game between the diversity of costs and risks. On the other hand, the motivation of
thepublicsectortouseinternationalcurrencyasthestoreofvalue,namelyareservecurrency,willvary
PUBLICSECTOR PRIVAT
UNIT OF ACCOUNT
STORE OF VALUE
WAYOFPAYMENT
OR
THEFUNCTIONSOFTHE
INTERNATIONALCURRENCY
Currencyreporting
(Anchor)
Areservecurrency
forcentralbanks
Currency
interventionon
forexmarkets
Denomination
currency
Currency
investment
Intermediate
currency
basedontheexchangerateregime.Mayresembleprivateholdersoptimization,ormaybecommittedto
theexchangeratemanagement.
The third function of a coin, one for international payments, highlights that it can be used by
residents in trade and capital flows. Private residents use this currency as an intermediate value in
transactionsbetweentwosmallcoins.Butthemonetaryauthoritiesandusinginternationalcurrencyasa
wayofpaymentwherenecessaryinterveneontheforeignexchangemarket.
Butallsixfunctionsofaninternationalcurrenciesarenotentirelyseparate,buttherearecertain
synergies between them shown in the figure below, and then debated the channels by which they have
heldthesesynergies.
Thetransactioncosts.Giventhefactthatthemarketforaninternationalcurrencyintermediationis
bothbroadanddeep,transactioncosts arelowsothatthemonetaryauthoritiesprefertousethesame
currency for their own interventions while private holders shall maintain assets denominated in that
currency.
Safestocks.Functionofdenominationdeterminestheexistenceofcertainhighlysafetycase,which
givestheopportunitytogrowbothasastoreofvalueandasawayofpayment.
Incentive policy. Refers to the fact that national monetary authorities will boost its Anchorage
International coin currency, where a large proportion of trade flows and the capital are denominated in
that currency. This is used to protect the national currency of any adverse effects of exchange rate
fluctuations.
Instrumentofpolicy.Whenaninternationalcurrencyisusedastheanchorisnecessarytomaintain
theofficialreservesandtointerveneonthedomesticcurrencytoprotectthisreporting.
The risk. The incentives used for revaluation of capital and trade flows in a specific international
currency,aswellasmaintainingassetsinthatcurrencyorforthedepositvalueorfortheAgencyincrease
ifthecurrencyisalsousedasthereferencecurrency.Thisisbecausetheriskofexchangeratevariations
islowwhichmakesthehedgeoperationstobeeitherunnecessaryorlessexpensive.
After I saw above what are functions of an international currency briefly I resume which are the
mostimportantfactorsareaskingthefootprintontheroleofsuchcoins.
Privatsector Publicsector
Intermediatecurrency Interventioncurrency
DenominationCurrency Anchorcurrency
Investmentcurrency Reservecurrency
Transactioncosts
T
r
a
n
s
a
c
t
i
o
n
c
o
s
t
s
Risk
ofstimulation
Risk
Policy instrument
Policy instrument Securities stocks
Policy
The first of these is represented by size, liquidity and the opening of national financial markets.
Largeandliquidfinancialmarketsattractforeignagentsbecauseitindicatessomelowtradingcosts.Itis
necessarytohaveafinancialmarketwithlotsofliquidtoolbarthatmakeitpossibletomanagecurrency
andinterestrate.
The second factor is the stability of and confidence in the future stability of the international
currencies.
The last factor that I wanted to mention is the size, strength and the existence of international
relationsofthenationaleconomy.Whenacountryoraregionplaysanimportantroleintheeconomyof
theworlditscurrencymaybereusedinothertransactionsbyforeignagentsandtheywillaccepteasily.
Toallinternationalfactorsmentionedbeforemayaddthetraditionofthatcoin,butalsothelegacy
whichheacquiredfrompredecessors.
Theproblemis,however,thatwouldbethebenefitsandriskswhichwouldresultfromtheroleof
internationalcurrency.Iwilloutlinebelowthesebenefitsandrisks,theywillbesubjecttoseveralstudies
overtheyears.
As I noted at the outset, the second international world currency is the euro, even if it is going
through a period not to precisely fit for her evolution. Weighting instruments denominated in the single
currency has shown considerable stability in most market segments throughout the year 2010. It was
noted,however,aslightdepreciationofthecurrenciesagainstthedollarinthefirsthalfof2010,butalso
acomebackinthesecondhalfoftheyearconcerned.
International currency
Benefits Risks

International
seignorage
Reduce the
costs of
transactions
Macroeconomic
flexibility
Leverage
policy
(hard power)

Reputation
Currency
appreciation

External

Responsibility for
monetary policy
Table1IndicatorsoftheinternationalroleoftheEuro
ShareofEuro(%) Indicators
2010 2009
Inventoryofglobalcurrencyreserves 26,3 26
Internationaltitles(globally) 26,7 27,2
Dailyforeignexchangemarket
turnover
19,5 18,5
Crossbordercredit 19,1 18,6
Crossborderdeposits 21,6 20,4
ExportsoutsidetheEuroarea 68 67,4
ImportsfromnonEuroarea 53,5 48,6
Foreignholdingsofeuro
areadebtdenominatedineuro
18 17
In the above table shows that the Euro area has held over the past two years nearly constant
weightintheglobalstockofinternationalreserves(withaslightincreasein2010)ofapproximately26%.
Of the total international securities traded globally in 2010, a rate of 26.7% have been in the single
currency, they know a slight decrease of 0.5% compared to 2009. As regards the situation of bank
accounts in the year 2010, a crossborder loans in the euro had a rate of 19.1% to 0.5% more than in
2009.
Overall it is observed that the single currency, the euro, yet retains its status as a second
internationalcurrency with regional vocation, the US dollar remains at its condition of first international
currency,backedbythecrowdconditioninfinancialmarketsandlargeliquidheowns.
Being considered a intrenaional currency, euro currency function performs default reference as
follows:
Table2CountrieswithExchangeraterelativetotheEuro
Region Exchangerateregime Countries
EU (nonEuro
Area)
ERMII
Independentfloating
Denmark, Latvia, Lithuania, Romania,
Bulgaria,CzechRepublic
UnitedKingdom,Hungary,Poland,Sweden
EU candidate
countries and
potentialcandidate
The unilateral passage
totheEuro
Floating with the Euro
asthereference
Kosovo, Montenegro, Bosnia and
Herzegovina
Croatia,TheFormerIugolaviaRepublic,The
RepublicOfMacedonia
Others UnilateralusingofEuro
Reference based on the
Euro
Exchange rates are

based on the SDR basket
includes Euro (percentage of
euros)
The European microstates, the French
territorialcommunities
Economic and Monetary Union of West
African economic and Monetary Community of
CentralAfrican,FrenchPolynesia,NewCaledonia,
WallisandFutunaIslands,CapeVerde,Cosmoros,
SaoTomeePrincipe
Algeria, Belarus, Botswana, Fiji, Iran,
Kuwait,Libya,Morocco(80%),RussianFederation
(45%),Samoa,Singapore,Syria,Tunisia,Vanuatu
NotethatexceptforthosecountriesparticipatingintheExchangeRateMechanismII,thedecision
whether to use the euro as a currency anchor is an opportunity for unilateral and does not imply any
commitmentby the European Central Bank. In opposition, the dollar continues tobe widely used as the
referencecurrencyinCentralandSouthAmerica,andAsia.
International money market is a key element, namely the Recycle currencies SDR (special drawing
rights). It was created by the International Monetary Fund in 1967, to be an alternative to the US dollar
and gold. Since 1999 its membership is made up of four currencies: US dollar, euro, Japanese yen and
British pound. Every 5 years, the International Monetary Fund calculates the weighting of those
currenciesinSDRbasedontwocriteriaofcalculation:thevalueofexportsofeacheconomyoveraperiod
of 5 years with one year before calculating the value of holdings of stocks denominated in those
currenciesattheendofeachyearoftheperiodof5years.
Table3WeightcurrenciesinSDRbasket(%)
Currencies 2010 2005 Change
AmericanDollar(USD) 41,9 44 2,1
Euro(EUR) 37,4 34 +3,4
Poundsterling(GBP) 11,3 11 +0,3
JapaneseYen(JPY) 9,4 11 1,6
0
10
20
30
40
50
2005 2010
USD
EUR
GBP
JPY
Itisobservedthattheeurohasgainedground,fromapercentageof34%in2005,at37,4%growth
in2010(+3.4%)infrontoftheu.s.dollarwhichhasknownatrenddownfrom44%in2005,41,9%in2010
(2,1%)andJapaneseyenuluifellby1.6 percenti.e. from11%in2005to9.4%in2010Sterling,knowing
somestabilitybyincreasingin2010onlyby0.3%comparedtothepercentageof11%in2005.
3.CONCLUSIONS:
Analyzing all the above facts we can conclude that in spite of the crisis through which the global
economy, the top international currencies at the moment unchanged, rmne euro on the runnersup.
Notehowever,thatthiscoincontinuedtoearnapercentageinthefaceofUScurrency,intermsofshare
ininternationaltrade.
References
1. ChabotC.,EuropeancurrencyEuro,Ed.Teora,Bucharest,2000
2. Hartmann P., Issing O., The International Role of the Euro, Journal of Policz Modeling 24, North
Holland,2002
3. IgnatI.,EuropeanUnionfromcommonmarkettothesinglecurrency,Ed.Economic,Bucharest,2002
4. SilasiG.,Europeanmonetaryintegration.Betweentheoryandpolitics,Ed.AcademicHorizons,1998
5. Sima I., Marin C., Nisipeanu E., Economic Integration, a Dynamic and Contradictory Process,
InternationalConference"KnowledgesocietyinEurope",UniversityofTibiscus,Timioara,27May28,
2011,indexlinkedJEL,EconLit,CEEOL
6. StoicaO.,EuropeanmonetaryandfinancialIntegrationJeanMonnetLecture,20072008
7. HTUwww.uniuneaeuropeana.roUTH
8. HTUwww.ecb.europa.euUTH
9. HTUwww.imf.orgUTH

CONTENT

FINANCE, ACCOUNTING, BANKS SECTION PAGE 2

ECONOMY, STATISTICS, INTERNATIONAL
AFFAIRS SECTION PAGE 184

MANAGEMENT AND MARKETING SECTION PAGE 293

MANAGEMENT AND MARKETING SECTION
293

Forest management units through cost

Cristina Otilia enovici, Constantin Brancoveanu University of Rm. Vlcea, Romania
Mihaela Albici, Constantin Brancoveanu University of Rm. Vlcea, Romania

Abstract

Costs minimizing and profit maximizing make the costs adjustment seems to be a vital necessity when
the activity developed within the company does not assure the maintenance and stability of the
necessary relation between consuming factors and costs. In such circumstances, approaching differing
sides of the production cost and improving the methods of calculation has much significance in
determining the most appropriate measures necessary for its adjustment and for profit increasing. The
whole informational process of costs formation, control and analysis of costs involves a careful use
the methodological concepts known under the name of classical methods and modern or
complementary methods, as well as of other proceedings. Such methods and proceedings cannot be
applied separately, only conjugated and integrated in a unitary methodological system, each of these
methods and proceedings participating at achieving one or more objectives. Only by their unitary
action they can fulfill all the system objective

Keywords

Cost, economic efficiency, decisions substantiation, traditional and modern methods for costs
determining.

JEL Codes: M 41, Q 00

The future managers will not be able to perform without data provided by management
accounting and they have to get used to the proper terminology, its techniques and the way in
which the supplied data can be used, as well as the possible limits of this information. The
forestry unit has to make up and to use a system of knowing products, working and services
costs so that it can be able to set the sales price according to the market demands and the
expected margins
1
.
Costs determination and their evolution for the products specific to forestry units does not
represent a purpose but it is due, on the one hand, to managers orientation changes, who are
forced to use a certain tool capable to make possible an intervention for prices adjustment.
Consequently they ask for competent, relevant and appropriate accounting information on
costs. On the other hand, maintaining the forestry unit economic efficiency in the present
conditions of technological improvement acceleration and competition intensification which
involves competitiveness (private floristries) depends on the managers possibility of
knowing costs and consequently, performing, through appropriate decisions.
The process of decision making involves cost. It influences the decision process in many
ways: the relation costs-prices; relation costs-profit; relation costs- economic efficiency.
These relations do not represent something new, as they have been present in traditional
economic literature. Only it is necessary to rearrange them on according to new principles,
taking into consideration the market economy demands and fundamentals. Thus, in the

1
Tenovici C.O. (2007) Projecting the informatic system of cost determination and analisys in forestry,
Universitaria Publishing House, Craiova, p.12
492
countries with planned economy they have paid more attention to costs than to prices,
considering it to be a direct relation, prices being established according to costs, in the
market economy the relation between cost and price becomes a dominant feature.
The costs influences directly the price formed on the market, by means of the cost included
in the product offer price. In addition, the market price has an indirect role on costs, forcing
producers to reduce costs for increasing profit, the producers with reduced costs having more
advantage.
The changing perspective on the relation between cost and profit had determined important
changes in costs determining process, analysis and control, turning it into a permanent
activity of operational checking each and every operation that generates expenses included in
cost, in order to find out the ways and means of reducing them
2
.
Top level management has in view costs minimizing, so profit maximizing, so that costs
adjustment seems to be a vital necessity when the activity developed within the company
does not assure the maintenance and stability of the necessary relation between consuming
factors and costs. Costs level and their structure reflects the forestry unit managers concern
with practicing the new technique, with an efficient using of production factors, their
approach on productive activity organizing and managing process, the substantiation level of
decisions. In such circumstances, approaching differing sides of the production cost and
improving the methods of calculation has much significance in determining the most
appropriate measures necessary for its adjustment and for profit increasing.
The whole informational process of costs formation, control and analysis of costs
involves a careful use the methodological concepts known under the name of classical
methods and modern or complementary methods, as well as of other proceedings such as:
supplement process, simple division process, process of equivalent coefficients, etc. Such
methods and proceedings cannot be applied separately, only conjugated and integrated in a
unitary methodological system, each of these methods and proceedings participating at
achieving one or more objectives. Only by their unitary action they can fulfil all the system
objectives.
Perfecting the costs informational system by means of automatic data processing should be
preceded by the existent costs informational system reorganization. If this aspect is neglected
the success and the efficiency of system improvement is harder to be achieved, as the new
system will be based on weak system, which still contains many flaws resulted from data
manual processing. It is recommended the integrated reorganization by means of models
established beforehand that unify in a unitary conception all methods, procedures, the forms
of data gathering, processing, valorisation and storing.
Reconsidering management accountability and costs calculation is one of the main factors of
efficient organization of economic activity. It should become able to supply information that
meets the requirements of the forestry activity efficient management in the present market
economy. The information about production costs occupies a central position, determined by
their implications on the actual state and on the future evolution of the unit activity. Thus, an
efficient leadership on the forestry unit level cannot be undertaken without an informational
system able to meet the requirements of a modern production management that allows taking
operative decisions and measures, thoroughly founded and on the right time
3
.
The traditional methods of cost determining, including the global method used in forestry for
determining and calculating costs, cannot meet the present requirements that aim at
performing a modern management which involves adapting and perfecting such methods.
A first drawback of these classical (traditional) methods is the great labour volume, as they
involve performing two series of calculations on the production cost: provisional calculation

2
Baciu T.A. (2001), Costs organization, planning, accounting, calculation, control and analysis,
Dacia Publishing House, Cluj- Napoca, p. 34
3
493
and historical costing. Provisional calculations are done before the productive process
beginning through budget processing and the production expenses on the forestry unit level
as well as the wood mass cost budget, according to the wood mass spore supposed to be
gained according to the regulations in force and the consumption laws established. They also
involve the exploitation budget for plots that are to be exploited on the forestry unit level as
well as the budget of the unitary cost for each type of wood mass processed. Budget
processing starts from the integral achievement of works and assignments stipulated in the
regulations.
Historical costing is done after finishing the productive process. In forestry, as we have
mentioned before, the productive process takes place over one year and it involves all
measures taken for treating the trees necessary for obtaining wood mass spore, according to
regulations. Such calculations are to be done at the end of each month, called partial
historical costing, using the global accumulated calculation.
Even if the effective cost is more likely to be precise and more detailed, these aspects cannot
make for the delay with which it is obtained, since modern leadership asks for proper and
pertinent data, instead of the exact ones but obtained too late
4
.
Traditional calculation methods, that are the global method used in forestry, allow the regular
determination of cost, but only at the end of the production cycle. Consequently, the
information supplied by means of such classical methods has a historical character and they
can be useful at directing the activity in future.
Although they have in view an operational approach of the main productive consumption
through consumption laws, this aspect is limited to the quantitative part and it usually takes
place especially for statistical reporting and data gathering for the programming period of the
future activity and not for informing the staff involved in taking decisions. This approach is
incomplete as, on the one hand, it does not constitute one of the staffs concern and, on the
other hand, the information obtained are not rendered in figures, in terms on money, only
from quantitative point of view.
Thus, another drawback of this classical method, consequently of the global method used for
determining cost, consists in the impossibility of assuring an efficient and systematic control
on exploiting expenses found in costs. The activity of gathering and processing such
expenses represents the base in establishing the effective cost. Determining cost at the end of
the production cycle does not supply information operationally about deviations from the
established level which allow decision makers to make proper decisions for setting aside
deficiencies.
In order to be able to find deviations from the established level it is necessary to achieve a
series of accounting statements, as the accounts system used and the effective way of
traditional cost calculation procedure cannot permit finding such deviations. The deviations
determined by comparing effective cost with the one that has been established, either
economies, or excess levels, are expressed in effective value, without having the possibility
to identify the places or the factors that have generated them neither the persons in charge.
In order to possibly identify these deviations supplementary calculations have to be done,
which involves much work and most times they face the impossibility of providing exact
information, even after concluding the productive cycle.
The system of expenses monitoring, adequate to these classical methods, is not able to
provide simultaneous supervision of expenses and deviations, their analysis is done most of
the times later than necessary and the supplied information cannot be used in the decision-
making process. They cannot be used for balancing the productive activity while it is being
developed, only in subsequent calculations. Neither do they allow each activity department,
as a cost centre, to determine clearly and to appreciate objectively the activity results in order
to be able to make correct decisions and take proper measures for work improvement for an

4
Calin O., Carstea Gh. (2002), Management accountability and costs calculation, Genicod Publishing
House, Bucharest, p.65
494
optimal fulfilment of the budget objectives, of deviations adjusting and avoiding. It is not
about only deviations identified later (that are usually seen too late) but all deviations that
can cause a maximum decrease of the information value.
Another limit of the global cost calculation method identified during a study undertaken
within one forestry unit is the distribution of indirect expenses to products costs by using
conventional criteria, most of the time inadequate, without taking into consideration the
cause relationship between expenses to be distributed and the actual base of distribution. As
the method is oriented towards the integral unitary cost calculation, it underline especially
the production expenses division in direct and indirect expenses and this division do not
allow their analysis in relation to production volume. It is a very well-known aspect, from
economic point of view, that costs are appreciated in relation to production volume. This
aspect involves costs calculation by dividing production expenses into fixed and variable
ones, such division being assured only by modern methods of costs calculation.
Consequently, in forestry it becomes compulsory to perfect and diversify the methods of
management accountability and costs calculation by introducing some new methods and
proceedings able to increase from the qualitative point of view costs information, allowing
thus management accountability to fulfil successfully its role.
The effective development of the activity within the forestry unit, as well as its managing
draws more and more often the attention to determine beforehand productive consumption
levels, costs evolution and to compare them to the level established by the forestry
Administration, according to which there are organized wood auctions (for forestry units in
the system) as well as to the level reached by private forestry units which have already
become a powerful competitor on the market. It also become necessary to supervise
efficiently expenses, to know expenses size and their structure, to determine in the shortest
possible time the deviations from the established level, the causes that have lead to such
deviations and last but not least to identify their exact position.
Management accountability should assure the quick gathering of exact, clear data, adequate
to different aspects of the current management activity. The rational use, as well as the
sending in time of such information will entitle the forestry unit management staff to react to
problems in the shortest possible time, to name the cause and to elaborate a coherent system
of measures which will determine sustainable and efficient forests management.
Thus, the necessity of permanent costs reduction for assuring economic efficiency within
each forestry unit, as well as the requirements imposed by entities management in the
present market economy, calls for perfect methods of costs calculation. They have in view
increasing the role of such methods for founding current and future decisions about the
rational using of production factors (the forest seen from economic point of view and its
social and ecological functions), perfecting technological processes and adjusting an efficient
organizational structure.
It becomes necessary to adopt certain methods, systems and techniques of funding, collecting
and distributing production expenses and costs calculations, which can assure promptitude,
time saving and simplicity, qualities that in the end determine the improvement of results
quality for each forestry unit. Thus, such new systems, methods and techniques used for
costs calculation should result out of the analysis of the real present situation within each
forestry unit as well as taking into consideration the future requirements necessary for the
aimed objectives, so that to perfect the functional position accounting detains in general and
management accounting especially within the leadership activity. According to a critical
analysis of the present situation, which still offers positive elements, they should promote
new methods, capable to supply useful information to the managerial staff, needed when
making decisions, capable to allow an adequate valorisation of information related to the
production process.
The method that can meet the requirements of scientific management and of the economic
activity within the forestry unit is the standard cost one:
495
The advantages that can be obtained after having applied the standard-cost method can be
noted as follows
5
:
It assures an operational control on production costs, as the information supplied,
concerning the deviations from the standard costs can be registered at short intervals, so
they have an operational and favourable character. The method allows thus making
decisions during the production process development and not only after it has been
performed;
It represents an efficient means for performing preventive control on production
expenses, by establishing before some standards for the rational use of materials, salaries
and other details for each work place;
By comparing the effective cost with the established one we can identify not only the
size of savings, but we can also know in due time the causes and the responsible staff
who has caused such deviations. Moreover, the deviations can be analyzed thoroughly,
both on cost elements and on price and quantity elements;
The standard costs are pre-calculated production costs on scientific, rigorous base, and
they are considered real, normal costs, each deviation related to these being considered a
deviation from the normal which will affect the financial results of the unit;
They cannot offer as an excuse the lack of a pattern that can be used in effective
production costs comparison, which can permit us to identify what is normal (by
applying the traditional calculation methods the reference elements used for comparing
effective expenses could have contained inefficiencies up to an undetermined level),
offering the possibility of performing costs control;
The standard-cost method includes in its working technique adequate systems of
production cost concrete processing and of relating a pre-calculated cost deviations, in
comparison with the classical methods used for costs calculation which do not include
these systems organically, each enterprise having in view their possible organization;
The standard cost is considered a normal production cost; the calculation of the effective
cost is no longer necessary. From mathematical point of view, the effective cost is
transformed into a derivative quantity and it will be obtained by calculating the plus or
minus of the standard cost and the deviations of the present expenses in comparison to
the standard ones. It avoids thus two series of operations (provisional calculation and
historical costing) as in the case of traditional calculation methods;
From economic point of view, costs are judged in relation to production size, some
being variable and some others stable. Thus, the standard cost method emphasizes costs
grouping according to their evolution against the physical volume of production
(indirect expenses have a mobile and a stable side), unlike classical methods which are
oriented towards grouping production costs in direct and indirect ones;
It allows grouping costs into stable and variable according to their evolution in
comparison to the evolution of the physical size of production, on the one hand, and
costs grouping into direct and indirect ones, according to their proportion in the products
costs. Deviations are thus determined within the organizational structures, both on
calculation item and on other causes, creating analyzing possibilities of the financial
results and activity control for each responsibility department;
It makes possible future costs estimations, as they reflect future objective-costs based on
deficiencies elimination and they are preferred against estimations based on adjusting
costs registered in the past which could have contained previous deficiencies;
Standard costs represent an important information source by means of which planned
production can be transformed into physical and monetary necessary resources and they
help budget planning;

5
496
Standard costs are set costs, with normative character which allows managerial
performances assessment within the company for a given period.
Encouraging modern management methods should take into account the fact that they rely,
from the point of view of their characteristics, their structure and their perfection level, on a
series of factors, such as: the social and economic system characteristics, an adequate
informational system and the staffs level of training and knowledge. Management
techniques and methods, from the point of view of their characteristics, have a collective
character and a general structure with possibilities of scientific application on different levels
of management. Through their content they determine responsibility improvement, allow
classifying social and economic phenomena and are based on a scientific language.
Managing a forestry unit involves, on the one hand, a good knowledge of the present activity
in order to be able to interfere with operational decisions in its directing and, on the other
hand, prefiguring its future evolution and setting up a predictive research which can
underline the development principles in perspective. The information determines the
managerial staff involvement through decisions which have the role of setting objectives, of
organizing, coordinating and directing collective actions for achieving the purpose. The
decision represents the essential moment for every managerial process as it involves all
managerial functions. By making decisions, the managerial staff chooses the most
appropriate way of acting among many possibilities. The decision, as a behaviour form,
based on information has been always a means of directing and coordinating economic
activities.
Using modern methods and techniques of management provides a higher level of accuracy
and confidence. Thus mathematical approaches on economic processes, operational research
development and its application, cybernetics and informatics are the most significant
progresses that the science offers to any economic management process.
Scientific management involves data automatic processing, using a mathematical apparatus
adequate to decisions preparation and applying modern methods of activity control. Through
modelling we have in view the logical arrangement of a set of operations or of a process, by
using a formalization methodology. A formal model represents, in fact, a simplified, but
suggestive, configuration of the reality it represents.
According to some models of operational research we can proceed to a comprehensive
analysis of all variables for evaluating the consequences of some different solution given to
the problem, offering a simple and real base that helps management in the making decisions
process. Thus, operational research becomes a priceless tool in forecasting different variants
consequences, offering the managerial staff the possibility of choosing the most efficient
one. Decision, as part of the decisional process, does not represent a purpose itself, but it has
to be applied correctly through correct actions and deed, its finality depending directly on the
staffs capacity.
Besides decision, economic information represents the second element of the cybernetic
concept used in management and economic activities adjustment activities. Therefore, we
can speak about the necessity of organizing an informing activity for managerial staff,
capable to see promptly what is essential and characteristic in the current activity of the
forestry unit. Setting up a modern informational system in forestry units have in view
offering solutions to problems so that the informational process to be related to the decisional
one. In taking decisions we always start from an existent result and we have in view a
desirable one. The need of making a decision appears when the system faces a problem
which looks forward to a quick solution. The decision involves, besides the human factor, the
unit environment, as we have to take into account any social, political, technological and
economic changes, etc. both on national level and international, especially now when we
face a strong globalization trend. It also involves increasing the complexity of the decisional
activity, increasing thus the number of variables and limit conditions where decisions will be
adopted.

497
References:
1. Baciu T.A. (2001), Costurile - organizare, planificare, contabilitate, calculatie, control i analiz,
Ed. Dacia, Cluj- Napoca
2. Calin O., Carstea Gh. (2002), Contabilitate de gestiune i calculaia costurilor, Ed. Genicod,
Bucureti
3. Tenovici C.O. (2007), Proiectarea sistemului informatic de calculaie si analiz a costului in
Silvicultur, Ed. Universitaria, Craiova
498
Munich Personal RePEc Archive
Duality in linear programming
Albici , Mihaela; Teselios, Delia; Prundeanu, Raluca and
Popa, Ionela
University Constantin Brancoveanu Ramnicu Valcea
07. January 2010
Online at http://mpra.ub.uni-muenchen.de/19826/
MPRA Paper No. 19826, posted 07. January 2010 / 09:11
DUALITY IN LINEAR PROGRAMMING
Albici Mihaela, University Constantin Brancoveanu, Rm. Valcea
Teselios Delia, University Constantin Brancoveanu, Pitesti
Prundeanu Raluca, University Constantin Brancoveanu, Rm. Valcea
Popa Ionela, University Constantin Brancoveanu, Rm. Valcea
Abstract. Any linear programming problem marked as P and called primal can
be seen in connection with another linear programming problem marked as D and called
dual. The economic interpretation of the dual model brings about new information
when analyzing such phenomena and when substantiating decision making.
JEL classification: C60, C61.
Keywords: Linear programming problem, duality.
The idea of a linear programmes duality and the theory of linear programming along
with the duality marking manner have played a special role in economic analyses by the way
in which they have emphasized the nature of prices. Ever since marginal analysis onwards, no
other idea has proven to be that important to the fundamental theory of prices
1
.
1. Dual Problem
Let the example of linear programming in its general form be :
( )

n
j
j j
x c f
1
max min
n
j
i j ij
b x a
1
, k i . 1
n
j
i j ij
b x a
1
,
p k i . 1 +
n
j
i j ij
b x a
1
,
m p i . 1 +
0
j
x
,
n j . 1
We shall call this problem primal and mark it as P. The primal problem can be
associated with another linear programming problem marked as D and called dual . The
transition from the primal problem to the dual one is done according to the following rules :
1. before the transition takes place, the primal problem must be turned into its canonical
form ;
2. if the primal linear programming problem is maximum, then the dual linear
programming one is minimum and the other way round ;
1
Lancaster K. (1973) Mathematical Economic Analysis, Scientific Publishing House, Bucharest.
1
3. the number of restrictions in the primal linear programming problem equals the
number of variables in the dual linear programming problem ;
4. the number of variables in the primal linear programming problem equals the number
of restrictions in the dual linear programming problem ;
5. vector c in the primal linear programming problem is vector "b in the dual linear
programming problem ;
6. vector b in the primal linear programming problem is vector c in the dual linear
programming problem ;
7. the factors matrix in the dual linear programming problem is the transposed matrix
of the primal linear programming problem.
Observation 1. The duality relation is symmetric: the dualitys duality is the primal
problem.
Correspondence rules between the primal linear programming problem and the dual
linear programming one [2]:
L.P.P.
P
L.P.P.
D
minimum
maximum
number of variables
number of restrictions
free terms of restrictions
factors of objective function
columns of restrictions matrix
variable 0
variable 0
variable R
harmonious restriction
non-harmonious restriction
equality restriction
maximum
minimum
number of restrictions
number of variables
factors of objective function
free terms of restrictions
rows of restrictions matrix
harmonious restriction
non-harmonious restriction
equality restriction
variable 0
variable 0
variable R
Let the linear programming problem be:
( )
0
min
x
b Ax
cx x f
(P)
Its dual nature is to be the linear programming problem:
( )
0
max
w
c wA
wb w g
(D)
Analogous as to the linear programming problem in a maximum canonical form:
( )
0
max
x
b Ax
cx x f
(P)
Its dual nature is to be:
( )
0
min
w
c wA
wb w g
(D)
Example 1. Let us write the dual nature of the linear programming problem:
( )
3 2 1
3 2 max x x x x f +
2
'
+
+
1 2
2 4
3 2 1
3 2 1
x x x
x x x
3 , 2 , 1 . 0 i x
i
The problems canonical form is:
( )
3 2 1
3 2 max x x x x f +
'
+
+
1 2
2 4
3 2 1
3 2 1
x x x
x x x
3 , 2 , 1 . 0 i x
i
The problems dual nature is to be:
( )
2 1
2 min w w w g +
'
+

+
1
3 4
2 2
2 1
2 1
2 1
w w
w w
w w
0 , 0
2 1
w w
Example 2. Let us write the dual nature of the linear programming problem:
( )
2 1
2 min x x x f
'
+

+
2 3
3 4 2
1 2
2 1
2 1
2 1
x x
x x
x x
0 . 0
2 1
x x
The problem is turned back into its canonical form:
( )
2 1
2 min x x x f
'

2 3
3 4 2
1 2
2 1
2 1
2 1
x x
x x
x x
0 . 0
2 1
x x
The problems dual nature is:
( )
3 2 1
2 3 max w w w w g +
'

+ +
2 3 4 2
1 2
3 2 1
3 2 1
w w w
w w w
3 , 2 , 1 . 0 i w
i
It is important to understand that duality is first and foremost a formal mathematical
relation. Once a problem has been suggested, one makes up its double nature according to the
rules above. If the primal problem is consistent, one naturally expects its duality to prove
interesting. Ones expectation can be grounded or not, but dualitys presence as a formal
feature of the primal problem is not affected [3].
3
2. Duality Theorems
Herein are the duality theorems that show the connection between the primal problem
and the dual problem in a canonical form.
Let the couple of problems be:
(P)
( )
0
min
x
b Ax
cx x f
(D)
( )
0
max
w
c wA
wb w g
m n n m
w x A
, 1 1 , ,
, , M M M
.
Let
{ } b Ax x P
x
, 0
and
{ } c wA w P
w
, 0
be the set of admissible solutions of
primal linear programming problem (P), and of dual linear programming problem (D),
respectively.
Proposition 2. Irrespective of what
x
P x
and
w
P w
are a ( ) w x, couple of
solutions of the two problems, there is the following inequality:
( ) ( ) x f w g deci x c b w
Demonstration:
b x A P x
The relation is multiplied by
w
on the left and the result is b w x A w .
w
P w
hence c A w .
The relation is multiplied by
x
on the right and the result is x c x A w .
Therefore, x c x A w b w .
Proposition 3. If solution couple
( ) w x
~
,
~
of the two problems has the feature that
( ) ( ) x f w g
~ ~

, then x
~
is the optimal solution of (P) primal linear programming problem and
w
~
is the best solution of (D) dual linear programming one.
Demonstration:
We suppose by reductio ad absurdum that x
~
is not the optimal solution of (P) primal
linear programming problem; then, there is solution x
P x
*
so that
( ) ( ) x f x f
~ *
<
( (P)
primal linear programming problem being minimum). But
( ) ( ) w g x f
~ ~

( ) ( ) ( ) w g x f x f
~ ~ *
<
, so there is couple
( ) w x
~
,
*
of admissible solutions that contradicts
Proposition 2.
Corollary 4.
i) If (P) primal linear programming problem does not have finite
optimization, then (D) dual linear programming problem does not have any
admissible solutions (namely

w
P
);
ii) If (D) dual linear programming problem does not have finite optimization,
then (P) primal linear programming problem does not have any admissible
solutions (namely

x
P
).
Theorem 5. If the solution of the (P) primal linear programming problem is
( )
x
P x
~

and finite, then the best solution of the (D) dual linear programming problem is still
( )
w
P w
~

and finite, and the optimal values of the objective functions coincide:
( ) ( ) w g x f
~ ~

.
It is intuitively deduced from Propositions 2, 3 and Corollary 4 by negation.
Additionally, if x
~
is the basic optimal solution of the (P) primal linear programming
problem for base
B
~
made up with m independent linear column vectors in
( )
im ij i i
a a a a A ,..., ,..., ,
2 1
, then b B x x
B 1
~
~
~ ~
;
1
~
~
~
B c w
B
where B
c~
are the m costs
corresponding to the vectors in base B
~
.
The values of the objective functions are:
( ) b B c x f
B

1
~
~
~
i
( ) b B c w g
B

1
~
~
~
hence
( ) ( ) w g x f
~ ~

.
4
This theorem leads to the conclusion that the final simplex table corresponding to the
primal problem includes the optimal solutions of both problems (primal and dual). The solution
1
B c w
B
T
B
of the dual problem is obtained on row z at the cross with the vectors columns that
have formed the original base. .
Analogously, if the dual problem is solved, the result is that the solution of the (P)
primal linear programming problem is to be found in the last simplex table of the (D) dual
linear programming problem, on row j
B
j
c z
, just below the columns that have originally
formed the base.
This consequence gives the possibility to solve a (P) primal linear programming
problem by its dual one if the latter is easier to solve, and the solutions of the primal one are
read according to the above.
Theorem 6 (The Fundamental Theorem of Duality). For any couple of dual
problems, one and only one of the following situations is possible:
i) Both problems have solutions: therefore, they have optimal solutions and the
optimal values of the objective functions coincide;
ii) One of the problems has a solution, the other does not: therefore, the former
problem has finite optimization;
iii) Neither of the two problems has a solution.
Theorem 7 (The Theorem of Complementary Spacing). Taking account of the couple
of linear programming problems (P), (D) stated above, the major and sufficient condition for
solutions x
P x
~
and w
P w
~
to be optimal is:
( )
( ) 0
~ ~
0
~ ~

x A w c
b x A w
Demonstration:
In order to demonstrate emergency, let x
~
and w
~
be the optimal solutions of the dual
problems, namely
,
_
0
~
~
x
b x A
and
,
_
0
~
~
w
c A w
.
Then
( ) 0
~ ~
b x A w
and ( ) 0
~ ~
x A w c .
But b w x c
~ ~
,
x A w b w x A w x c
~ ~ ~ ~ ~ ~
,
( ) ( ) 0
~ ~ ~ ~
+ b x A w x A w c
.
Since the two addition terms in the left member of the obtained inequality are non-
negative, the result is that either is nule and therefore pursues the desired conditions.
For sufficiency, if these relations are added:
( )
( ) 0
~ ~
0
~ ~

x A w c
b x A w
,
the result is:
0
~ ~ ~ ~ ~ ~
+ x A w x c b w x A w b w x c
~ ~
and so x
~
is the optimal solution of the primal
problem, and w
~
is the best solution of the dual problem, according to Proposition 3.
Lemma 8 (The Fundamental Lemma). If x and w are possible vectors of the primal,
respectively the dual problem, the following relations are true:
wb wAx cx .
Demonstration:
It is noticed that 0 b Ax is obtained from the primal problems restrictions. Since
0 w if w is possible,
( ) 0 b Ax w
.
Hence,
wb wAx .
Using the dual problems restrictions 0 c wA and the non-negativity restrictions
upon x, there is, if x and w are possible:
wAx cx .
5
Theorem 9. (The Equilibrium Theorem of Linear Programming)
a) If

w x , are possible points for the primal and dual problem, they are optimal if and
only if:
(1)
0
i
w
whenever
i
j
j ij
b x a <

;
(2)
0
i
x
whenever
j
i
i ij
c w a >

,
that is the k-th variable of a problem is nule when the k-th restriction of the other one is not
effective.
b) The optimal point (or optimal points if it is about being non-strictly optimal) shall
be so that the number of non-nule variables of either problem shall not exceed the number of
restrictions in that problem.
The equilibrium theorem is important for two reasons. Firstly, it allows one to verify a
primal solutions ability to be optimal even if one does not have the optimal dual solution.
Then, even more remarkably, it leads one to a number of interpretations of economic models
conditions to be optimal, models having the exact form required by linear programming.
3. Economic Interpretation
Let us consider a linear
2
manufacturing model with n j
x
outputs and m
i
b
inputs
between which there is a relation defined by ij
a
constant manufacturing factors. The factors
show what i input amount is necessary to manufacture a j output unit. In this case,
j
j ij
x a

is the total input amount necessary for the manufacturing of x compound output. Ax means
vector b of the inputs necessary to manufacture this compound output.
Vector p of products prices and vector b of all available resources are stated. The
optimal manufacturing is defined as being
px max
and its features are analyzed. Therefore,
there is a linear programming problem
px max
b Ax
0 x .
Its dual problem is then
b w min
p wA
0 w .
It is known from the duality theorem that

px b w px , is a value expression (prices
multiplied by amounts); therefore, it is expected that b w
have the same meaning. Since b

is the amount vector, w is a random vector of prices which in this case are inputs prices.
Due to the new dimension that dual variables get by their connection with prices in economic
matters, dual variables shall be often known as shadow prices.
Let us now consider the dual problems restrictions, each having the following form:
j
i
i ij
p w a
.
Since ij
a
is i input amount necessary to manufacture a j output amount, i ij
w a

represents the value of i input necessary to manufacture a j output unit, and
i
i ij
w a
is the
2
Lancaster K. (1973) Mathematical Economic Analysis, Scientific Publishing House, Bucharest.
6
total value of inputs necessary for the manufacturing of a j output unit, all inputs being
assessed in w shadow prices.
The answer to this question is pursued: which is the lowest value that is to be attached
to the vector of b available resources knowing that there is a possibility to turn resources
into products and then to sell them? The restrictions of the dual problem express the fact that
if the value of the inputs incorporated in a product is lower than the products price, it is more
advantageous to sell the products instead of the resources. Once the

w x , optimal points
have been reached, the economy (or the enterprise) does no longer care if it sells the product
obtaining
px
, or if it sells the resources at
w prices, because the total cashing is the same:

b w px

.
Thus, it can be stated that:
any resource that cannot be entirely used for the manufacturing of an i optimal
compound output shall be given a shadow price equalling zero or it shall be
considered that its optimal value is nule;
once an optimal state has been achieved, no product shall be seen as such if its
unit cost exceeds its price (the inputs being assessed by optimal shadow prices)
3
.
In other words, the resources that make up the excess supply are free goods and the
manufacturing generating losses shall be left out in case the shadow prices are real ones.
These relations correspond to the equilibrium of a competitive economy.
If only the i-th restriction varies, it is deduced that the i-th dual variable (in the optimal
point) can be considered the marginal value of the problem modifying the i-th restriction.
In typical economic contexts, there is going to be the marginal social value (or marginal
revenue) of the increase in a proper resource amount. Thus, one can justify the common
interpretation of dual variables as shadow prices.
Example 3. Let the linear programming problem be:
( )
3 2 1
3 5 4 max x x x x f + +
'
+ +
+
1 3 2
3 4 2
3 2 1
3 2 1
x x x
x x x
3 , 2 , 1 , 0 i x
i
i) State the optimal solution by using primal simplex algorithm;
ii) Write the dual problem associated with the one above and then write its optimal
solution;
iii) Interpret the dual problems solutions from the economic point of view.
i) The linear programming problem is brought back to its standard form:
( ) ( )
2 1 3 2 1
0 3 5 4 max y y x x x x f + + + +
'
+ + +
+ +
1 3 2
3 4 2
2 3 2 1
1 3 2 1
y x x x
y x x x
3 , 2 , 1 , 0 i x
i
0 , 0
2 1
y y
3
If the optimal state is not unique, the last statement is valid for at least one optimal point.
7
B C
B
B
4 5 3
x
1
x
2
x
3
0 0
y
1
y
2
min
y
1
y
2
0
0
3
1
2 1 -4
1 2 3
1 0
0 1
3
1/2
j
0 -4 -5 -3 0 0
y
1
x
2
0
5
5/2
1/2
3/2 0 -1/2
1/2 1 3/2
1 -1/2
0 1/2
5/3
1
j
5/2 -3/2 0 9/2 0 5/2

y
1
x
1
0
4
1
1
0 -3 -10
1 2 3
1 -2
0 1
j
4 0 3 9 0 4
Since the problem is maximum, all
0
j
the problems optimal solution is:
0 , 1 , 0 , 0 , 1
2 1 3 2 1
y y x x x
.
Products
2
P
and
3
P
are not manufactured - they are not efficient.
The maximum profit is 4.
b) The dual problem of the original one is:
0 ,
3 3 4
5 2
4 2
3 ) ( m i n
2 1
2 1
2 1
2 1
2 1
'
+
+
+
+
w w
w w
w w
w w
w w w g
The dual problems solutions are:
0 , 3 , 9 , 4 , 0
3 2 1 2 1
y y y w w
c)
( ) 4 min w g
Product
2
P
is manufactured in the amount 4 and resources
1
y
i
2
y
remain
unbought.
References
Bdin V., Firic O., (1995) Mathematics Course for Economists, The Romanian-
American University, Bucharest
Dumitru M., Manole S. (coord.) (2006) Economic Mathematics, Economic
Independence Publishing House, Piteti.
Lancaster K. (1973) Mathematical Economic Analysis, Scientific Publishing House,
Bucharest
8
Oprescu Gh. (coord.) (1999) Economics Applied Mathematics, Economic
Independence Publishing House, Brila.
9
Reoptimizations in linear programming
Albici, Mihaela; Teselios, Delia and Tenovici, Cristina
17. January 2010
MPRA Paper No. 20091, posted 17. January 2010 / 21:04
REOPTIMIZATIONS IN LINEAR PROGRAMMING
Tenovici Cristina, University Constantin Brancoveanu, Rm. Valcea
Abstract: Replacing a real process which we are concerned in with other more
convenient for the study is called modeling. After the replacement, the model is analyzed and
the results we get are expanded on that process. Mathematical models being more abstract,
they are also more general and so, more important. Mathematical programming is known as
analysis of various concepts of economic activities with the help of mathematical models.
JEL classification: C60, C61
Keywords: Reoptimization, linear programming, mathematical model
To solve management problems requires simplified representation of reality through
models. A model is a simplified selective rendering of a real-life system [1].
The real system that a model describes can be already existing or may be an idea
conceived in the pending execution. In the first case, the design objective is to provide means
to analyze the system behavior to improve its performance. In the second case, the design
objective is to define the ideal structure of the future system.
The real system can be extremely complicated and the model may not faithfully
represent all information in reality. This is practically impossible.
In developing a quantitative model, represented by mathematical relationships and
symbols, there must be taken into consideration two conditions:
the model must achieve its purpose;
the model can be solved in the process affected time.
Among the most common models in the economic practice are optimization models,
those which are concerned with maximizing (minimizing) of an objective function. A linear
programming problem is a special case of the general problem of optimization, where
objective function and the constraints are linear
1
. Inequalities and the non-negativity
restrictions placed on variables are not only permitted, but are typical. The importance of
linear programming consists precisely in the ability to solve such problems [5].
1. Mathematical model of a linear programming problem
The mathematical programming problem usually means determining the optimal
value (minimum or maximum) of a function of several variables (also called objective
function, purpose function or efficiency function), if variables are subject to some ties
expressed by equations and inequations (also called restrictions) and to conditions on the
sign. If the objective function and constraints are linear functions, the problem is called linear
programming problem.
1
A similar presentation of linear programming can be found in the work of D. Gale The Theory of Linear
Economic Models, McGraw-Hill, 1960.
1
The general form of a linear programming problem is:
( )
n
j
j
x
j
c f
1
max min
(1)
n
j
i
b
j
x
ij
a
1
,
k i , 1
(2)
n
j
i
b
j
x
ij
a
1
,
p k i , 1 +
(3)
n
j
i
b
j
x
ij
a
1
,
m p i , 1 +
(4)
0
j
x
,
n j , 1
(5)
Definition 1. Function (1) is called the objective function (purpose function or
function of efficiency) of the linear programming problem.
Definition 2. Conditions (2), (3) and (4) are called restrictions of linear programming
problem.
Definition 3. The vector
( )
t
n
x x x x ,...,
2
,
1
which checks the restrictions (2), (3) and (4)

is called possible solution of the linear programming problem.
Definition 4. A possible solution of the linear programming problem which also checks
the conditions (5) is called admissible.
Definition 5. The admissible solution for which it is obtained the minimum or
maximum value of the function (1) is called the optimal solution of the problem.
Observation 6. Conditions (5) are also called non-negativity conditions.
If we note the vector of the unknowns by
( )
t
n
x x x x ,...,
2
,
1
, that of the coefficients by

( )
m
c c c c ,..., ,
2 1
, the matrix of the coefficients by

( )
n j
m i
i j
a A
, 1
, 1
, and the terms vector from the

right member of the restrictions by ( )
t
m
b b b b ,..., ,
2 1
, we get:
1. The matrix form of linear programming problem:
( ) ( ) cx x f max min
( ) b Ax b Ax
0 x
2. The canonical form of linear programming problem:
(i) for the problem of minimum
( ) cx x f min
b Ax
0 x
(ii) for the problem of maximum
( ) cx x f max
b Ax
0 x
3. The standard form of linear programming problem:
b Ax
0 x
2. Classification of solutions of a linear programming problem
2
Let be the linear programming problem as standard:
b Ax (6)
0 x
Let us note by A the set of admissible solutions (see Definition 4). If A is different from
the empty set, then the linear programming problem has finite optimum, if A and f
infinite, the linear programming problem has infinite optimum, and if A , then the linear
programming problem is incompatible.
Definition 7. A possible solution for which the number of nonzero components is less
than or equal to the number of restrictions, and the column vectors of matrix A which
correspond to these components are linearly independent, is called the basic solution of linear
programming problems.
Definition 8. A possible solution is called nondegenerated if all its components are
nonzero and degenerated otherwise.
Definition 9. A possible solution that achieves the optimum of the objective function is
called an optimal solution of the linear programming problem.
Theorem 10. The set of solutions of linear programming problem is linearly convex.
Proof:
Let be
1
x
and
2
x
solutions of problem (6), which means
0 , 0
2 1
x x
,
b Ax
1
,
b Ax
2
and let be ( ) [ ] 1 , 0 , 1
2 1
+ x x x their convex combination. Because 0 1
and 0 it results 0 x .
( ) [ ] ( ) b Ax Ax Ax Ax x x A Ax +
1 2 1 1 2 1
1
which means that the x vector is still a solution, and so the set of solutions is convex.
Theorem 11 [5]. The set of optimal solutions of a linear programming problem is
convex.
Proof:
We take for example the case of the linear programming problem:

( ) cx x f min
b Ax
0 x
Let be
1
x
and
2
x
optimal solutions of the problem, which means
( ) ( )
2 1
min min x f x f .
It results ( ) ( ) x f x f min min
1
, where ( ) [ ] 1 , 0 , 1
2 1
+ x x x , 0 x .
Analog is the case of the linear programming problem of maximum.
Observation 12. An admissible solution which is not a linear convex combination of
other admissible solutions is a peak of the set of admissible solutions (the convex
polyhedron).
Theorem 13. If the linear programming problem (6) allows optimal solutions, then
there is at least one peak of the admissible solutions set that is optimal solution.
Proof:
Let be
1
x
and
2
x
the peaks of the admissible solutions set and let be x
~
a vector of
this set, representing an optimal solution. Supposing x
~
is not a peak, it can be written as a
convex linear combination of the peaks:

k i x x
i
k
i
i i
, 1 , 0 ,
~
1

;
1
1

k
i
i
.
So
( ) ( )

k
i
i i
x f c x c x f
1
~ ~

.
3
Assuming that ascending ordering numbers ( ) k i x f
i
, 1 , there have been obtained the
inequalities:
( ) ( ) ( )
k
x f x f x f ...
2 1
Then
( ) ( ) ( )

k
i
i k
k
i
i i
k
i
i
x f x f x f
1 1 1
1

that is
( ) ( ) ( )
k
x f x f x f
~
1
.
which means that also
1
x
(which is a peak of admissible solution set) is an optimal solution
of the problem (6).
Theorem 14. If x
~
is a basic optimal solution of linear programming problem (6), then
the vectors which correspond to nonzero components of x are linearly independent.
Proof:
Supposing that
m rangA
and ( )
t
m
x x x x 0 ,..., 0 ,
~
,...,
~
,
~ ~
2 1
,
0
~
,..., 0
~
, 0
~
2 1
> > >
m
x x x
.
If
( )
t
mj j j j
a a a v ,..., ,
2 1
,
n j , 1
are column vectors of the A matrix, then m
v v v ,..., ,
2 1
correspond to m nonzero components of x
~
and out of the condition b x A
~
results:
b v x v x v x
m m
+ + +
~
...
~ ~
2 2 1 1 (7)
Lets assume against all reason that the vectors m
v v v ,..., ,
2 1 are linearly dependent,
namely there are constants m
,..., ,
2 1 not all zero, so that:
0 ...
2 2 1 1
+ + +
m m
v v v
(8)
If we multiply by
relation (8) and add at (7), we obtained:

( ) ( ) ( ) b v x v x v x
m m m
+ + + + + +
~
...
~ ~
2 2 2 1 1 1
(9)
If we multiply then by
relation (8) and decrease of (7), we obtained:

( ) ( ) ( ) b v x v x v x
m m m
+ + +
~
...
~ ~
2 2 2 1 1 1
(10)
Chossing for
the value
for which
0
~
> +

j j
x
,
0
~
>

j j
x
,
m j , 1
, the
equalities (9) and (10) define two admissible solutions:
( )
t
m m
x x x x 0 ,..., 0 ,
~
,...,
~
,
~
2 2 1 1 1

+ + +
( )
t
m m
x x x x 0 ,..., 0 ,
~
,...,
~
,
~
2 2 1 1 2

with the property
( )
2 1
2
1
~
x x x +
. This equality expresses the fact that the optimal solution x
is a linear combination of two vectors in the set of admissible solutions, so it is not a peak.
Absurd, because according to theorem 13, an optimal solution is a peak of the admissible
solutions set.
Therefore, the vectors
m
v v v ,..., ,
2 1
are linearly independent, so they form a basis.

3. Primal simplex algorithm
The general method for solving linear programming problem is known as the method
(algorithm) simplex. The name of the simplex method, first published in 1947 by the
American mathematician G.B.Dantzig, is linked to the fact that a convex polyhedron is also
called simplex [1].
The simplex method has the advantage that besides a relatively small calculations
volume, can give accurate and conclusive answers to all situations that can be presented by
solving a linear programming problem.
4
It is an effective method for solving linear programming, which allows us to
systematically explore the set of basic solutions. The simplex method consists of a sequence
of iterations, each iteration determining a basic solution with the feature that the objective
function value is continuously improved up to the optimum, if any. The principle of work is
changing the base, a method presented in the previous chapter (the pivot method). The
question however is which vector enters the base and which one is leaving, to ensure the
search on the set of basic admissible solutions.
Given linear programming problem as standard (6):
b Ax
0 x
Assuming that the columns n
a a a ,..., ,
2 1 of matrix A have indices
n j ,..., 1

belonging to the set
B
J
or S
J
of indices, as the corresponding variables are basic variables,
or secondary variables. So,
{ }
S B S B
J J n J J , ,..., 2 , 1
Let B a base consisting of m columns of A.
The system b Ax becomes
b Sx Bx
S B
+ , whence, multiplying to the left with
1
B
we get
S B
Sx B b B x
1 1
.
We note
S j
B
j
B
J j a B y b B x

, ;
1 1
.
Then

S
J j
j
B
j
B
B
x y x x
,
or on components
B
J j
j
B
ij
B
i
i
J i x y x x
S

,
.
A basic solution can be obtained for 0
S
x , so b B x
B
1
.
A basic solution b B x
B
1
is admissible if 0
B
x .
A base B which checks such a condition is called primal admissible base.
We express the objective function with the help of secondary variables.
Writing adequately the c vector of the function coefficients, we obtain:
+ +

S B
J j
j j
J i
i i
S S B B
x c x c x c x c cx f
+
,
_

B S S
J i J j
j j
J j
j
B
ij
B
i
i
x c x y x c

,
_
+
B S B
J i J j
j
J i
B
ij i j
B
i
i
x y c c x c
.
We note
B
B
J i
B
i
i
B
x c x c z
B

and
S
J i
B
j
B B
ij i
B
j
J j y c y c z
B

,
( )

S
J j
j j
B
j
B
x c z z f
.
Theorem 15. If B is a primal admissible base and for any
S
J j
we have
0
j
B
j
c z
,
then the corresponding basic programme of base B ( 0 ,
1

S
B
x b B x ) is an optimal
programme for problem (6).
Proof:
Let be 0 x a certain programme. From the theorems hypothesis we have
( ) 0
S
J j
j j
B
j
x c z
.
5
As
( )

S
J j
j j
B
j
B
x c z z f
we obtain
B
z f so
B
x and
S
x represents the optimal
programme for problem (6).
Theorem 16. If for a primal admissible base B take place the following conditions:
i) There S
J k
is so that 0
k
B
k
c z
ii) The basic programme
0 ,
1

S
B
x b B x
is nondegenerated, so the basic
programme corresponding to B is not optimal.
Proof:
Let x be a programme with the property that the variablesvalues
n i x
i
, 1 ,
are the
same to those corresponding to base B, less the variable
k
x
, which takes a value low enough
0
k
x
so that the problems conditions to be satisfied.
As

S
J j
j
B
ij
B
i
B
i
x y x x
it results that is enough that 0
0

k
B
ik
B
i x y x ,
B
J i ) (
.
Noting by
f
the objective function value corresponding to x , we get from
( )

S
J j
j j
B
j
B
x c z z f
the following:
( )
B
k k
B
k
B
z x c z z f <
0
, so the basic programme corresponding to B is not optimal.
Theorem 17. If for an admissible primal base B take place the following conditions:
i) There is S
J k
so that 0
k
B
k
c z ;
ii) The basic programme
0 ,
1

S
B
x b B x
in nondegenerated;
iii)
( )
B ik
J i y , 0
, so the problem has the infinite optimum
Proof:
The hypothesis (i) and (ii) being the same with those of the previous theorem, it is
noticed that the vector x defined above stays programme of the problem for any
k
x
value,
the value of objective function
f
given by:
( )
B
k k
B
k
B
z x c z z f <
0
becomes very small for

0
k
x
chosen very big and so the limit of
f
is .
Theorem 18. If for an admissible primal base B take place the following conditions:
(i) There is
S
J k
so that 0
k
B
k
c z ;
(ii) The basic programme
0 ,
1

S
B
x b B x
is nondegenerated;
(iii)
( )
B
J i
so that
0
i k
y
then the maximum value that we can assign to
0
x so that x to stay programme is given by:
B
r k
B
r
B
i k
B
i
y
J i
y
x
y
x
i k
B

,
_
0
m i n
m i n
.
6
If we assign to
0
k
x
this value, then the corresponding programme of x is a basic
solution. This corresponds to a B base which it is obtained from B by replacing the column
r
a
by column k
a
.
Proof:
Let { } 0 /
+
i k B B
y J i J .
If
( )
+

B
B
ik
B
i
k
J i
y
x
x ,
then the condition 0
0

k
B
ik
B
i x y x ,
B
J i ) (
is fulfilled.
Let us assume that we give to k
x
the value min
. From

S
J j
j
B
j
B
B
x y x x
results
that
0
r
x
.
Therefore, we obtain a new basic solution made of
{ } r I i x
B i
,
and k
x
.
The B base corresponding to this one is obtained from B by replacing column
r
a
by
column k
a
. From the fact that
0
rk
y
results that the column vectors of B are linearly
independent.
Observation 19. According to formula ( )
0
k k
B
k
B
x c z z f the objective function
value corresponding to base B is
( )
rk
r
k
B
k
B B
y
x
c z z z
(11)
If there are multiple indices k with the property 0
k k
c z then, to get the lowest objective
function value, it should be chosen that index for which the quantity to be deducted in relation
(11) to be maximum. Since the calculations are quite laborious, in practice is chosen that
index which maximizes the expression
j
B
j
c z
.
Case 1. There is initial basis:
Let linear programming problem be the general matrix form:
( ) ( )
0
max min
x
b Ax
cx x f
Phase I:
The linear programming problem is brought in standard form. Auxiliary variables i
y

are introduced in the objective function with the cost 0.
The extended matrix of linear programming problem (of the standard form) will be:
,
_

1 ... 0 ...
0 ... 1 ...
) , (
2 1
1 12 11
mn m m
n
a a a
a a a
I A A
There is initial base given by the vectors y
i
.
Phase II:
The simplex table it is built as follows:
B C
B
b
c
1
c
2
... c
n
x
1
x
2
... x
n
0 ... 0
y
1
... y
m
min
y
1
y
2
...
y
m
0
0
...
0
b
1
b
2
...
b
m
A I
j
-c
1
-c
2
... -c
n
0 ...0
7
Values
j
B
j j
c z
are calculated using the formula:
j j B j
B
j j
c a C c z
, where j
a
is the corresponding column of the vector j
x
.
The optimum criteria:
If the problem is of maximum and all j
0 the solution is optimal.

If the problem is of minimum and all j
0 the solution is optimal.

The solution is read on the column of the vector b. In case the requirements for optimal
criteria is not met, then it is applied the entry criteria.
The entry criteria:
For linear programming problem of maximum enters in base the vector k
a
,
corresponding to the difference j
<0, the largest in absolute value (or the smallest negative

one).
For linear programming problem of minimum enters in base the vector
k
a
,
corresponding to the difference j
>0, the largest one.

The exit criteria:
Vector k
a
corresponding to the report
min
} 0 , { min >
ik
ik
i
i
a
a
b
is leaving the base.
At the intersection of the output line with the input column there is the pivot. The pivot
method applies and then it is continued the process until the optimal solution it is obtained.
Observation 20. For the primal simplex algorithm, the pivot is always strictly larger
than zero.
Case 2. There is no initial base
It is built an artificial base as follows:
It is written the matrix A of the linear programming problem in standard form and where
there is no unit vector, there are added to the restrictions the artificial variables j
u
. These
variables are inserted in the objective function with a very high M penalty (positive). In
problems of maximum M is inserted with the - sign, and in problems of minimum M is
inserted with + sign.
Observation 21.
(i) The problem is well formulated if in the optimal solution the artificial
variables disappear from the base (are out of the base).
(ii) If an artificial variable is out of the base, it cannot be reintroduced. Its
corresponding column in the table is shading.
(iii) This method is also called the penalty method.
4. Dual simplex algorithm
Dual simplex algorithm is an algorithm for solving primal linear programming problem,
which reflects the application of simplex algorithm to the dual problem, sometimes simpler
than the considered primal problem. Dual simplex algorithm is in a certain way, dual to the
common simplex algorithm.
Definition 22. A solution x
~
is dual realizable to the primal linear programming
problem if:
(i) is optimal - if
0
j for the maximum linear programming problem
8
- if
0
j for the minimum linear programming problem
(ii) is not admissible (on the b vector column there are negative elements)
The stages of dual simplex algorithm
The problem is prepared to be solved with dual simplex algorithm by multiplying by (-
1) the restrictions of type .
When all the restrictions are of type we switch to i).
If a restriction is of type =, then it becomes double inequality.
i) The linear programming problem it is brought to a standard form, and it is built
an initial basis, either:
- only with auxiliary variable y
- and by adding artificial variables u
ii) We make up the initial simplex table as the primal simplex algorithm. We
calculate the j
value. We check if the solution found is dual realizable (it is

optimal, but it is not admissible).
iii) If the solution in the initial table is dual realizable, it is applied the dual simplex
algorithm.
a) The exit criteria:
Within dual simplex algorithm leaves the basis the vector
r
a
corresponding
to the larger negative component in absolute value from the solution found
in the initial table corresponding to column b.
b) We calculate the indicators
0 , ) min(
j
<
r j r j j
a a c z
We divide the elements from line j
to the strictly negative components of

the vector line which is leaving and we choose the minimum.
iv) We continue with the pivot method, and the algorithm is developed until the
solution is optimal and admissible.
Observation 23. The pivot in the case of dual simplex algorithm is always negative.
5. Reoptimization in linear programming
In linear programming problems occur sizes that we have considered constant. These
are the elements of vectors b, c and of matrix A. However, in the economic activity are
frequent changes of the conditions underlying the linear programming models, where it
appears the need to develop mathematical methods to allow a dynamic approach of economic
phenomena.
Reoptimization consists in recalculating the optimal solution in the situation in which
are modified some of the elements of the vectors b, c and matrix A, which shape the activity
of a trader.
Let be the linear programming problem given under a standard form (6)
b Ax
0 x
We consider that the initial problem has been solved, so it was obtained the last simplex
table with optimal solution
B
x
~
.
5.1 Modification of free terms vector of restrictions
9
With the modification of b vector, it modifies also the optimal solution becoming
b B x
B
1
~
~
. But the solution remains optimal, as
j j B j
B
j
c a B c c z
1
~
.
So, from the last simple table of the initial problem is taken the matrix
1
~
B
and it is
calculated the new solution
b B x
B
1
~
~
, existing two possibilities:
a) If all components of the solution
B
x
~
are nonnegative (
0
~

B
x
), then this is
admissible and as it verifies also the condition of optimum, it results that it will
be the new optimal solution.
b) If
B
x
~
are negative components, then the solution is not admissible and it will
be a basic solution dual feasible. In this case, it is taken the last simplex table
of the initial linear programming problem, replacing
B
x
~
with
B
x
~
in column b,
and it is continued with dual simplex algorithm.
5.2 Modification of objective function coefficients
It is noted that the basic solution of the initial problem b B x
B 1
~
~
does not changes, but
the optim indicators change, so that instead of
j j B j
B
j
c a B c c z
1
~
we have
j j B j
B
j
c a B c c z

1
~
Therefore, we resume the last simplex table of the initial problem where there are made
the following changes:
i) j
c
with j
c
(the coefficients of the above variables j
x
from the first line of the
table),
ii) column
B
c
with column
B
c
There are calculated the new differences
j
B
j
c z

. There are the cases:

i) If all differences
j
B
j
c z

correspond to the optim condition, then the optimal

programme remains the same..
ii) If the differences
j
B
j
c z

does not verify the optim condition then it is applied

the primal simplex algorithm until the optimal solution it is obtained.
5.3 Adding column vectors to the matrix of restrictions
Suppose that a number of p variables p n n
x x
+ +
, ,
1
is added with the corresponding

vectors a p n n
a a
+ +
, ,
1
.
The vectors p n n
a a
+ +
, ,
1
are written in the optimal basis from the last simplex table
of the initial linear programming problem, using the formula
10
j
B
j
a B y
1
~
,
p n n j + + , 1
It starts from the last simplex table of the initial linear programming problem and
extends to the right with columns of new variables
B
p n
B
n
y y
+ +
, ,
1
. Next, it is calculated
j
B
j
c z
,
p n n j + + , 1
, corresponding to the inserted columns, being possible the following
situations:
a) If all values
j
B
j
c z
for the new added vectors correspond to the optim
criteria, then the optimal programme is the same
b) If differences
j
B
j
c z
do not verify the optim condition, then the primal
simplex algorithm it is applied until it is reached the optimal solution.
Application. A company has at the 4 departments
1
S
,
2
S
, 3
S
,
4
S
a disposable of
mechanical type of 1200, 1400, 2000, and respectively 800 u.m. Three products
1
P
,
2
P
,
3
P
are manufactured with the unitar consumption of hours/ machine given in the table.
a) Determine the levels to be produced
1
P
,
2
P
, 3
P
so that the total benefit of
the firm to be maximum;
b) The firm must modify the disposable quantity and it has two variants
1
b
,
2
b
.
It must be chosen the optimum solution regarding the profit maximization.
c) Following some innovations, the products unitary profits modify and become
8, 6, respectively 7. Calculate the optimal solution given the new conditions.
Can this variant be accepted, if the company must manufacture all three
products without exception?
d) The company involves in manufacturing two products,
4
P
,
5
P
, with the
unitar consumption according to the table. The benefit brought by
4
P
is 3 and
the one brought by
5
P
is 5. Find out the maximum profit.
P
1
P
2
P
3
Disp. b
1
b
2
P
4
P
5
S
1
S
2
S
3
S
4
1 2 1
1 0 3
2 1 2
0 2 3
2400
800
1000
1200
2600
600
1200
1600
1600
1000
800
1200
2
0
1
0
3
1
0
1
Profit 3 4 5 3 5
Profit 8 6 7
Solution:
a) The problems mathematical model is:
3 , 1 , 0
800 3 2
2000 2 2
1400
1200 2
5 4 3 ) ( max
3 2
3 2 1
3 1
3 2 1
3 2 1

'
+
+ +
+
+ +
+ +
i x
x x
x x x
x x
x x x
x x x x f
i
By rewriting the problem in standard form we get:
11
( )
4 , 1 , 0
3 , 1 , 0
800 3 2
2000 2 2
1400
1200 2
0 5 4 3 ) ( max
4 3 2
3 3 2 1
2 3 1
1 3 2 1
4 3 2 1 3 2 1

'
+ +
+ + +
+ +
+ + +
+ + + + + +
j y
i x
y x x
y x x x
y x x
y x x x
y y y y x x x x f
j
i
The matrix of the equations system is:
,
_
1 0 0 0 3 2 0
0 1 0 0 2 1 2
0 0 1 0 3 0 1
0 0 0 1 1 2 1
A
The simplex table will be:
B
B
C
b
3 4 5
1
x

2
x

3
x
0 0 0 0
1
y

2
y

3
y

4
y

min
1
y
2
y
3
y
4
y
0
0
0
0
1200
1400
2000
800
1 2 1
1 0 3
2 1 2
0 2 3
1 0 0 0
0 1 0 0
0 0 1 0
0 0 0 1
1200
1400/3
1000
800/3
j
B
j j
c z
0
-3 -4 -5 0* 0* 0* 0*
1
y
2
y
3
y
3
x
0
0
0
5
2800/3
600
4400/3
800/3
1 4/3 0
1 -2 0
2 -1/3 0
0 2/3 1
1 0 0 -1/3
0 1 0 -1
0 0 1 -2/3
0 0 0 1/3
2800/3
600
2200/3
-
j
B
j j
c z
4000/3
-3 -2/3 0* 0* 0* 0* 5/3
1
y
1
x
3
y
3
x
0
3
0
5
1000/3
600
800/3
800/3
0 10/3 0
1 -2 0
0 11/3 0
0 2/3 1
1 -1 0 2/3
0 1 0 -1
0 -2 1 4/3
0 0 0 1/3
100
-
800/11
400
j
B
j j
c z
9400/3
0* -20/3 0* 0* 3 0* -4/3
1
y
1
x
2
x
3
x
0
3
4
5
1000/11
8200/11
800/11
2400/11
0 0 0
1 0 0
0 1 0
0 0 1
1 9/11 -10/11 -6/11
0 -1/11 6/11 -3/11
0 -6/11 3/11 4/11
0 4/11 -2/11 1/11
1000/9
-
-
600
j
B
j j
c z
39800/11
0* 0* 0* 0* -7/11 20/11 12/11
12
2
y
1
x
2
x
3
x
0
3
4
5
1000/9
6800/9
1200/9
1600/9
0 0 0
1 0 0
0 1 0
0 0 1
11/9 1 -10/9 -6/9
1/9 0 4/9 -3/9
6/9 0 -3/9 0
-4/9 0 2/9 3/9
j
B
j j
c z
33200/9
0* 0* 0* 7/9 0* 10/9 6/9
B
-1
Therefore, for the company to obtain maximum profit, it is necessary to produce
1
P
,
2
P
and 3
P
in the following quantities:
9
6800
1
x
,
9
1200
2
x
,
9
1600
3
x
.
The maximum profit is:
9
33200
9
1600
5
9
1200
4
9
6800
3
9
1000
0 max + + + b C f
B
.
b) For the
1
b
variant we have:
,
_
,
_
,
_

9 1400
9 2400
9 5500
9 1100
1000
1800
1200
1300
9 3 9 2 0 9 4
0 9 3 0 9 6
9 3 9 4 0 9 1
9 6 9 10 1 9 11
1
1
b B x
B
The solution
B
x
is optimal, hence the company achieves maximum profit:
9
33100
9
1400
5
9
2400
4
9
5500
3
9
1100
0 max + + + f
.
In case of
2
b
variant we have:
,
_
,
_
,
_

9 1200
9 1800
9 8700
9 600
800
2400
1300
1500
9 3 9 2 0 9 4
0 9 3 0 9 6
9 3 9 4 0 9 1
9 6 9 10 1 9 11
'
2
1
b B x
B .
The solution not being admissible, we apply the dual simplex algorithm:
B
B
C
b
3 4 5
x
1
x
2
x
3
0 0 0 0
y
1
y
2
y
3
y
4

y
2
x
1
x
2
x
3
0
3
4
5
-600/9
8700/9
1800/9
1200/9
0 0 0
1 0 0
0 1 0
0 0 1
11/9 1 -10/9 -6/9
1/9 0 4/9 -3/9
6/9 0 -3/9 0
-4/9 0 2/9 3/9
j j j
c z
39300/9
0* 0* 0* 7/9 0* 10/9 6/9
y
3
x
1
x
2
x
3
0
3
4
5
60
940
220
120
0 0 0
1 0 0
0 1 0
0 0 1
-11/10 -9/10 1 6/10
6/10 4/10 0 -6/10
3/10 -3/10 0 2/10
-2/10 2/10 0 2/10
j j j
c z
4300
0* 0* 0* 2 1 0* 0
The maximum profit corresponding to the
2
b
variant is:
4300 120 5 220 4 940 3 60 0 max + + + f
The company will choose the solution for which the profit is higher, namely the
2
b
variant, case in which the optimal programme is:
13
940
1
x
,
220
2
x
,
120
3
x
.
c) We modify the costs in the last simplex table and use the primal simplex algorithm
B
B
C
b
8 6 7
x
1
x
2
x
3
0 0 0 0
y
1
y
2
y
3
y
4

min
y
2
x
1
x
2
x
3
0
6
7
4
1000/9
6800/9
1200/9
1600/9
0 0 0
1 0 0
0 1 0
0 0 1
11/9 1 -10/9 6/9
1/9 0 4/9 -3/9
6/9 0 -3/9 0
-4/9 0 2/9 3/9
-
-
-
1600/3
j
B
j j
c z
72800/9
0* 0* 0* 0* -1 9 2
y
2
x
1
x
2
y
4
0
8
6
0
1400/3
2800/3
400/3
1600/3
0 0 2
1 0 1
0 1 0
0 0 3
1/3 1 -2/3 0
-1/3 0 2/3 0
2/3 0 -1/3 0
-4/3 0 2/3 1
j
B
j j
c z
24800/3
0* 0* 1 4/3 0* 10/3 0*
In order to be achieved maximum profit, only two of the three problems are
manufactured, namely
1
P
in the amount of
3
2800
and
2
P
in the amount of
3
400
.
Therefore, this variant is not accepted in the imposed conditions.
d) We have:
,
_
,
_
,
_

9 4
9 12
9 10
9 7
4
0
1
2
9 3 9 2 0 9 4
0 9 3 0 9 6
9 3 9 4 0 9 1
9 6 9 10 1 9 11
4
1
4
a B a
B
,
_
,
_
,
_

9 4
9 3
9 1
9 7
2
1
2
1
9 3 9 2 0 9 4
0 9 3 0 9 6
9 3 9 4 0 9 1
9 6 9 10 1 9 11
5
1
5
a B a
B
B
B
C
b
3 4 5
1
x

2
x

3
x
0 0 0 0
1
y
2
y
3
y

4
y

3 5

4
x

5
x
min
2
y
1
x
2
x
3
x
0
3
4
5
1000/9
6800/9
1200/9
1600/9
0 0 0
1 0 0
0 1 0
0 0 1
11/9 1 -10/9 -6/9
1/9 0 4/9 -3/9
6/9 0 -3/9 0
-4/9 0 2/9 3/9
7/9 7/9
-10/9 -1/9
12/9 3/9
4/9 4/9
1000/7
-
400
400
j
B
j j
c z
33200/9
0* 0* 0* 7/9 0* 10/9 6/9 11/9 -16/9
5
x
1
x
2
x
3
x
5
3
4
5
1000/7
5400/7
600/7
800/7
0 0 0
1 0 0
0 1 0
0 0 1
11/7 9/7 -10/7 -6/7
2/7 1/7 2/7 -3/7
1/7 -3/7 1/7 2/7
-8/7 -4/7 6/7 5/7
1 1
-1 0
1 0
0 0
-
-
300
160
14
j
B
j j
c z
27600/7
0* 0* 0* 25/7 16/7 -10/7 -12/7 3 0
5
x
1
x
2
x
4
y
5
3
4
0
280
840
40
160
0 0 6/5
1 0 3/5
0 1 -2/5
0 0 7/5
1/5 3/5 -2/5 0
-2/5 -1/5 4/5 0
3/5 -1/5 -1/5 0
-8/5 -4/5 6/5 1
1 1
-1 0
1 0
0 0
-
1050
-
400/3
j
B
j j
c z
4080
0* 0* 6/5 11/5 8/5 -2/5 0* 3 0
5
x
1
x
2
x
3
y
5
3
4
0
2000/6
4400/6
400/6
800/6
0 0 10/6
1 0 -2/6
0 1 -1/6
0 0 7/6
-2/6 2/6 0 2/6
4/6 2/6 0 -4/6
2/6 -2/6 0 1/6
-8/6 -4/6 1 1/6
1 1
-1 0
1 0
0 0
j
B
j j
c z
24800/6
0* 0* 10/6 10/6 8/6 0* 2/6 3 0
The maximum profit is:
6
24800
6
800
0
6
400
4
6
4400
3
6
2000
5 max + + + f
References:
Bdin V., Firic O., (1995) Curs de matematici pentru economiti, Universitatea
Romno-American, Bucureti.
Dumitru M., Manole S. (coord.) (2006) Matematic economic, Ed. Independena
Economic, Piteti.
Gale D. (1960) The Theory of Linear Economic Models, McGraw-Hill.
Lancaster K. (1973) Analiza economic matematic, Ed. tiinific, Bucureti.
Oprescu Gh. (coord.) (1999) Matematici aplicate n economie, Ed. Independena
Economic, Brila.
Purcaru I. (1997) Matematici generale & Elemente de optimizare, Ed. Economic,
Bucureti.

15
Electronic copy available at: http://ssrn.com/abstract=1544882 Electronic copy available at: http://ssrn.com/abstract=1544882
TRANSPORTATION PROBLEM
Lect. univ. dr. Mihaela Albici
Constantin Brancoveanu University Pitesti
Faculty of Management Marketing in Business Affairs Rm. Valcea
mturmacu@yahoo.com
Lect. univ. dr. Delia Teselios
Faculty of Management Marketing in Business Affairs Pitesti
delia_teselios@yahoo.com
Lect. univ. dr. Cristina Tenovici
cris2001vl@yahoo.com
Conf. univ. dr. Carmen Radut
c_radut@yahoo.com

Abstract: Transportation problem at its general form consists in finding
an optimum transportation plan of a product from the receiving centers to
consuming centers, so that the transportation costs to be minimal
Keywords: mathematical model, linear programming problem,
transportation problem
1. Problem formulation and mathematical model
Problems of transportation type represent a particular case of linear
programming problems [2].
The suppliers m
F , , F
1 of a particular product, who dispose the quantities
, D
1
respectively m
D
, supply with that product the beneficiaries n
B , , B
1 ,
whose necessary is
, N
1
respectively n
N
. The supply requires the unit
transportation costs ij
c
from the supplier i
F
to the beneficiary j
B
,
m , , i 1
,
n , , j 1
. There are searched the ij
x
quantities, transported from each supplier
i
F
to each beneficiary j
B
, so that the total costs of supply to be minimum.
The mathematical model of transportation problem is the following:
1
Electronic copy available at: http://ssrn.com/abstract=1544882 Electronic copy available at: http://ssrn.com/abstract=1544882
m
i
n
j
ij ij
x c f
1 1
min
(11)
i
n
j
ij
D x
1
,
m , , i 1
(12)
j
m
i
ij
N x
1
,
n , , j 1
(13)
0
ij
x
,
m , , i 1
,
n , , j 1
(14)
where the problem parameters meets the conditions
0
i
D
,
0
j
N
,
0
ij
c
,
m , , i 1
,
n , , j 1
(15)
ij ij
x c
is the transportation cost on the route j i
B F
, and function
m
i
n
j
ij ij
x c f
1 1
represents the total cost of transportation.
Restriction (12) shows that the total of quantities allocated to beneficiaries
by the supplier i
F
does not exceed its available quantity.
Restrictions (13) impose the conditions that all transported quantity from
the suppliers to the beneficiary j
B
is at least equal to his needs.
Restriction (14) are conditions of non-negativity.
Note 15: Most often, the restrictions (12) and (13) arise in practice as
equalityes. Moreover, by elementary transformation, any problem of type (11)-
(15) can be brought to the form in which restrictions are equalities.
For these reasons, we will consider the following transportation problem:
m
i
n
j
ij ij
x c f
1 1
min
(16)
i
n
j
ij
D x
1
,
m , , i 1
(17)
j
m
i
ij
N x
1
,
n , , j 1
(18)
0
ij
x
,
m , , i 1
,
n , , j 1
(19)
where the problem parameters meet the conditions:
0
i
D
,
0
j
N
,
0
ij
c
,
m , , i 1
,
n , , j 1
(20)
We will consider the total demand ( the total necessary)
n
j
j
N N
1
and the total supply (total available quantity)
m
i
i
D D
1
Definition 16: A transportation problem is balanced if the total demand is
equal to the total supply, that is
D N
. If the total demand is different from the
total supply (
D N
), then the problem is unbalanced, being possible the
situations
D N >
and
D N <
. Developing a transportation problem, is most often
done by organizing data (quantities required, available quantities and unit costs
of transport) in a table:
2
Beneficiaries
Suppliers
1
B
. . . j
B
. . . n
B
Available
quantity
1
F
11
c
. . . j
c
1 . . . n
c
1 1
D
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
i
F
1 i
c
. . . ij
c
. . . in
c
i
D
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
m
F
1 m
c
. . . mj
c
. . . mn
c
m
D
Requirement
1
N
. . . j
N
. . . n
N
D
N
Note 17. Mathematical model (16)-(20) has numerous applications in
economic practice [2]. Thus, with the transportation problem set forth, we have
the example:
- If m
D , , D
1 represent crop areas of same quality, and n
B , , B
1 are
n crops, then the problem of optimal location of crops has the
mathematical model (11)-(15)
- If m
F , , F
1 are m banks which finance n projects n
B , , B
1 , ij
c

being the unit profits of the financial placement, then the financing problem of
these projects has the mathematical model (21), (12)-(15), where
m
i
n
j
ij ij
x c f
1 1
max
(21)
Mathematical model (16)-(20) is a linear programming problem. Indeed,
this model can be rewritten as:
cx f min
(22)
b Ax
(23)
0 x
(24)
where
( )
t
mn m n n
x , , x , , x , , x , x , , x , x x
1 2 21 1 12 11

( )
mn m n n
c , , c , , c , , c , c , , c , c c
1 2 21 1 12 11

( )
t
n m
N , , N , D , , D b
1 1
,
_
1 00 1 00 1 00
0 01 0 01 0 01
0 10 0 10 0 10
1 11 0 00 0 00
0 00 1 11 0 00
0 00 0 00 1 11

.........
......... ......... ......... .........
.........
.........
.........
......... ......... ......... .........
.........
.........
A
(25)

3
4. Solving the problem of transportation
4.1 Determination of an initial basic solution
We consider the transportation problem of minimum (16)-(20) as balanced.
According to Note 17, equality type restrictions of this problem form a linear
system of equations with unknows, whose matrix is given by (25).
It is noted that by adding the first m equations (restrictions (12)) and the
last n equations (restrictions (13)) we reach to the same equation, since
D N
,
the problem being balanced. It results that
1 + n m rangA
. The theorem which
follows justify the definitions which will be given.
Theorem 18. The matrix A of restriction system on transportation problem
(16)-(20) has the rank
1 +n m
.
The demonstration can be done by induction after
1 + n m r
.
Note 19. From theorem results that the system (23) has
1 +n m
principal
unknows and
( ) 1 + n m mn
secondary unknows. So, a basic solution of
transportation problem (16)-(20) has at most
1 +n m
strictly positive components (the
basic ones), others being zero (the non-basic ones). A basic solution is nondegenerate
if it has exactly
1 +n m
strictly positive components and degenerate if it has less
than
1 +n m
strictly positive components.
As we have seen, for solving a linear programming problem it is first necessary to
have a basic solution.
Due the particular form of transportation problems, were also found specific
methods for determining an initial basic solution, such as:
- North-West corner method;
- Row minimum method;
- Column minimum method;
- Minimum cost method;
- Maximum difference method.
North-West Corner Method
It is allocated to cell (1,1) from ij
x
transported quantities table the value equal
to the minimum between the adequate necessary
1
N
and the adequate disposable
1
D
, namely:
'
>
1 1 1
1 1 1
11
if ,
if ,
D N D
D N N
x

Thus, the first line is saturated, that is
0
1

j
x
,
n , , j 2
, if
1 1
D N <
, or the first
column, that is
0
1

i
x
,
m , , i 2
, if
1 1
D N >
, or even both, if
1 1
D N
.
It is eliminated the first line or the first column or even both (where appropriate)
and the process continues for the table thus obtained. So, it is assigned value to cell
(2,1) or (1,2) or (2,2), as
1 1
D N <
,
1 1
D N >
or
1 1
D N
, the allocation rule being the
same: the minimum between the necessary and the disposable existing during
4
allocation time. The algorithm continues in the same manner, until all cells are
assigned values.
Row Minimum Method
The allocation rule is the same, namely the quantity ij
x
is equal to the
minimum between the necessary and the disposable existing at the time of
allocation, but the process is applied on each line, in order of increasing unit
costs of transport ij
c
. It begins with the first line and go through all the others,
on each line being allocated value the cell corresponding to minimum cost and
where that line is not saturated, it is continued to the cell corresponding to
minimum cost from those remaining on that line.
Column Minimum Method
It is proceeded just like with the previous method, but takes up the columns
from the first row.
Minimum Cost Method
It is proceeded like with the last two methods, but it starts with the cell
corresponding to the minimum cost ij
c
, then continue as in other ways. After
the elimination of a line or column, is seeking the minimum value of cost in
the table remained.
Note 20. In general, application of these methods lead to different basic
solutions, although it is possible to obtain some of them, or even all, equal.
Often, the closest to the optimal solution is the basic solution obtained by the
minimum cost method [4].
To have a basic solution as close to the optimal solution, after applying
the four methods we can determine the value of objective function for each
solution. Then, choose the basic solution for which the objective function has
the smallest value.
Example 1. Three warehouses
1
F
,
2
F
, 3
F
which have the quantities 225,
75, respectively 250 units of a product supply with that product four shops
1
B
,
2
B
, 3
B
,
4
B
, which need the quantities 100, 150, 200 respectively 100 units.
The costs of the product unit transport and the previous data are summarized in
the following table:
5
1
B
2
B
3
B
4
B
Available quantity
1
F
1 2 1 3 225
2
F
4 2 3 1 75
3
F
2 1 3 2 250
Requirement
10
0
15
0
20
0
10
0
550
550
There are requested the quantities ij
x
(transported from supplier i
F
to
beneficiary j
B
),
{ } 3 2 1 , , i
,
{ } 4 3 2 1 , , , j
, so that the total cost of supply to be
minimum.
According to this table, unit costs of transport are:
1
11
c
,
2
12
c
,
1
13
c
,
3
14
c
,
4
21
c
,
2
22
c
,
3
23
c
,
1
24
c
,
2
31
c
,
1
32
c
,
3
33
c
,
2
34
c
.
Since the total necessary is
550 100 200 150 100 + + + N
, and the total
disposable
550 250 75 225 + + D
, the problem is balanced (
D N
).
We determine the basic solution of transportation problem through the
North-West corner method. According to this method, we will have:
{ } 100 100 , 225 min
11
x
,
0
21
x
,
0
31
x
;
{ } 125 150 , 125 min
12
x
,
0
13
x
,
0
14
x
;
{ } 25 75 , 25 min
22
x
,
0
32
x
;
{ } 50 200 , 50 min
23
x
,
0
24
x
;
{ } 150 150 , 250 min
33
x
;
{ } 100 100 , 100 min
34
x
.
Calculations and results are recorded in a 3x4 table containing the cells ij
x
.
Judgements are made on a table, in which are no longer written the unit costs of
transport, and non-basic cells are left blank.
1
B
2
B
3
B
4
B
Available quantity
1
F
10
0
12
5
225
2
F
25 50 75
3
F
15
0
10
0
250
Requirement
10
0
15
0
20
0
10
0
550
550
The obtained basic solution in nondegenerate, whereas the number of
nonzero basic cells is
6 1 4 3 1 + +n m
.
Using the minimum cost method, obtain the basic solution:
1
B
2
B
3
B
4
B
Available quantity
1
F
10
0
12
5
225
2
F
75 75
3
F
15 75 25 250
6
0
Requirement
10
0
15
0
20
0
10
0
550
550
The basic solution for the row minimum method will be:
1
B
2
B
3
B
4
B
Available quantity
1
F
10
0
12
5
225
2
F
75 75
3
F
15
0
75 25 250
Requirement
10
0
15
0
20
0
10
0
550
550
In case of the column minimum method, the basic solution will be
degenerate because the number of nonzero basic cells is 5, smaller than
6 1 4 3 1 + +n m .
1
B
2
B
3
B
4
B
Available quantity
1
F
10
0
12
5
225
2
F
75 75
3
F
15
0
10
0
250
Requirement
10
0
15
0
20
0
10
0
550
550
4.2 Determination of optimal solutions
We consider again a balanced transportation problem:
m
i
n
j
ij ij
x c f
1 1
min
(16)
i
n
j
ij
D x
1
,
m , , i 1
(17)
j
m
i
ij
N x
1
,
n , , j 1
(18)
0
ij
x
,
m , , i 1
,
n , , j 1
(19)
Attaching to each restriction of type (17) the dual variable i
u
,
m , , i 1

and to each restriction of type (18) the dual variable j
v
,
n , , j 1
, we obtain
the dual problem of transportation problem:

+
n
j
j j i
m
i
i
v N u D g
1 1
max
(26)
ij j i
c v u +
,
m , , i 1
,
n , , j 1
(27)
i
u
, j
v
- oarecare,
m , , i 1
,
n , , j 1
(28)
7
According to the theorem of complementary spacing, the couple of optimal
solution
( )
0
ij
x
for primal and
( )
0 0
j i
v , u
for dual are admissible solutions (satisfy
the relationships (12), (13), respectively (27)) which verify the relation:
( ) 0
0 0 0

ij j i ij
x v u c
(29)
Next, we consider that transportation problem admits nondegenerate
solutions.
Note 21. These relationships shows that if
0
0
ij
x
(
0
ij
x
is a basic component),
then:
ij j i
c v u +
0 0
From the above results the following theorem:
Theorem 22. A basic solution
B
x of transportation problem (16)-(20) is an
optimal solution if and only if:
0
j i ij
v u c
,
m , , i 1
,
n , , j 1
(30)
So, verifying the optimality of a basic solution requires the determination
of dual variables i
u
and j
v
, which are the solutions of the system:
ij j i
c v u +
,
( )
B
x
I j , i
(31)
where
B
x
I
is the set of pairs of basic indices.
Theorem 23. Linear system (31) of
1 +n m
equations with
n m+

unknown has an infinity of solutions that depend on a parameter. Thus, if
( )
0 0
j i
v , u
is a particular solutio of the system, then:
k u u
i i
+
0
,
k v v
j j

0
,
R k
is also, a solution.
Note 24. The significance of this theorem is that it can arbitrarily fix one
of the systems variables (31), and the others are then determined in a unique
manner. In this way, the optimality of the situation is not influenced. Using the
presented results, the potential method consists in doing the following steps:
1. It solves the system (31). To determine a solution is given a
convenient value to one of the variable, usually 0.
2. It verifies the optimality of the basic solution
B
x by calculating the
differences
ij j i ij
c v u +
,
( )
B
x
I j , i
There are possible the following situations:
a) If
0
ij
,
( )
B
x
I j i ,
, then the basic solution is optimal. When
0 <
ij
,
( )
B
x
I j , i
,, the optimal solution is unique, and when there is
0
0 0

j i

for
( )
B
x
I j , i
0 0 , the problem admits more optimal solutions
b) If there is
0 >
ij
, then the considered solution is not optimal and it

improves like this:
- It is allocated an amount
0
in cell
( )
0 0
j , i
in the table of solution
B
x
corresponding to the larger ij
element.
8
- It is built a cycle, a sequence of cells beginning and ending with
( )
0 0
j , i
.
This cycle contains only basic cells, except
( )
0 0
j , i
cell, and two
consecutive cells are on the same row or the same column.
- It is established a manner to go over and the cycles cells are numbered,
beginning with
( )
0 0
j , i
. In the cells of even rank it is subtracted
, and in
the cells of odd rank it is added
to quantities ij
x
.
- It is determined
to be equal to the smallest quantity ij

x
from which it
is subtracted.
- It is found a new solution replacing
previously determined.
3. With the obtained solution it is resumed the process from step 1).
Note 25. From the manner in which the cycle is obtained, it results that the
necessary and the disposable does not modify, as in any column and row of the cycle in
one of the cells it is added
, and in the other
is subtracted.
Note 26. The algorithm presented above it is applied only to balanced
transportation problems which admit nondegenerate basic solutions.
Example 2. For the problem set out above, we consider the basic solution obtained
with the help of the North-West corner method:
1
B
2
B
3
B
4
B
Available quantity
1
F
10
0
12
5
225
2
F
25 50 75
3
F
15
0
10
0
250
Requirement
10
0
15
0
20
0
10
0
550
550
In order to test the optimality of this solution, first, there are determined the
dual variables
1
u
,
2
u
, 3
u
,
1
v
,
2
v
, 3
v
,
4
v
, solving the system ij j i
c v u +
for all
basic cells
( ) j , i
. As we specified earlier, it is assigned the 0 value to one of the dual
variables in the in the equation corresponding to the first basic cell considered and then
are determined the other dual variables. We have:
( ) 1 1,
:
1
1 1
+v u
,
0
1
v

1
1
u
;
( ) 2 1,
:
2
2 1
+v u
,
1
1
u

1
2
v
;
( ) 2 , 2
:
2
2 2
+ v u
,
1
2
v

1
2
u
;
( ) 3 2,
:
3
3 2
+v u
,
1
2
u

2
3
v
;
( ) 3 , 3
:
3
3 3
+v u
,
2
3
v

1
3
u
;
( ) 4 , 3
:
2
4 3
+v u
,
1
3
u

1
4
v
;
We calculate the sizes ij j i ij
c v u +
for all non basic cells
( ) j , i
:
( ) 3 , 1
:
2 1 2 1
13 3 1 13
+ + c v u
;
( ) 4 , 1
:
1 3 1 1
14 4 1 14
+ + c v u
;
( ) 1 , 2
:
3 4 0 1
21 1 2 21
+ + c v u
;
( ) 4 , 2
:
1 1 1 1
24 4 2 24
+ + c v u
;
( ) 1 , 3
:
1 2 0 1
31 1 3 31
+ + c v u
;
9
( ) 2 , 3
:
1 1 1 1
32 2 3 32
+ + c v u
;
The matrix of the elements ij
and the dual variables are written in the

following table:
0
1
v 1
2
v 2
3
v 1
4
v
1
1
u
2 1
1
2
u 3 1
1
3
u
1 1
The solution is not optimal because we have
0 2
13
>
. We form the cycle:
( ) 3 , 1

( ) 3 , 2

( ) 2 , 2

( ) 2 , 1
1 2 3 4
odd even odd even
It takes

13
x
and form the cycle of solution improvement
125

+ 25 50
1
B
2
B
3
B
4
B
1
F
10
0
125
2
F + 25 50
3
F
150 100
Because
{ } 50 50 , 125 min
, we obtained nondegenerated basic solution:
1
B
2
B
3
B
4
B
1
F
10
0
75 50
2
F
75
3
F
15
0
100
Next, we need to test the optimality of this solution.
It is solved, again, the system ij j i
c v u +
for the basic cells
( ) j , i
:
( ) 1 1,
:
1
1 1
+v u
,
0
1
v

1
1
u
;
( ) 2 1,
:
2
2 1
+v u
,
1
1
u

1
2
v
;
( ) 3 , 1
:
1
3 1
+v u
,
1
1
u

0
3
v
;
( ) 2 , 2
:
2
2 2
+ v u
,
1
2
v

1
2
u
;
( ) 3 , 3
:
3
3 3
+v u
,
0
3
v

3
3
u
;
( ) 4 , 3
:
2
4 3
+v u
,
3
3
u

1
4
v
;
For non-basic cells
( ) j , i
, there are calculated the differences ij j i ij
c v u +
:
( ) 4 , 1
:
3 3 1 1
14 4 1 14
+ c v u
;
( ) 1 2,
:
3 4 0 1
21 1 2 21
+ + c v u
;
( ) 3 , 2
:
2 3 0 1
23 3 2 23
+ + c v u
;
( ) 4 , 2
:
1 1 1 1
24 4 2 24
+ c v u
;
( ) 1 , 3
:
1 2 0 3
31 1 3 31
+ + c v u
;
( ) 2 , 3
:
3 1 1 3
32 2 3 32
+ + c v u
;
10
So, for the matrix of elements ij
and for dual variables we have the table:

0
1
v 1
2
v 0
3
v 1
4
v
1
1
u 3
1
2
u 3 2 1
3
3
u
1 3

The solution not being optimal (
0 3
32
>
), we form the cycle
( ) 2 2,

( ) 2 1,

( ) 3 , 1

( ) 3 , 2
1 2 3 4
odd even odd even
that is

75 + 50

150
1
B
2
B
3
B
4
B
1
F
10
0
75 + 50
2
F
75
3
F
150 100
We choose
{ } 75 150 , 75 min
and obtain the solution:
1
B
2
B
3
B
4
B
1
F
10
0
12
5
2
F
75
3
F
75 75 100
For testing the optimality of current solution, by calculating the elements ij
, we
have:
0
1
v 2
2
v 0
3
v 1
4
v
1
1
u 3 3
4
2
u
0 1 2
3
3
u
1
0 2
24
>
), we form the cycle
( ) 4 , 2

( ) 4 , 3

( ) 2 , 3

( ) 2 , 2
1 2 3 4
odd even odd even
that is
1
B
2
B
3
B
4
B
1
F
10
0
12
5
11
2
F 75
3
F
+ 75 75 100
We choose
{ } 75 100 , 75 min
1
B
2
B
3
B
4
B
1
F
10
0
12
5
2
F
75
3
F
15
0
75 25
For testing the optimality of current solution, by calculating elements ij
, we
have:
0
1
v 2
2
v 0
3
v 1
4
v
1
1
u 3 3
2
2
u
2 2 1
3
3
u
1
0 1
31
>
), we form the cycle:
( ) 1 , 3

( ) 1 , 1

( ) 3 , 1

( ) 3 , 3
1 2 3 4
odd even odd even
that is
1
B
2
B
3
B
4
B
1
F 100 + 125
2
F
75
3
F

15
0
75 25
We choose
{ } 75 75 , 100 min
1
B
2
B
3
B
4
B
1
F
25
20
0
2
F
75
3
F
75
15
0
25
For testing the optimality of current solution, by calculating elements ij
, we
have:
0
1
v 1
2
v 0
3
v 0
4
v
1
1
u
2 2
1
2
u 3 2 2
2
3
u
1
12
The obtained solution is optimal, because
0
ij
,
{ } 3 , 2 , 1 i
,
{ } 4 , 3 , 2 , 1 j
.
Therefore, the optimal solution of the given problem is:
25
11
x
,
0
12
x
,
200
13
x
,
0
14
x
,
0
21
x
,
0
22
x
,
0
23
x
,
75
24
x
,
75
31
x
,
150
32
x
,
0
33
x
,
25
34
x
,
and the total cost minimum of transportation is:
min
650 2 25 1 150 2 75 1 75 1 200 1 25 + + + + + f
5. Solutions degeneration
We consider balanced the transportation problem (16)-(20).
According to relations (29), the system (31) is simply undetermined only if
the basic solution
B
x is nondegenerate. If the basic solution is degenerate, the
system (31) is a linear system with
n m+
unknown with a number of equations
equal to the number of nonzero basic cells.
Because of this, it would be necessary to also set other variables, which can
create difficulties. Therefore, for the removal of degeneration it is achieved the
disturbance of problem, which can be made, for example, by changing the
necesarry and the disposable quantities as:
+
i i
D D
,
m , , i 1
,
j j
N N
,
1 1 n , , j
,
m N N
n n
+
,
where
0 >
is small enough. The disturbed problem, which is also
balanced, can be solved in an usual manner, and when it is reached the optimal
solution, it takes
0
.
Note 27. It is possible that degeneration occur in the initial basic solution,
when the number of cells which are given values is strictly smaller than
1 +n m
, or over improving solution, when there are at least two alternatives
that give the parameters value
. In each of the situations it can be considered

the disturbed problem as above. To recognize degeneration from the beginning,
we have the following theorem.
Theorem 28. Balanced transportation problem (16)-(20) admits degenerate
basic solution if and only if there are the sets
{ } m , , , M 2 1
and
{ } n , , , P 2 1
so
that:

P j
j
M i
i
N D
Example 3. For the problem set out in Example 1, consider the basic
solution obtained using the column minimum method:
1
B
2
B
3
B
4
B
Available quantity
1
F
1 2 1 3 225
13
2
F
4 2 3 1 75
3
F
2 1 3 2 250
Requirement
10
0
15
0
20
0
10
0
550
550
The problem is balanced, because the total supply is equal to the total
demand:
550 100 200 150 100 + + + N
,
550 250 75 225 + + D
.
We determine an initial basic solution with the column minimum method:
1
B
2
B
3
B
4
B
Available quantity
1
F
10
0
12
5
225
2
F
75 75
3
F
15
0
10
0
250
Requirement
10
0
15
0
20
0
10
0
550
550
The obtained solution is degenerate because the number of occupied cells
(5) is strictly smaller than
6 1 4 3 1 + + n m
.
Proceeding as above, we consider a new problem, in which the unit costs of
transportation are the same, to each of the disposable quantities it is added
,
the necessary quantities for
1
B
,
2
B
and 3
B
are maintained, and to the necessary
of
4
B
it is added
3
, where
0 >
is a small enought positive parameter, that is:
1
B
2
B
3
B
4
B
Available quantity
1
F
1 2 1 3 225
+
2
F
4 2 3 1 75
+
3
F
2 1 3 2 250
+
Requirement
10
0
15
0
20
0
100
3 +
550 3 +
550 3 +
With the column minimum method, for the problem above, we find the solution:
1
B
2
B
3
B
4
B
Available quantity
1
F
10
0
125
+
225
+
2
F
75
2 75
+
3
F
15
0
100
+
250
+
Requirement
10
0
15
0
200
100
3 +
550 3 +
550 3 +
For dual variables and the differences ij
we have the table:

0
1
v 3
2
v 0
3
v 2
4
v
1
1
u
0 2
3
2
u
1 2
14
4
3
u
2 1
Because the solution is not optimal (
0 2
31
>
), we apply the procedure of
current solution improvement:
1
B
2
B
3
B
4
B
1
F 100 + + 125
2
F 75 + 2
3
F

15
0
+ 100
We choose
{ } + 75 100 , 75 , 100 min
and obtained the solution:
1
B
2
B
3
B
4
B
1
F
25
+
20
0
2
F
75 +
3
F
75

15
0
25
2 +
We test the solution optimality, by calculating dual variables and the matrix
elements
( )
3 1
3 1
, j
, i
i j

0
1
v 1
2
v 0
3
v 0
4
v
1
1
u
2 2
1
2
u 3 2 2
2
3
u
1
Because
0
ij
,
{ } 3 , 2 , 1 i
,
{ } 3 , 2 , 1 j
, the current solution is optimal.
Returning to the initial problem, we take
0
in the above solution and we obtain:
1
B
2
B
3
B
4
B
1
F
25
20
0
2
F
75
3
F
75
15
0
25
Therefore, the optimal solution of the given problem is the same:
25
11
x
,
0
12
x
,
200
13
x
,
0
14
x
,
0
21
x
,
0
22
x
,
0
23
x
,
75
24
x
,
75
31
x
,
150
32
x
,
0
33
x
,
25
34
x
,
and the total cost minimum of transportation is the same:
min
650 2 25 1 150 2 75 1 75 1 200 1 25 + + + + + f .
15
6. Solving unbalanced transportation problems
As we have seen in paragraph 3, the transportation problem (16)-(20) is
unbalanced if the total demand
n
j
j
N N
1
is different from the total supply
m
i
i
D D
1
, existing the following situations:
a)
D N <
(the supply exceeds the demand)
b)
D N >
(the demand exceeds the supply)
In the case of a) the problem transforms into a balanced one, if it is inserted
a fictitious customer 1 + n
B
, whose unit costs of transportation are zero and
whose necessary is the amount that compensates the difference between supply
and demand, that is:
0
1

+ n , i
c
,
m , , i 1
;
N D N
n

+1 .
In the case of b) it is reached to a balanced problem by inserting a fictitious
provider 1 + m
F
, for which the unit costs of transportation are zero and the
disposable is equal to the difference between supply and demand, that is:
0
1

+ j , m
c
,
n , , j 1
;
D N D
m

+1 .
In both situations, solving the balanced problem is made as in paragraph 4,
and when it is reached the optimal solution, the fictitious customer (the column
1 + n
) or the fictitious provider (the row
1 + m
) in case b) is given up.
Example 4. We consider the minimum transportation problem:
1
B
2
B
3
B
Available quantity
1
F
2 1 3 15
2
F
4 1 2 5
3
F
1 1 2 20
Requirement 25 25 10
40
60
Because the total necessary
60 10 25 25 + + N
exceeds the total disposable
40 20 5 15 + + D
, the problem is unbalanced. In order to balance the transportation
problem, we insert a fictitious provider
4
F
with the disposable
20 40 60
4
D N D
and the transportation unit costs
0
4

j
c
,
3 1 j
:
1
B
2
B
3
B
Available quantity
1
F
2 1 3 15
2
F
4 1 2 5
3
F
1 1 2 20
16
4
F
0 0 0 20
Requirement 25 25 10 60
Applying the North-West corner method, we obtain for the balanced
problem the following solution:
1
B
2
B
3
B
Available quantity
1
F
15 15
2
F
5 5
3
F
5 15 20
4
F
10 10 20
Requirement 25 25 10 60
For verifying the optimality of this solution, we calculate the dual variables
and the differences ij
.

0
1
v 0
2
v 0
3
v
2
1
u
1 1
4
2
u
3 2
1
3
u
1

0
4
u
0
The solution is not optimal, because there is the difference
0 3
22
>
.
We apply the procedure of improving the current solution:
1
B
2
B
3
B
1
F
15
2
F 5
3
F
+ 5 15
4
F
10 10
We choose
{ } 5 15 , 5 min
1
B
2
B
3
B
1
F
15
2
F
5
3
F
10 10
4
F
10 10
:

0
1
v 0
2
v 0
3
v
2
1
u
1 1
1
2
u 3 1
17
1
3
u
1

0
4
u
0
0 1
12
>
.
1
B
2
B
3
B
1
F 15
2
F
5
3
F
+ 10 10
4
F
10 10
We choose
{ } 10 15 , 10 min
1
B
2
B
3
B
1
F
5 10
2
F
5
3
F
20
4
F
10 10
:

0
1
v 1
2
v 1
3
v
2
1
u
2
2
2
u
2 1
1
3
u
1 2

1
4
u
1
0 1
41
>
.
1
B
2
B
3
B
1
F 5 + 10
2
F
5
3
F
20
4
F 10 10
We choose
{ } 5 5 , 10 min
1
B
2
B
3
B
1
F
15
18
2
F
5
3
F
20
4
F
5 5 10
:

0
1
v 0
2
v 0
3
v
1
1
u
1 2
1
2
u 3 1
1
3
u
0 1

0
4
u
The solution found is optimal (
0
ij
,
{ } 4 , 3 , 2 , 1 i
,
{ } 3 , 2 , 1 j
). The optimal
solution of the initial problem it is obtained from the above table, giving up the
fictitious row:
0
11
x
,
15
12
x
,
0
13
x
,
0
21
x
,
5
22
x
,
0
23
x
,
20
31
x
,
0
32
x
,
0
33
x
,
40 1 20 1 5 1 15 min + + f
.
7. Solving the transportation problem
with objective function of maxim
Just consider the transportation problem of balanced maximization, which
admits nondegenerate solutions:
m
i
n
j
ij ij
x c f
1 1
max
(32)
i
n
j
ij
D x
1
,
m , , i 1
(33)
j
m
i
ij
N x
1
,
n , , j 1
(34)
0
ij
x
,
m , , i 1
,
n , , j 1
(35)
To determine an initial basic solution it can be used the North-West corner
method or row maximum method or column maximum method or maximum
cost method, instead of row minimum method or column minimum method or
minimum cost method.
In this case, the optimal criterion is:
0 +
ij j i ij
c v u
,
( )
B
x
I j , i
where
B
x
I
is the set of pairs of basic indices.
To improve a solution, situation in which there are differences
0 <
ij
, it is
allocated a quantity
to cell
( ) l , k
corresponding to the difference kl

maximum in modulus, between elements
0 <
ij
.
In addition to these changes, the algorithm for solving develops like in the
case of minimum transportation problem.
19
Example 5. Three commercial banks finance together three investment
projects. The capital available of each bank, the capital necessary for each
project (measured in billion of lei), and the unit profits of the investments (profit
units for an invested monetary unit) are given in the following table:
Projects
Banks
1
P
2
P
3
P
Available capital
1
B
2 3 1 100
2
B
5 1 4 120
3
B
3 4 2 230
Required
capital
10
0
14
0
21
0
450
450
To be determined the best financing programme.
The problem is balanced, because the necessary capital and the available
capital are equal.
Applying the maximum cost method, it is obtained the basic solution:
1
P
2
P
3
P
Available capital
1
B
10
0
100
2
B
10
0
20 120
3
B
14
0
90 230
Required capital
10
0
14
0
21
0
450
The optimality of this solution is verified in the following table:

0
1
v
1
2
v 1
3
v
2
1
u
0 0
5
2
u
5

3
3
u
0
Because
0
ij
,
{ } 3 , 2 , 1 i
,
{ } 3 , 2 , 1 j
, the solution is optimal:
0
11
x
,
0
12
x
,
0
13
x
,
0
21
x
,
5
22
x
,
0
23
x
,
0
31
x
,
0
32
x
,
0
33
x
,
and the maximum total profit of the finance is:
max 5 5 1 f
.
20
Bibliography:
[1]. Bdin V., Firic O., (1995) Curs de matematici pentru economiti,
Universitatea Romno-American, Bucureti.
[2]. Dumitru M., Manole S. (coord.) (2006) Matematic economic,
Editura Independena Economic, Piteti.
[3]. Oprescu Gh. (coord.) (1999) Matematici aplicate n economie,
Editura Independena Economic, Brila.
[4]. Purcaru I. (1997) Matematici generale & Elemente de optimizare,
Editura Economic, Bucureti.
21
On nancial derivatives and dierential
equations used in their assessment
Teselios, Delia and Albici, Mihaela
University Constantin Brancoveanu Pitesti, University
Constantin Brancoveanu Ramnicu Valcea
28. October 2009
MPRA Paper No. 18225, posted 28. October 2009 / 23:01
On financial derivatives and differential equations used in their assessment
Abstract. This paper deals with the assessment of options on dividend paying stock and
futures options. We start from the case of the underlying asset who does not generate dividend
and then switch to an underlying asset which pays a continuous dividend yield. The final
conditions and the boundary conditions added to a partial differential equation, allow an
accurate determination of the solution.
JEL classification: C00, C02
Keywords: differential equation, options on dividend paying stock, futures options,
Black_Scholes model, Blacks model
The theory of financial derivatives is concerned with the pricing and modelling of financial
instruments such as options, futures and more sophisticated products. This theory is of great
practical utility in the modern stock market, and a mature academic field in business, commerce
and mathematics departments throughout the world.
Derivatives, the fundamental characteristic of the modern financial marketplace, are
financial instruments whose value depends on the underlying assets (ex. stock, goods, etc.).
As part of derivatives, this paper deals with options on dividend paying stock and options
on futures contracts, or futures options.
An option is a contract that gives the buyer the right, but not the obligation, to buy or sell
an underlying asset at a specific price (called strike price and noted with E) on or before a certain
date. There are 2 types of options: buying options (CALL) and selling options (PUT).
Depending on their exercise moment, we distinguish 2 main categories of options:
european options (whose practice is allowed only at maturity) and american options (whose
practice is allowed any moment before maturity).
One of the most important concepts of modern financial theory is the Black_Scholes model
of options assessment (published in 1973).
This model assumes that the underlying asset pays zero dividends over the life of the
option. In practice, this is rarely the case.
A useful extension of the Black_Scholes model addresses to an underlying asset that pays a
dividend continuously with a known yield. This assumption allows us to apply the model to a
wide range of options, including options on futures. Therefore, we start from the case of the
underlying asset who does not generate dividend and then switch to an underlying asset which
pays a continuous dividend yield at rate D per annum.
We note with S = the value of the underlying asset, V = the value of the option which has the S
underlying asset, = drift coefficient, = volatility, B = Brownian motion, r = risk_free interest rate
and t = the current time.
Starting from the stochastic differential equation
t
SdB Sdt dS + =
, (1)
which represents time evolution of the S underlying asset, after a series of calculations [5], it is obtained
the Black_Scholes partial differential equation
0
2
1

2
2
2 2
=
V r S
S
V
r
S
V
S
t
V
(2)
Obtaining the correct solution of the equation (2) depends on the correct specification of the
conditions to limit and the final conditions.
For a CALL option:
- the final condition associated with the Black_Scholes equation at the moment of time t=T
(namely at the date of payment) is
V(S,T) = max(S-E, 0) (3)
- the boundary conditions are:
0 ) , (
0
lim =
t S V
S
and (4)
=

) , ( lim t S V
S
(5)
Using the differential equation (2) together with the conditions (3)-(5) it is obtained the
value of the european CALL option (noted with C):
C= ) ( ) (
2
) (
1
d N e E d SN
t T r

(6)
where
t T
t T r
E
S
d
+ +
=
) )(
2
1
( ln
2
1
,
t T d d =
1 2

and N(x)=the standard normal cumulative distribution function.
For a PUT option:
- the final condition associated with the Black_Scholes equation at the moment of time t=T is:
V(S,T) = max(E-S, 0) (7)
- the boundary conditions are
) (
) , (
0
lim
t T r
e E t S V
S

=
and (8)
0 ) , ( lim =

t S V
S
(9)
Using the differential equation (2) together with the conditions (7)-(9), it is obtained the
value of the european PUT (noted with P):
) ( ) (
2
) (
1
d N e E d SN P
t T r
+ =

(10)
with
) ( 1 ) ( d N d N =
.
In [5] it is shown that stock that grows from S to S
T
with a continuous dividend yield of D
would grow from S to S
T
e
DT
without the dividends
.
Hence, a european option on a stock with price S paying a continuous dividend yield of D
has the same value as a european option on a stock with price S
T
e
-DT
that pays no dividends.
Replacing S with S
T
e
-DT
both in the equation (2) and in relations (6) and (10), we obtain:
0 ) (
2
1

2
2
2 2
=
V r S
S
V
D r
S
V
S
t
V
(11)
)
2
(
) (
)
1
(
) (
d N
t T r
e E d N
t T D
Se C

=
, (12)
)
2
(
) (
)
1
(
) (
d N
t T r
e E d N
t T D
Se P

+

=
, with (13)
t T
t T D r
E
S
d
+ +
=
) )(
2
1
( ln
2
1
t T d d =
1 2
t T
t T D r
E
S
+
=
) )(
2
1
( ln
2
Numerical example 1: For a european PUT option on a Microsoft stock, having the date of
payment in 4 days, we consider the following characteristics
1
: the current price S=25, the striking
price E=25, volatility (%) 25.38, the risk_free interest rate (%) 0.2425 and dividend amount 0.52
(dividend yield 2,08%).
Applying the formula (13) it is obtained a value for option of 0.2675.
In Chart 1 there are graphic represented the values of the option calculated with the help of
the Black_Scholes formula, in the situation in which the current price of the stock has the values
given in Table 1, the values of the other specific features remaining constant.
Table 1
Stocks price Options price
25.20 0.1798
25.20 0.1798
25.30 0.1446
25.26 0.1581
25.30 0.1446
25.77 0.0432
25.71 0.0513
25.94 0.0258
25.55 0.0791
25.83 0.0362

0
0,05
0,1
0,15
0,2
25,20 25,20 25,30 25,26 25,30 25,77 25,71 25,94 25,55 25,83
Stocks price
Options price
Chart 1 The graphic of the pricing option value
A futures contract is a firm agreement to buy or sell a specified quantity of an asset at a
specific future date and at a predetermined price today. The futures contract requires the buyer to
buy the underlying asset and the seller to sell it, excepting the case in which the buyer and/or the
seller covers its position before the date of payment, which may happen if these want to obtain a
profit or to limit a loss [9].
An option on a futures contract represents an option (european or american) whose
underlying asset is a futures contract. This can be thought of as an option on a stock paying a
continuous dividend yield equal to the risk_free rate of interest.
This aspect was presented by Fischer Black in the paper The Pricing of Commodity
Contracts published in 1976 in Journal of Financial Economics.
Because of the volatility price of futures contracts, options on these contracts are high-risk
investments.
Be F = futures price and V = the value of the option which has the F underlying asset
Then, the Black differential equation is [8]:
0
2
1

2
2
2 2
=
V r
F
V
F
t
V

(14)
This is actually the equation (11), in which r = D.
1
Data from www.ivolatility.com and http://finance.yahoo.com
The new european CALL and PUT price for a futures option are:
)
2
(
) (
)
1
(
) (
d N
t T r
Ee d N
t T r
Fe C

=
(15)

)
2
(
) (
)
1
(
) (
d N
t T r
Ee d N
t T r
Fe P

+

=
, where (16)
t T
t T
E
F
d
+
=
) (
2
1
ln
2
1
and t T d d =
1 2
.
The significance of the equation (15) is that of the current value of the call equals the
present value of its expected value at expiration[1].
Numerical example 2: For a european CALL option on a futures contract on an X asset,
having the day of payment over 30 days, we consider the following characteristics: futures price
F = 45, the striking price E = 47, volatility (%) 23, the risk_free interest rate (%) 3.
Applying formula (15), it is obtained a value of 0.4625 for an option.
In Chart 2 there are graphic represented the values of the option, in the situation in which the
current price of the stock has the values given in Table 2, the values of the other specific features
remaining constant.
Table 2
Stocks price Options price
45.14 0.5007
45.32 0.5530
45.21 0.5206
45.37 0.5682
45.30 0.5470
45.53 0.6188
45.78 0.7041
45.62 0.6487

0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
0,8
45,14 45,32 45,21 45,37 45,30 45,53 45,78 45,62
Stocks price
Options price
Chart 2 The graphic of the pricing option value
Conclusions:
Financial derivatives have created new ways to understand, measure and manage risks.
In fact, these should be part of any firms risk management strategy to reduce risk and increase
returns.
References:
DeROSA, D.F. (1998) Currency derivatives: pricing theory, exotic options and hedging
applications, John Whiley & Sons.
DOWNES, J. (2003) GOODMAN, J.E., Barrons Finance & Investment Handbook, Barron's
Educational Series.
KOLB, W., OVERDAHL, J. A. (2000) Financial derivatives, Blackwell Publishers.
LYUU, Y.D. (2002) Financial Engineering and Computation: principles, mathematics,
algorithms, Cambridge University Press.
HULL, J. (1997) Options, Futures and Other Derivative Securities, Prentice Hall.
NEFTCI, S., N. (1996) An Introduction to the Mathematics of Financial Derivatives, Second
Edition, Academic Press.
OKSENDAL, B., Stochastic Differential Equations, An introduction with applications, Springer-
Verlag, Sixth Edition.
WILMOTT, P. (2002) Derivative. Inginerie financiara, Editura Economica.
http://dictionar.netflash.ro
Decizii economice in conditii de risc
Belu, Nicoleta and Albici, Mihaela
University Constantin Brancoveanu, Rm. Valcea, Romania
01. October 2009
ECONOMIC DECISIONS IN RISK CONDITIONS
Belu Nicoleta, University Constantin Brancoveanu, Rm. Valcea
Abstract. Decision making always and necessarily implies human actions, which,
when facing an external event (information) must identify the events future status and set up
the potential action ways leading to suggested goal accomplishment[4].
JEL classification: D80, D81
Keywords: Decision, risk, mathematical hope, decisional tree
Decision making results from the occurrence of a troubling issue which requests a
certain solution. Decision making must start when the issue is rightly posed which involves
the analysis of available data, the selection of significant ones and the necessary
formalization. The next step is solving the issue by means of operations, instruments and
logical, algorithmic and heuristic techniques. Decision making iteself intervenes in the
selection of solutions obtained which can be unique optimal or interval solutions sub-
optimal solutions. The last step means assessing and upgrading the solution.
A decisions objectiveness is assimilated with a risk situation when it is objectively
obvious that there are chances that potential natures states
1
might occur as well as regarding
the results associated to each state. As far as risk situation is concerned, decisions
subjectivity corresponds to uncertainty, when either the chances of nature states occurrence
cannot be objectively appreciated, or one does not have any data about nature states.
Decision theory involves three premises that ensure judgments convergence [3]:
Currency utilitys being linear for various decision makers. In 1738, Bernoulli
showed in Petersburg paradox that the economic significance of an additional
currency unit is inversely proportional to the number of currency units held. M.
Kalecki stated an increasing price law of risk where he showed that if a price
goes up, the cost of assuming it goes up even faster;
A decision maker does not disagree or agree with risk accepting a risky
situation is not due to agreeing with risk, and avoiding it is not the cause of
disagreement;
In any circumstances, a decision maker tries to maximize the value or
anticipated utility of reward.
If there are two or more nature states, the way to make decisions depends on the
information about the prospects to accomplish nature states.
Risk is a social, economic, political or natural category whose origin lies in the
uncertainty that may or may not generate a damage because of hesitation and unconsciousness
when making decisions.
1
A nature state is a potential configuration of decisional environment which along with the knowledge about
individual actions entirely generates all consequences, Bogdan-Constantin Andronic, Performana firmei, Ed.
Polirom, Iai, 2000, p. 157
1
Analyzing decisional issues in risk conditions involves the assessment of decision
alternatives and their consequences as decisions effects are not surely known. In such cases,
the optimal action way is the one maximizing anticipation, respectively showing a results
potential or anticipated value.
Decision making in risk conditions means several nature states have accomplishment
probabilities comprised between 0 and 1.
If
1
p
probability when accomplishing
1
N
state and
2
p
probability when
accomplishing
2
N
state are known, decision making takes place in risk conditions and
solving means the set-up of utilities mathematical hopes for each alternative and the choice
of alternative to which maximum utility mathematical hope corresponds.
Mathematical hope is the well-balanced average size of an activitys results, the shares
being equal to the probabilities of events or nature states.
( )
( )
=
j
j ij V
x p r S
i m i , 1 =
,
( ) [ ] 1 , 0
j i
x p
,
( )
=
j
j
x p 1
where:
j
x
random phenomena typical of an issue;
( )
j
x p
probabilities of their production;
( )
i
v S
mathematical hope of results in
i
V
variant.
The optimal variant is the one meeting the relationship:
( ) { }
i opt
v S V max =
Application. A trade company launches a new product on the market. The market
conjecture may be favourable, relatively favourable or unfavourable to the new product. The
company has set up three strategies referring to the launching lot size estimating the economic
results for each, according to the market situation.
The aim is to find out the launching strategy that might lead to a maximum profit
using mathematical hope.
Market
Lot
Very
favourable
Relatively
favourable Unfavourable
1
L
1500
48 23 - 10
2
L
1300
34 18 - 8
3
L
1100
20 14 - 5
Nature state
probability
0.3 0.5 0.2
( ) ( ) ( ) ( ) [ ]
6
1
10 9 , 23 10 2 , 0 23 5 , 0 48 3 , 0 = + + = L S
( ) ( ) ( ) ( ) [ ]
6
2
10 6 , 17 6 , 1 9 2 , 10 8 2 , 0 5 , 0 18 3 , 0 4 , 3 = + = + + = L S
( ) ( ) ( ) ( ) [ ] 12 1 7 6 5 2 , 0 14 5 , 0 3 , 0 3 , 20
3
= + = + + = L S
Using the method of mathematical hope, the strategy bringing maximum profit is the
first one, namely launching a lot of 1,000 products.
When developing complex economic actions which are sequences of decisional
processes and non-decisional economic processes, it is often necessary one should decide not
only according to variants immediate consequences, but also to the remote consequences of a
set of future decisional processes. Such decisional sets can be modelled by means of
decisional tree.
2
Decisional trees are an instrument to approach decisional matters with multiple
uncertain results. Tree structures are made up of branches symbolizing decision makers
action variants and also nature states - , and knots marked by O when a decision belongs
to a manager and by
t
when a decision belongs to nature. Intermediary decisions are
conditioned by the estimated results of decisions in final knots. In order to find the best
solution, a way in the tree is searched starting from the final knot or knots towards the first
knot [5]. For the calculation of various values or utilities, one usually resorts to conditioned
probabilities. If the solution is ambiguous, one can try to detail an intermediary knot.
Application. Avon Company manufactures and markets the Ever deodorant spray
product. The company staff analyzes the need to perform a marketing survey and therefore
they resort to a specialized company. The cost of such a project is 75 thousand u.m.
The marketing company receives information regarding the opportunity of market
launch:
if the market is favourable, the product will be launched;
if the market is unfavourable, the project will be ceased.
The product is estimated to have a growth potential of about 10% of the market in the
context of significant competition.
As far as the sale method is concerned, there are two types:
V
1
selling the entire production obtained through intermediaries (they get a
fixed revenue of 375 thousand u.m.);
V
2
selling by own efforts (stores and employed sales agents).
The following situations may arise in the latter variant:
R
1
maximum product sales;
R
2
average condition sales;
R
3
poor sales.
Potential strategies:
S
1
selling through intermediaries without asking for the marketing companys
help in order to make up the market survey;
S
2
marketing the product on their own expenses without testing the market;
S
3
surveying the market and then using either of the two selling ways.
Solution:
The estimation of revenues and the probability of the three situations occurrence:
Nature states Manifestation
probability
Estimated
revenues
1
R 0.6 1050
2
R 0.2 700
3
R 0.2 400
The probability of the markets being 0.65% product favourable and 0.35%
product unfavourable has been reached by means of the marketing survey.
The probabilities to simultaneously accomplish various nature states are
rendered.
Nature states Favourable
market
Unfavourable
market
Absolute
probabilities
1
R 0.47 0.13 0.6
3
2
R 0.14 0.06 0.2
3
R 0.04 0.16 0.2
Absolute
probabilities
0.65 0.35 1.00
According to the table data, the probabilities of
1
R
,
2
R
,
3
R
situations conditioned by
favourable or unfavourable market can be calculated:
P (
1
R
/favourable market) = 0.47/0.65 = 0.72;
P (
2
R
P (
3
R
P (
1
R
/unfavourable market) = 0.13/0.35 = 0.37;
P (
2
R
/unfavourable market) = 0.06/0.35 = 0.17;
P (
3
R
/unfavourable market) = 0.16/0.35 = 0.46.
mathematical hope for knot
( ) ( ) ( ) 934 24 154 756 400 06 , 0 700 22 , 0 1050 72 , 0 = + + = + +
4
10
11
12
13
14
15
16
17
18
19
875
1050
700
400
875
1050
700
400
1
4
5
6
8
7
9
3
2
Testing
Own expenses
Intermediary
875
1050
700
400
Favourable
response
0.65
Unfavoura
ble
response
0,35
11
Intermediary
Own expenses
0.6
0.2
0.2
0.37
0.17
0.46
10 Own expenses
0.72
0.22
0.06
Intermediary
( ) ( ) ( ) 691 184 119 338 400 46 , 0 700 17 , 0 1050 37 , 0 = + + = + +
Assessing the consequences in decisional knot
( ) 934 934 ; 875 max
( ) 875 691 ; 875 max
( ) ( ) 913 306 607 875 35 , 0 934 65 , 0 = + = +
( ) ( ) ( ) 850 80 140 630 400 2 , 0 700 2 , 0 1050 6 , 0 = + + = + +
( ) { } 875 850 ; 875 ; 75 913 max =
Optimal decision: selling by intermediaries without testing the market.
References
Andronic B.-C. (2000) Company Performance, Polirom Publishing House, Iai.
Belu N. and co. (2002) Management. Applications, Case Studies and Practical Exercises,
Independena Economic Publishing House, Piteti.
Coea M., Nastovici L. (1987) Risk Assessment. Analysis Methods and Techniques at
Micro- and Macro-Economic Level, Lux Libris, Braov.
Prez R. (1981) Como decidir, Editorial Cangallo, Buenos Aires.
Raiu-Suciu C. (1995) Modelling and Simulating Economic Processes, Didactic i
Pedagogic Publishing House, Bucharest.
Raiu-Suciu C. (1993) Economic Modelling, Sylvi Publishing House, Bucharest.
5
4
5
2
3
1
Electronic copy available at: http://ssrn.com/abstract=1567389
Statistical Soundings
mturmacu@yahoo.com
Assoc. Prof. / Senior Lecturer Carmen Rdut,
"Constantin Brancoveanu" University Pitesti
c_radut@yahoo.com
Abstract. Among the sources to get statistical data, along with other procedures such
as census surveys, statistical reports, investigations, or monographies, statistical soundings
are a way that is fully developing at present. Due to its efficiency in getting data at low costs,
the sounding method is among the procedures preferred when trying to get data. The
sounding method provides differentiated take-off variants and techniques, adjusted to
different types of population in order to ensure the random feature of units take-off and
eventually a samples representativeness.
Keywords: statistical sounding, the turning ball procedure, the non-turning ball procedure
JEL Classification: C40, C46
In a sounding research survey facing two types of collectivities the total collectivity
one wishes to know, and the sample one registers a set of pair elements are to be found that
have the same methodological contents but differ from the perspective of the information
comprised therein [2].
Total collectivity is also known as mother-population or reference statistical
population, native population, general population, and it means the set of constitutive units of
a collectivity subject to statistical research. Defining population (total collectivity) is done by
enumerating all the constitutive units. Their set makes up the collectivity amount and is
marked by N.
The partial collectivity extracted from total collectivity with a view to be analyzed is
known under various names according to the applicability field of sounding research, namely:
analyzed selection, specimen, sample, proof, population. A specimen/sample is a sub-set of
units extracted from a collectivity one wishes to know.
Defining a specimen is done by enumerating the constitutive units of the sub-set
extracted and analyzed in the N amount population. The amount of a specimen is marked by
n. Mainly for cost reasons, the specimen amount is much lower than the population amount
1
where it is extracted from, that is if partial observation takes place, there is the following
relation: N n < . If N n , there is an exhaustive observation.
The variable under analysis can be quantitative (individuals incomes, the number of a
companys employees) or qualitative (individual gender). The values of an X feature are
i
x
.
The data resulting from analyzing a specimen allow two categories of indicators to be
found out:
indicators of specimen distribution called statistical values or sounding values;
indicators of population distribution called parameters.
The former category is found out by processing the data ensuing from specimen
analysis and the latter is estimated by a statistical inference according to the statistical
values obtained for the respective specimen.
The procedure allowing the passage from a statistical value calculated according to
specimen data to an unknown true value is called statistical inference.
The pair terms (parameters-statistical values) encountered in sounding research have
the same methodological contents but differ from the perspective of the information they use.
Thus, the average and variation which are characteristic values for the two collectivity
categories are named differently parameters for the population and statistics for specimens
due to their different nature in sounding research. The typical sounding values have statistical
nature (variables) since k specimens can be extracted from the same N population, each
sample having its average and variation.
In order to mark the two indicator categories, different notation systems are used,
namely: to mark parameters either capital letters or Greek letters are used, whereas for
statistical values, Roman lower-case letters are used.
The notations and calculation relations used to define population parameters and
statistical sounding values that help to set the typical values of a statistical distribution are
shown in Table 1, where M, respectively m are the number (value) of favourable events for
the population, respectively of the analyzed specimen.
Table 1. Pair terms in research by sounding
Typical values
Of a population:
Parameters
Of a specimen:
Statistics (sounding values)
For X random variable
Average
N
x
x
N
i
i
1
n
x
x
n
i
i
1
Variation
( )
N
x x
N
i
i
1
2
2
( ) ( )
1
; '
1
2
2 1
2
2

n
x x
s
n
x x
s
n
i
i
n
i
i
For alternative (Bernoullian) variable
Share
N
M
p
n
m
w
Average
p x
w x
Variation ( ) p p 1
2
( ) w w s 1
2
Source: E. Jaba, Statistics, Economic Publishing House, Bucharest, 1998
Defining statistical population requires on one hand the population statistical
delimitation and on the other the checking of the population homogeneousness level.
2
Checking the population homogeneousness level means analyzing the variation
indicators of its definition traits, an operation which can be done according to the data ensuing
from prior total analyses or the data resulting from several successive soundings. Checking
the population homogeneousness is a prerequisite in order to properly choose sampling
procedures.
A sounding basis is a list (for example, trade companies records) or any other form
that shows a populations units in a systematized way and allows the selection of the units to
be part of the specimen. A sounding basis is therefore the quest list or field, that is the
population for which the results provided by sounding are extended.
The differences that might occur between the set of units making up a population and
the set of units making up a sounding basis lead to covering errors.
Defining a specimen supposes the solution of the following operations:
Choosing and defining the units used in sampling;
Choosing a specimen (the type of sounding and sampling ways).
Defining sampling (quest) units implies knowing the units nature and way of
organization within a population. Sampling units can be:
Simple units (ex.: an individual) defining is simple;
Complex units (ex.: a family) the organization way must be known in order to
ensure the proper unit selection.
In a sounding research, two notions of the unit term can be encountered:
Analysis unit (Ro. U.O.);
Sampling unit (Ro. U.E.).
An analysis unit is the unit one tries to know and actually gathers the information
about.
A sampling unit is the unit whose importance in the sampling process is to answer
questions when it is different from the analysis unit. It provides information upon the analysis
units that one wishes to know.
Taking account of the two types of units that might be found in a sounding, two types
of specimens can be defined:
The specimen of sampling units (real);
The specimen of analysis units (deduced).
There is a relation between the two types of sampling, that is a specimen of sampling
units is extracted that makes one know a U.O. sample. That will allow each analysis unit to be
given exactly the same extraction probability that comes along with a sampling unit.
Therefore, it is useful to make the difference between the two notions.
Identifying a unit from C population is done by marking it as i and the value of an X
variable it takes shall be marked by
i
x
.
The wrong defintion of sampling units and of the sounding basis as well may lead to
so-called covering errors which can affect a soundings results. The wrong specification of the
variables to be analyzed along with their potential variants can lead to the occurrence of
observation errors which may affect population parameters value (average, share etc.).
Choosing a specimen implies choosing the sounding type, the extraction procedures of
sampling units, the representativeness level and the sample size. Solving such issues is done
according to population nature and amount, its homogeneousness level and structure on one
hand, and to the purpose, desired precision and sounding research cost on the other.
By the way to extract a specimens units, random sampling comprises the following
sampling procedures:
Repeated random sampling;
Non-repeated random sampling;
Mechanical random sampling;
Guided sampling;
Mixed sampling.
3
The procedure of repeated random sampling is done according to the scheme of the
turning-ball box. The extracted unit is always brought back to the population so that the
amount of the general collectivity (N) remains unchanged all throughout the unit extraction in
order to make up a specimen. Thus, each unit in the total collectivity has equal (1/N) chances
to be selected.
The procedure of non-repeated random sampling is done by the scheme of the non-
turning-ball box. Once a unit has been extacted from the collectivity, it is no longer brought
back to the latter. Subsequent to the gradual decrease in the general collectivity amount, each
units chance to enter the specimen increases along with making the selection. When the
selection comes to an end, the number of units left in the population will be N-n, that is the
difference between the population amount and the sample amount. A units probability to
participate in the selection increases while the selection takes place, therefore:
( ) 1
1
;...;
2
1
;
1
1
;
1
3 2 1

n N
p
N
p
N
p
N
p
n
A specimen is representative if there is a structure compliance between itself and the
general collectivity and implicitly between the statistical values (averages, shares etc.)
obtained from a specimen and the populations right parameters where the specimen has been
extracted from.
The question arising is the following: to what extent do the sounding values, that is the
specimens estimators properly show the parameters, that is the entire populations indicators?
If several samples are extracted from a population, a multitude of averages (or
other features) is obtained.
If the samples amount is high enough, these sounding averages are distributed
according to the normal distribution which has an absolutely symmetric form
and where the highest occurrence probability is held by the sounding average
whose value coincides with the populations and for which the sounding error
is nule. If a large number of samples had been used, the average that could
often have ensued, that is the one in the curve top, would have approximated
the populations real average in the best way.
In reality, a single sample is extracted from a population and the following
question arises: what chances are there so that between the real average,
namely the one of the entire population and the average of this single sample
no big difference should exist, therefore the samples average should best
approximate the populations average? If a single sample is used, its average
will no longer necessarily coincide with the populations real average. The
latter will be included in a confidence interval being around the samples
average:
x specimen error X < population x < specimen +error
At statistical level, in order to quantitatively express a specimens representativeness,
two different entities are used:
a) a maximum error which expresses the highest difference accepted to occur between
the value found in the sample and the populations proper value. This error must produce a
small interval in order to precisely locate the parameters value.
The maximum error accepted in opinion surveys must not exceed 5%.
b) a probability or confidence level that shows the chances for the real error not to
exceed the accepted limit. The minimum accepted value of this probability level is 0.95 (or
95%), namely the maximum risk to err an estimation is below 0.05 (or 5%).
The two sizes precision and security are not independent, that is if either of them is
fixed, the other one results from the calculation.
4
An estimations precision (the maximum error) and its security can be improved
simultaneously, whereas the other conditions are identical.
Using the phrase representative sample is justified if it implies that an error as
compared with all the researched features is below an acceptable limit and the risk is below
5%.
A sample is representative as compared with a certain feature or several features and
not in a general way.
In a sounding research, two types of errors can occur:
1) Registering (analysis) errors which are common in any kind of reporting;
2) Representativeness errors which are typical in sounding research;
3) Covering errors due to an incomplete sounding basis and non-replies.
Registering errors are the differences between the statistical values of a specimen
(averages, variations) and the parameters of the collectivity the specimen has been extracted
from, and they occur in two ways:
1) Systematic errors can occur as a consequence of the subjective influence
of the one making the selection, by not observing the principles of random
sampling;
2) Accidental errors are typical of a sounding and occur even when the
principles of selection theory are met in order to make up a specimen. They
are the effect of several factors action with a random feature. They are
connected with the sounding nature, that is by the low number of units
making up a sample, the latter cannot identically reproduce the structure of
the general collectivity.
The condition for the average of sample x to be representative for general average
X is:
% 5 100
X
X x
The average representativeness error. Working with a single sample, the respective
selection average is known and also spreading a samples values as compared with this
average is known. Instead of deviating the square average of all possible selection averages
from the general collectivity average, there is a spread indicator within the sample. The
average representativeness error (Ro.EMR) has the following form:
n
D
2
EMR (1).
This relation shows that the average representativeness or selection error also called
standard error is directly proportional to the variance and inversely proportional to the
specimens amount.
According to the law of high numbers, the higher the number of respondents, the more
frequent the occurrence of a certain event which tends to approach its theoretical probability.
In order to calculate the average representativeness error:
a) Formula (1) is used if population variance is known;
b) If population variance is not known, it can be replaced by the samples variance if
its amount is high enough.
Table 2 shows the procedures to set representativeness errors for the different types of
selection:
5
Table 2. Procedures to set representativeness errors
In a repeated and random sounding
n
D
x
EMR
In a non-repeated and random sounding
N
n N
n
D
x

2
EMR
In a random and multi-layer sounding
n
D
x
EMR
In a proportional, multi-layer sampling
2
2
n
D n
i i
x

EMR
In a low-amount sounding ( 30 < n )
1
2
n
D
x
EMR
Application. A general collectivity made up of six units whose values are the ones
below is taken into account:
A B C D E F
14 16 18 20 22 24
The requirements are:
a) to make up all the potential samples comprising two units
and using the procedure of the turning and non-turning ball;
b) to centralize the following indicators as frequency distributions:
selection averages;
selection variances;
selection errors.
c) to set in advance the average representativeness error, to compare and
explain the differences between repeated selection and non-repeated
selection.
Solution:
a) In the following, it is shown that if a sounding value is high enough, selection
averages closely follow the general collectivity average ( ) 0 x .
By the procedure of casting lots by the turning ball, the number of potential samples
shall be set by relation:
36 6
2

n
N samples (Table 3), and by the procedure of the non-turning ball, the
number of samples is:
( ) ( )
15
! 2 6 ! 2
! 6
! !
!
n N n
N
C
n
N samples (Table 4).
In order to see how the distribution of selection averages and selection errors is done,
it is necessary to find out if the general average is representative:
the general average is calculated:
19
6
24 22 20 18 16 14
0
+ + + + +
x
the general variance and standard deviation are calculated:
6
( ) ( ) ( ) ( ) ( ) ( )
66 . 11
6
19 24 19 22 19 20 19 18 19 16 19 14
2 2 2 2 2 2
2
0
+ + + + +

41 . 3 66 . 11
2
0 0

the variation coefficient is calculated:
% 94 . 17 100
19
41 . 3
100
0
0

x
C
v

Since
% 35 <
v
C
, it can be appreciated that the sample is homogeneous and the general
average is representative.
The following shows the way selection averages, selection errors and selection
variances are calculated, both by the turning and non-turning ball:
The making up of potential samples and the calculation of average indicators,
selection errors and variance.
7
Table 3. The turning ball procedure
Samples
i
x
feature
variants
i x selection
averages
0 x xi
selection errors
( )
n
x x i
i
i

2
2

selection
variances
0 1 2 3 4
AA 14 14 14 -5 25 0
AB 14 16 15 -4 16 1
AC 14 18 16 -3 9 4
AD 14 20 17 -2 4 9
AE 14 22 18 -1 1 16
AF 14 24 19 0 0 25
BA 16 14 15 -4 16 1
BB 16 16 16 -3 9 0
BC 16 18 17 -2 4 1
BD 16 20 18 -1 1 4
BE 16 22 19 0 0 9
BF 16 24 20 1 1 16
CA 18 14 16 -3 9 4
CB 18 16 17 -2 4 1
CC 18 18 18 -1 1 0
CD 18 20 19 0 0 1
CE 18 22 20 1 1 4
CF 18 24 21 2 4 9
DA 20 14 17 -2 4 9
DB 20 16 18 -1 1 4
DC 20 18 19 0 0 1
DD 20 20 20 1 1 0
DE 20 22 21 2 4 1
DF 20 24 22 3 9 4
EA 22 14 18 -1 1 16
EB 22 16 19 0 0 9
EC 22 18 20 1 1 4
ED 22 20 21 2 4 1
EE 22 22 22 3 9 0
EF 22 24 23 4 16 1
FA 24 14 19 0 0 25
FB 24 16 20 1 1 16
FC 24 18 21 2 4 9
FD 24 20 22 3 9 4
FE 24 22 23 4 16 1
FF 24 24 24 5 25 0
8
Table 4. The non- turning ball procedure
Samples
i
x
feature variants
i x selectio
n averages
0 x xi
selection
errors
( )
n
x x i
i
i

2
2

selection variances
0 1 2 3 4
AB 14 16 15 -4 16 1
AC 14 18 16 -3 9 4
AD 14 20 17 -2 4 9
AE 14 22 18 -1 1 16
AF 14 24 19 0 0 25
BC 16 18 17 -2 4 1
BD 16 20 18 -1 1 4
BE 16 22 19 0 0 9
BF 16 24 20 1 1 16
CD 18 20 19 0 0 1
CE 18 22 20 1 1 4
CF 18 24 21 2 4 9
DE 20 22 21 2 4 1
DF 20 24 22 3 9 4
EF 22 24 23 4 16 1
b) Centralizing selection averages, selection errors and selection variances as
frequency distributions.
Tables 3 and 4 show that if all the potential selections are made, there are different
potential values of selection averages, errors and variances, some of them only once and
others several times.
1. In a simple, repeated, random selection, the following distributions occur:
Table 5. The distribution of selection averages and selection errors
i x selection
averages
0 x xi
selection errors
( )
i
f
occurence
frequency
i
i
f
f

occurrence
probability
( )
i
i f x x
2
0
0 1 2 3 4
14 -5 1 0.03 25
15 -4 2 0.06 32
16 -3 3 0.08 27
17 -2 4 0.11 16
18 -1 5 0.14 5
19 0 6 0.16 0
20 1 5 0.14 5
21 2 4 0.11 16
22 3 3 0.08 27
23 4 2 0.06 32
24 5 1 0.03 25
Total - 36 1.00 210
9
Table 6. The distribution of selection variances
( )
2
i
selection variances
( )
i
f
frequency
i i
f
2
0 1 2
0 6 0
1 10 10
4 8 32
9 6 54
16 4 64
25 2 50
Total 36 210
According to the data centralized in Tables 5 and 6, it is shown that:
i) the average of selection averages tends to coincide with the average of general
collectivity in terms of value:
19
36
1 24 2 23 3 22 4 21 5 20 6 19 5 18 4 17 3 16 2 15 1 14
+ + + + + + + + + +
i
i
i
f
f x
x
Th
erefore, 19 x x .
ii) the variance of potential selection averages as compared to the general average is:
( )
83 . 5
36
210
2
0
2

i
i
i
x
f
f x x
iii) the average of selection variances:

83 . 5
36
210
2
2

i
i i
i
f
f
Checking the mathematical relations between the variation indicators of total

collectivity
( ) 6 N
and those corresponding to the samples made up:
i) the relation of the general variance, the sample amount (n) and the average of
potential selection variances with the general average:
2 2
0
x
n
66 . 11 2 83 . 5
83 . 5
2
2
2 2
0

x
x
n
n

ii) the relation among the general variance, the sample amount and the average of
selection variances:
1
2
2
0

n
n
i
1 2
2
83 . 5 66 . 11
83 . 5
2
66 . 11
2
2
0
i
n
iii) the relation of the general variance, the average of selection variances and the
variance of selection averages with the general average:

2
2
2
0
x
i +
10
83 . 5 83 . 5 66 . 11
83 . 5
83 . 5
66 . 11
2
2
2
0
+
i
x
2. In a simple, non-repeated, random selection, there are the following distributions:

Table 7. The distribution of selection averages and selection errors
i x selection
averages
0 x xi
selection errors
i
f
absolute
frequencies i
i f x
( )
i
i f x x
2
0
0 1 2 3 4
15 -4 1 15 16
16 -3 1 16 9
17 -2 2 34 8
18 -1 2 36 2
19 0 3 57 0
20 1 2 40 2
21 2 2 42 8
22 3 1 22 9
23 4 1 23 16
Total - 15 285 70
Table 8. The distribution of selection variances
2
i
1 4 9 16 25 Total
i
f 5 4 3 2 1 15
2
i
i
f
5 16 27 32 25 105
The indicators characterizing the general collectivity are the same, namely:
19 0 x units,
66 . 11
2
0

The indicators characterizing the population of selection averages:
i) the average of selection averages:
19
19
19
15
285

x x
x
f
f x
x
i
i
i
ii) the variance of potential selection averages as compared to the general average:
( )
66 . 4
15
70
2
0
2

i
i
i
x
f
f x x
iii) the average of selection variances:

7
15
105
2
2

i
i i
i
f
f
The relations among the general variance, the sample amount and the corresponding
sample indicators:
i) the relation among the general variance, the sample amount (n) and the average of
potential selection variances as compared to the general average:
11
2 2
0
x
n
2 2
0
2
2
0
66 . 4 2 66 . 11
66 . 4
2
66 . 11
x
x
n n
>
ii) the relation among the general variance, the sample amount and the average of
selection variances:
1
2
2
0

n
n
i
1 2
2
7 66 . 11
7
2
66 . 11
2
2
0
i
n
iii) the relation among the general variance, the average of selection variances and the
variance of selection averages as compared to the general average:
2
2
2
0
x
i +
66 . 4 7 66 . 11
7
66 . 4
66 . 11
2
2
2
0
+
i
x
In a non-repeated selection, the sample amount is lower because each unit participates
in the selection only once, that is why the following relation shall always be an inequality
one:
66 . 4 2 66 . 11
2 2
0
> >
x
n
c) The anticipatory calculation of representativeness errors starts from relation:
2 2
0
x
n >
The average square deviation of potential selection averages from the general average
is the indicator which synthesizes all the potential selection errors.
Table 9. The comparative calculation of average representativeness errors
Simple, repeated, random selection Simple, non-repeated, random selection
41 . 2
2
66 . 11
2
0 2 2
0
t >
n
n
x x
95 . 1
6
2
1
2
66 . 11
1
2
0
t
,
_
,
_

N
n
n
x

where
,
_
N
n
1 - coefficient of errors
adjustment
It is seen that
95 . 1 41 . 2 > >
nerepetat x repetat x

, since the use of the non-turning
ball procedure leads to smaller errors than those in the turning ball procedure.
References:
12
Jaba E., Statistics, Economic Publishing House, Bucharest, 1998
Isaic-Maniu Al., The Technique of Soundings and Quests, Economic Independence
Publishing House, Brila, 2001
Novak A., Statistics and Opinion Surveys, University Publishing House, Bucharest,
2004
Svoiu Gh. (coord.), Economic Statistics, Applications, Tests, Case Studies, Economic
Independence Publishing House, Brila, 2002
13
Analyzing the Use of Labour Time
mturmacu@yahoo.com
c_radut@yahoo.com
Abstract. The dimension of labour time actually spent at work is an indicator to measure the
organization level of the labour process in a company, branch or national economy.
Keywords: Labour time, indicators, analyzing
Developing economic activities requires the consumption of various natural, human,
material, informational and other resources. The resources attracted in an economic activity
can be studied both as advanced or engaged resources (permanent capital, floating capital,
labour force), and as consumed resources, the consumption of production factors, which if
expressed as a value is comprised within the production current costs (permanent capital
redemption, wage funds, floating material assets expenses) [2].
The heterogeneous feature of advanced/engaged resources makes it difficult to set
their overall indicator; that is why statistical analysis usually regards each constitutive
element in turn.
Analyzing the labour force according to the indicator called average number of
employees does not take account of unused labour time because it includes the people
registered in a unit irrespective of their being present at or absent from their work places, or
whether they work or do not work during an entire labour day. Taking these aspects into
consideration leads to setting certain indicators such as the maximum available time, actual
labour time, off-work time etc. expressed as hours/individual and days/individual, as well as
some other derivative indicators calculated according to the former.
A working hour/individual means a one-hour interval a labourer spends working. A
day/individual means a day an employee spends at their work places irrespective of the
number of hours they actually work that day.
The necessary information in the analysis of labour time use are synthesized in the
Balance Sheet of Labour Time Use drafted for labourers. It is desired that the actual
working time have the highest share when striking the balance. It includes the following
indicators:
1
1. Labour time resources :
a) Calendar time fund (Ro. FTC) set by relations :
Days/individual nz M FTCZ = (1)
where M = the average number of workers and nz = the number of calendar days during an
interval.
Hours/individual 8 = nz M FTCM (2)
b) Free days and statutory holidays shown as days/individual and hours/individual. The size
of this indicator complies with the number of such days during the surveyed interval
(month) and with the number of workers.
c) Rest days also shown as days/individual and hours/individual.
d) Maximum available time fund (Ro. FTMD) shown in :
Days/individual (FTMDZ);
Hours/individual (FTMDM).
d = a (b + c)
2. Labour time use:
e) Actual working time:
Days/individual (TZ);
Hours/individual (TH).
f) Off-work time of which:
i) Off-work time expressed in full days shown in days/individual and hours/individual;
ii) Off-work time during a working day shown as hours/individual.
Off-work time is shown according to the causes that have led to it: maternity leaves
and small number of working hours during pregnancy, sick leaves and half time in case of
illnesses, other types of leaves, unpaid leaves etc.
d = e + f
Using the absolute indicators in the balance, a set of derivative indicators can be
calculated:
The level of using maximum available time :
100
FTMDZ
TZ
(3)
respectively
100
FTMDM
TH
(4)
The average duration of a working day it shows the average number of hours a
labourer works in a day :
TZ
TH
DZ =
(5)
The level of using a working day :
100 =
DNZ
DZ
KDZ (6)
where DNZ = the normal duration of a working day (usually 8 hours).
The average duration of a working month it shows the average number of days a
labourer works in a month :
M
TZ
DL =
(7)
The level of using a working month :
100 =
DNL
DL
KDL (8)
where DNL = the normal duration of an analyzed working month.
The time waste caused by not entirely using a working day :
( ) TZ DNZ DZ (9)
2
The time waste caused by not entirely using a working month, expressed in
days/individual:
( ) M DNL DL (10)
Knowing the entire off-work time and the hourly and daily productivity allows the
assessment of production losses caused by not entirely using the labour time, respectively:
Production losses caused by not entirely using a working day :
( )
h
W TZ DNZ DZ
(11)
where
h
W
= hourly productivity.
Production losses caused by not entirely using a working month:
( )
z
W M DNL DL (12)
where
z
W
= daily productivity.
Total production losses can also be found out due to the incomplete use of a working
day and working month by summing up relations (11) and (12).
Application. The following data about November 2009 are known in an industrial
company:
Table 1
Indicator November 2009
Average monthly number of workers (people) 14000
Number of workers in rest leaves 1500
Actual working time:
- hours/individual
- days/individual
1960000
270000
Hourly productivity (Euros/hour) 220000
a) Draw up the balance of working time use;
b) Calculate the indicators of working time use.
Solution:
a) The balance of labour time use has the following structure:
Table 2
Working time resources Working time use
1. Calendar time fund (Ro. FTC) 1. Actual working time (Ro. TEL)
2. Time during free days and statutory
holidays (Ro. FZLSL)
2. Off-work time (Ro. TNL) by causes
3. Time during rest leaves (Ro. FCO)
4. Maximum available time fund (Ro. FTMD)
Note: All the balance indicators are calculated both as days/individual and hours/individual.
The balance equation is: FTMD = TEL + TNL
where: FTMD = FTC FZLSL FCO
TEL = TH or TZ
3
=
=
= =
individual hours
individual days
Z T FTC
cal
/ 3360000 8 30 14000
/ 420000 30 14000
cal
Z
= the number of calendar days in the respective month.
=
=
= =
individual hours
individual days
Z T FZLSL
lib
/ 896000 8 8 14000
/ 112000 8 14000
lib
Z
= the number of free days and statutory holidays in the respective month.
=
=
= =
individual hours
individual days
Z T FCO
lucr CO
/ 264000 8 22 1500
/ 33000 22 1500
lucr
Z
= the number of working days in the respective month.
=
=
= =
individual hours
individual days
TEL FTMD TNL
/ 240000 1960000 2200000
/ 5000 270000 275000
Table 3. The balance of working time use
Resources Days/individual Hours/individual Uses Days/individual Hours/individual
1. FTC 420000 3360000 1.
TEL
270000 1960000
2. FZLSL 112000 896000 2.
TNL
5000 240000
3. FCO 33000 264000
4. FTMD 275000 2200000
b) The main indicators of working time use:
1. the level of using the maximum available time fund:
According to the indicators expressed as days/individual:
% 18 . 98 100
275000
270000
100 = =
FTMD
TZ
According to the indicators expressed as hours/individual:
% 09 . 89 100
2200000
1960000
100 = =
FTMD
TH
2. the average duration of a working day:
25 . 7
270000
1960000
= = =
TH
TZ
DZ
hours
3. the average duration of a working month:
28 . 19
14000
270000
= = =
T
TZ
DL
days
4. the level of working day use:
% 62 . 90 100
8
25 . 7
100 = = =
DNZ
DZ
KDZ
DNZ = the normal duration of a working day (8 hours)
5. the level of working month use:
% 63 . 87 100
22
28 . 19
100 = = =
DNL
DL
KDL
DNL = the normal duration of a working month (22 days)
6. the time waste caused by not entirely using a working day:
( ) ( ) ( ) 202500 270000 8 25 . 7 = = = TZ DNZ DZ DZ DTH hours/individual
7. the time waste caused by not entirely using a working month:
( ) ( ) ( ) 38080 14000 22 28 . 19 = = = T DNL DL DL DTZ days/individual
4
8. the total time waste caused by not entirely using a working day and a working month:
( ) ( ) ( ) 507140 8 38080 202500 8 = + = + = DL TZ DZ TH T ore-om
9. the production losses, respectively unaccomplished production as a consequence of not
entirely using labour time:
00 1115708000 220000 507140 = = = W T P Euros
References:
Biji E., Baron T., Tovissi L., Wagner P., Isaic Maniu Al., Korka M., Porojan D.,
Theoretical and Economic Statistics, Didactic and Pedagogic Publishing House,
Bucharest, 1991
Isaic Maniu Al., Korka M., Mitru C., Voineagu V., Statistics, Economic Independence
Publishing House , Brila 1998
Svoiu Gh. (coord.), Economic Statistics, Applications, Tests, Case Studies, Economic
Independence Publishing House, Brila, 2002
5
Modul de determinare a costului unitar
de productie pentru metrul cub de masa
lemnoasa pe picior
Tenovici, Cristina and Albici, Mihaela
University
Constantin Brancoveanu, Rm. Valcea

01. October 2009
HOW TO DETERMINE PRODUCTION UNIT COST FOR A CUBIC METRE
OF WOOD MASS PER FOOT
Abstract: The development of any forestry activity calls the attention on the need to
determine in advance productive consumption, costs evolution and to compare them with the
level already established by the Forestry Administration according to which they plan wood
mass public sales (for forestries in the system)as well as with the level achieved by private
forestries which have already become a strong competitor on the market. We may also
mention the need to supervise effectively the expenses, to know their volume and structure, to
determine as soon as possible the deviations from the established level and the causes which
have lead to such deviations, and to identify the place where they occur.
In this way we may speak about the need to reconsider the management accounting
methods and costs calculation as a main factor for an efficient organization of the economic
activity, which should be able to provide adequate information for an efficient management of
the forestry activities in a market economy. In the present market economy, forestry managers
should be concerned with costs reduction, having in view the interdependence and inverse
proportionality that exist between products costs obtained and the profit, as an essential
objective of any entrepreneur. They have in view obtaining the smallest cost or one as small
as that of competitive units, avoiding unjustified deviations and losses and finally achieving a
maximum profit, either by a high price that can assure other services, or by a small profit and
a high volume of sales, that is a quick rotation of production factors product consumption
recovery plus value.
JEL classification: D24, M41
Keywords: secondary wood mass products, wood species, unit cost, equivalent unit cost
The wood mass spore that is to be gathered every year, known under the name of
wood resource, as well as the surfaces which are to be gathered, so that to assure the
continuity and improvement of the stationed potentional, is mentioned not only in the forest
planning in force stipulated by the National Forestry but also by every local Forestry, as a
forest planning specific to each production unit. According to the household measures
1
mentioned in the forest planning, every year exploitations volume has to be equal with the
wood quantity that grows annually. Products obtained from forests wood are generally
divided into wood products (main products, secondary, accidental and hygienic ones) and
non-wood products (forest flowers, berries, mushrooms, etc.).
For determining the cost of a cubic meter of wood per foot with Calimanesti Forestry
we determined the overall expenditure for materials and the standard manual labor that
correspond to forest workings according to the present forest planning, working involving
wood mass spore gathering, as well as the budget concerning indirect production expenditure.
Such workings are known under the name of forest care, security and protection works
and they consist in the followings: forest regeneration, care and management of forest stands,
various expenditure on protection and care, forests planning, forest roads (maintaining and
repairing). As such expenditures are closely related to the activity object, they are commonly
known as direct expenditures.
I. FOREST REGENERATION - under such title are known the followings
forestry works : improving natural regeneration, regeneration works (forestations of empty
places belonging to forestry fund, forestations of certain surfaces that are to undergo
regeneration cuttings, forestations of places that are to undergo inadequate stands cutting and
replacing) ; completing stands that havent reached maturity, taking care of young stands. As
a general rule, through such works of forest regeneration, silviculturists have to control the
relation between seeds level and other levels of vegetation, to adjust the relations between the
seeds of valuable species and those of inadequate ones, between seeds and brushes, between
usable seeds and unusable ones and to prevent the unwanted effects of some damaging factors
(climatic, abiotic and biotic).
No matter the regeneration type (natural, artificial, mixed); it refers to the complex
ensemble of operations through which the installation, growing and developing of the
material out of which a new cultivated forest is made is seriously directed
1
. The character, the
complexity and the cost of such projects are determined by the actual ecological environment
where the process of regeneration takes place. The efficiency of these projects that have in
view the regeneration process is conditioned by the way in which the whole project is chosen
and completed in time and according to different criteria, on ecological bases correctly
fundamented, so that to avoid certain operations that could increase regeneration costs
unreasonably.
1
I.Florescu. N.V. Nicolescu Silvicultur- vol II silviotehnic, Publishing House Transilvania University, Braov, 1998, p.11
2
The cost of these projects is assumed by the conservation and regeneration fund which
is formed according to article 63, Law 26/1996 Forestry Code , including subsequent
changings and supplements. The National Forest Administration constitutes a conservation
and regeneration fund, subject to earning interest, out of the following types of resources : the
equivalent value of plots of land that do not belong any more to the forestry fund ; the
equivalent value of growth losses determined by brushes exploitation before time as well as
the compensation paid for damages caused to the forestry fund ; tariffs for favorable effects
determined by the forest protection functions ; 20-25% from cashing collected from main and
secondary wood products ; allocations from the state budget. This fund for forests
conservation and regeneration will be used for afforesting empty plots of land, for
regenerating areas where tree cutting were in progress, managing especially certain forests
with special protection functions, covering certain damages caused by calamities and spent on
purchasing plots of land according to legal provisions. Forests regeneration costs do not
influence the wood mass cost as the money settlement is done from a specially constituted
fund.
II. FOREST STANDS CARE AND MANAGEMENT - this type of projects applied to
Calimanesti Forestry stands, according to the settled forest planning consist of : clearing and
depressing ; weeding and thinning out ; hygiene measures. According to Calimanesti Forestry,
general part, such projects will take place annually depending on the annual averages
stipulated to be done in the present decade and on the functions specific for each production
unit (U. P.), that is the care and management projects will be done according to priorities
imposed by the present condition of stands and brushes. For each unit of production (U. P.)
there is a concrete forest planning that includes all units proper to such arrangements (U. A.),
components of the production units, areas, types of projects and possibilities. From this list
there are chosen annually the units of arrangement that will undergo care and management
projects, taking into consideration the annual average of projects stipulated by the annual
forest planning, so that by the end of the decade all projects and areas proposed will have
been completed.
Clearance projects have in view avoiding agglomeration and promoting valuable
species. They also have in view balancing the relation between healthy, viable species and the
deteriorated ones, generated by twigs, a project known as thinning out. The time for
processing such workings is optimal between 15 August and 30 September. Clearance
workings can be done either by cutting down or breaking extremities. From silviculturists
point of view the most efficient and less expensive method of clearance is that of breaking
3
extremities, the wood mass cost being closely influenced by labor work expenses and the
materials necessary for clearing by extremities breaking.
Clearing projects have in view removing overwhelming species of little economic
value as well as the uncorresponding ones, no matter the species type (bark blazing). Through
such workings the process of elimination and natural selection is directed in order to obtain
healthy, well proportioned and spaced stands, while the remaining stands can grow
adequately. Such workings should not be done during vegetations periods or in late autumn
when the removed sterns can suffer because of early frost. Clearings are done by cutting down
blazing species. They are gathered in piles in between the preserved species. The proper
period for such workings can be any time of year for deciduous forests and between 1 August
and 3 April for coniferous ones
2
.
After cutting down blazing stands they are gathered in similar piles. Such piles are
usually sold, the access being much easier in plain areas. For a proper calculation of wood
mass in stere meters they usually proceed as follows : the pile length is multiplied with its
width and its height, after which they proceed to a changing stere metres into cubic metres by
means of factor cube( (0,1m
3
=1 m stere), a pile of 9 stere meters = a pile of 0,9m
3
. Arranging
cut stands in piles is compulsory even if these piles will not be sold subsequently, as the field
should not be agglomerated with these stands of small thickness.Calimanesti Forestry cannot
sell further such pile.
Thinning out involves workings that have in view taking care of individual stands in
order to increase the production and protective value of the cultivated forest
3
. They involve
workings of positive individual selection, by choosing stands that should be promoted in
future, taking into consideration their composition and removing deteriorated one or those of
small value. The stands obtained after thinning out represent secondary products. For each
unit of arrangement (U. A.) that will undergo such workings there will be completed a
document of evaluation (APV), a document that constitutes the very base of selling and
exploiting the wood mass. It has a technical, silvic and economic character and it includes all
possible types that can be further obtained as well as different information about the surface
(the cutting area)
Hygiene measures have in view maintaining or improving stands sanitary stage and
involve workings of extracting dry stands or stands that are to get dry, fallen stands, broken or
thrown down by the wind, snow, stands deeply deteriorated by mushrooms or insects, which
2
O.G. nr.635/23 dec 2002
3
I. Florescu, N.V. Nicolescu Silvicultur- vol. II silvotehnic, Transilvania University Publishing House, Braov, 1998, p36
4
had suffered mechanical damages, as well as stands currently used in forest protection
projects
4
. In forests where cultural operations and current treatments take place such hygiene
measures are not necessary to be planned. Provided that in between two successive
interventions there are unwanted phenomena (broken, fallen trees, normal dryings) and they
are to be done with no delay, hygiene measures are to be taken in order to remove the stands
that represent a danger for the healthy ones.
III. FOREST PROTECTION AND SAFETY PROJECTS will have in view all expenses
involved by forests protection and safety measures (preventing and putting up fires, labor
protection).
Forests protection involves workings of detecting and foreseeing causes of stands
damages that can have unfavorable effects on the proper sanitary condition.
Forests protection estimated costs involve costs related to forests protection, fire
extinguishes and labor protection. The forestry staff (forest guards, district superior, drivers)
is remunerated the same way as the technical staff. The forestry staff, no matter the function,
should wear the proper uniform and the special signs established by the central public
authority in charge with forestry.
IV. FORESTS ARRANGEMENT PROJECTS include all the costs involved by
planning arrangements. Arrangements are done separately, for each unit of production that
represents a component of the local forestry. The costs involved by such projects will be
assumed gradually in the next 10 years when the arrangements are available. Arrangements
workings value consists in the costs involved by field analysis, writing down and completing
arrangement plans, achieving arrangements workings with the forestrys own staff and
specialists I.C.A.S.
V. FOREST ROADS in the year 2006 Calimanesti Forestry was in charge with a
network of forest roads (DAF) with a total length of 136.62Km, 28, 9 Km of the road being in
conservation process that year. Because from functional point of view, the road, the bridges
and other constructions form a unitary ensemble, being closely related to each other, we are
entitled to speak about forest road while referring to road, bridges and other constructions.
Fixed assets include the special constructions category. The forest roads category
includes forest roads maintenance and repairing workings which are done with the Forestry
National Administration, therefore we may not take into account amortization as they are not
subject to taxation. Forest roads building is assumed out of a specially formed fund.
4
Florescu I., Nicolescu N.V. Silvicultur - vol. II- silvotehnic, Transilvania University Publishing House, Braov, 1998, p.58
5
The technical department of the local forestry is in charge with monitoring such roads,
their condition and the maintenance necessary workings, as well as with submitting such
information to superior authorities. Maintaining these roads in a permanent good condition
represents an objective necessity, of major importance, as the roads technical condition has a
direct influence on the exploitation costs required by the vehicles used in wood transpiration
and other forestry projects, fuel consumption, tires and spare parts, accidental repairing. For
planning maintenance and repairing workings for forest roads and their costs, including the
costs involved by materials, they use the present Regulations available for maintaining and
repairing forest roads and the working regulations that correspond to such workings
5
, which
were published by the Environment Protection, Water and Forests Ministry. This category
includes:
Forest roads maintaining workings are done permanently, all over the year, involving
all types of forest roads, in order to avoid premature deteriorations and to adjust inherent
ones, that usually appear during exploitation, with the purpose of maintaining these roads in
an adequate technical condition, proper to assure an uninterrupted, comfortable and
completely safe circulation. Such workings have in view the forest roads complete length, no
matter if they are or not used frequently at the moment.
Forest roads current repairing workings are done frequently, in between two major
repairing projects, in order to compensate partially or even totally the deterioritations caused
on roads, bridges and other constructions of the type and to bring them again to adequate
exploitation conditions. When doing current repairing workings they can have in view the
possibilities of improving the technical features of some elements of the road. Roads
modernizing workings increase the value with which that very road contributes to the national
patrimony, therefore it does not affect the value of the planned projects. The roads or the
districts that undergo such current repairing workings do not have in view any other
maintaining workings, as the latter are included in the first type.
Forest roads capital repairing workings are done frequently, at certain intervals of
time, in order to compensate totally or partially the physical and moral deterioritation of the
road and to improve the technical characteristics so that to satisfy the traffic requirements,
according to every functional category that road belongs to. They include the roads in their
full length without causing interruption in traffic on that road. Whether such workings involve
very long roads with many repairing needs, they include a longer period of 2-3 years. Once
the project started they do not allow it to be interrupted and started again. The roads of the
5
M.A.P.P.M and RNP Working regulations for forest roads maintaining and repairing workings, Bucharest, 1999
6
districts that bear such workings cannot undergo current repairing workings or maintaining
ones as they are included in the capital ones.
According to the Regulations concerning forest roads maintaining and repairing
workings and to those concerning the traffic on these roads, the forest roads that belong to the
second category (Calimanesti Forestry roads are classified like this) are to undergo 11 current
repairing working during 100 years (every 6 years) and 5 capital repairing workings (every 18
years). After two successive repairing workings there is a capital one. Roads maintaining
workings can be planned but they can also be accidental, generated by force majeure cases.
The costs involved by repairing forest roads and bridges that were deteriorated by a natural
calamity do not influence the value of the other projects. The costs involved by maintaining
and repairing workings are included in the production cost.
From our point of view capital repairing workings cost should not be included in the
production cost and they should be considered as assets for the following reasons:
The capital repairing working prolongs the forest road using period of time;
The production quality is substantially improved (it has a direct influence on the
exploiting costs of the vehicles involved in wood transportation and other forestry
projects);
The road performance is also improved.
From the technical department, the forest roads office, we shall take over the present
condition concerning the planned workings for forest roads for the year involve in financing
projects. They provide data about necessary workings (mentioning the unitary production
average), necessary materials (according to standard consumption quotas), the type of road
involved in such projects, the type of projects (maintaining workings, current repairing ones,
capital repairing ones). They also proceed to taking over the costs registered in advance
(current repairing workings take longer than financial reports do, so they are considered costs
in advance and they will be gradually reported). Before maintaining and repairing workings
begin the building site and the technical documentation should be prepared (projected). The
final cost of maintaining and repairing workings also includes the costs involved by the
building site preparation (about 1,5% of the final value) and the costs involved by projects
(the quota is about 2% of the total value)
6
. The building site organization quota includes all
expenses determined by purchasing huts and bedroom wagons necessary for accommodation
6
The Ministry for Environment Protection, Waters and Forests, Forests National Administration, - regulations
for forest roads maintainance and repairing projects and the traffic adjustment on these roads , Bucharest, 1999,
pag.37
7
workers (in areas that are too far away from other type of lodgings), by the workers transport
and storehouses necessary for storing tools, working equipment and technical materials.
The workers involved in maintaining and repairing workings are pavers, carpenters,
bricklayers, machine workers (graders, ifron, lift loader, compressor, moto-compressor). The
manual labor costs are determined according to the technical documentation (the roads
technical condition, measurements for the necessary workings, etc.) provided by the Forestry
Department within Calimanesti Forestry. Such maintaining and repairing workings are
coordinated by the district superior. The machine workers are subordonitated to a superior and
all workers are coordinated by a team supervisor. There also technicians in charge with
workings of repairing and maintaining.
The stone materials necessary for maintaining and repairing forest roads are taken
from ballast machines and local stone quarries situated nearby so that the transport distances
to be as short as possible. If those regions do not have stone materials supplies a third party
would be involved in providing suitable materials. The activity of producing stone materials
from ballast machines and stone quarries, necessary for such workings of maintaining and
repairing, is organized like an auxiliary production activity with separate budget and own
registration.
VI. OTHER DIREST COSTS include costs involved by fixed assets liquidation
(buildings, equipments used for doing forestry workings that have in view wood mass
molding for economic agents and other interested people) as well as costs involved by
maintaining and repairing fixed assets. Fuel and lubricant costs were included in the cost of
each working.
The domain that has in view plans concerning transport and forestry buildings
mentions repairing workings only for Production Unit IV at Lotrisor forest cottage. The other
production units were not mentioned to undergo such projects as the existent buildings are
considered to be enough. Moreover, as they are very close to other human rural and urban
dwellings, accommodation can be easy accessed without supplementary costs. Such repairing
workings also have in view Lotrisor cottage modernization so the costs will be considered
assets and they will not be included in the cost of production.
With a view to the costs involved by forestry equipment maintenance and repair, they
are planned by the technical department and we included only the equipment working hours
costs. Similar proceedings were done concerning these equipments liquidation. Our opinion is
the same when speaking about capital repairing concerning other types of fixed assets used in
forestry workings: these costs should be considered assets and included gradually after
8
liquidation. The costs involved by maintaining and repairing these fixed assets are high
enough as a consequence of car park age and of the equipment used for such forestry
activities. Many of them are still functioning although their functioning period has already
been completed. Their use involves high costs for maintain ace and repairing, while from
liquidation point of view such costs are inexistent.
VII. INDIRECT COSTS are closely related to the forestry management activity, as
forestry units represent main units of production. These costs will be distributed according to
certain criteria for every activity which is to take place (here are some activities: forest
protection and safety, forest seeds, forest seed beds and samplings, beekeeping, hunting, fish
breeding , berries and mushrooms, pheasant preserving, other products (osier willow knitting,
wood primary procession, goods and lands renting). At Calimanesti Forestry there are also
other activities besides the basic one of forest protection: forest seeds, berries and
mushrooms, other products for which there is a separate registration of indirect costs (material
manual labor, other direct costs) registered the same way as the main activity, according to
the unitary regulations specific to forestry activities. From our point of view, registering
indirect costs in relation to manual labor costs is much more equitable because this is a
characteristic common for all these activities, of much importance. Materials and equipment
costs can be included or not in these costs, to a larger or a smaller extent, and activities
distribution with the forestry should be done by using the only additional factor process (table
no 1). At Calimanesti Forestry, according to the study we have done, we have come to the
conclusion that they use structure relative figures method, which involves establishing the
importance detained by each activity in the final costs, followed by an adequate costs
distribution on activities. The only additional factor process involves first of all determining a
distribution coefficient as follows:

=
on distributi based chosen criteria
allocated ts total
K
cos
total costs to be distributed chosen
criterion distribution base
If when calculating the distribution coefficient we obtain a decimal result, we shall
proceed as follows when determining costs on units: for n-1 costs bearers the amount will be
obtained by comparing the distribution base to the distribution coefficient while for
determining the quota for the last level of costs (cost bearer) we shall proceed to making the
difference between total costs which are to be distributed and the already distributed costs.
9
Table no.1. Indirect costs distribution according to the supplement process at
Calimanesti Forestry
Classified list of
activities
Direct costs on
salaries
K Indirect distributed costs
Forest care, security and
protection
782.984,62 0,34
266.282,34
Forest seeds 10.527,51 0,34 3.580,26
Berries and mushrooms 2.032,06 0,34 691,08
Other products forest 38.177,65 0,34 12.983,70
TOTAL DISTRIBUTED COSTS 283.537,37
The total costs of wood mass per foot will include direct production costs which
consist in total direct materials costs, total manual labor costs and other direct costs plus
indirect costs distributed for the base activity having in view wood mass spore (table no. 2).
Table no.2. Determining total costs for wood products the main product
TOTAL DIRECT COSTS 1.232.780,66
Costs afferent to stands care and management projects:
- Clearance
- Clearings
- Thinning out and hygiene
9.032,44
42.736,04
33.560,03
Security and protection :
- protection
- security
606.873,58
7.767,75
Forests planning (10% total planning costs) 71.052,74
Forest roads 261.720,57
Other direct costs (liquidation; equipment functioning and maintaining costs;
services provide by third parties)
200.037,51
INDIRECT DISTRIBUTED COSTS 266.282,34
WOOD MASS TOTAL COSTS 1.499.063,00
The registered statement of wood products (quantities, types), as well as the note of
expenses for main and secondary wood products, is provided by the forestry budget
department. According to this statement we can proceed then to distributing the total expenses
registered by the local forestry on products. First of all we have to determine the percentage
of wood mass for main and secondary products and then to deduct total expenses afferent to
the wood mass. By multiplying this percentage with the total expenses afferent to the wood
mass we can obtain the total expenses for main and secondary wood products (table no 3):
10
Table no.3. Determining the unit cost for main and secondary wood products
Explanations Quantity (m
3
)
Main products volume (Q
pp
) 49.360
Secondary products volume (Q
ps
) 21.910
WOOD MASS TOTAL VOLUME
(Q=Q
pp
+Q
ps
)
71.270
Main products percentage:
Q
Q
pp
pp
=

7 , 0
270 . 71
360 . 49
= =
pp
Secondary products percentage:

Q
Q
ps
ps
=

3 , 0
270 . 71
910 . 21
= =
ps
Main products expenses:

CT CT
pp pp
= 10 , 344 . 049 . 1 00 , 063 . 499 . 1 7 , 0 = = x CT
pp
lei
Secondary products expenses
CT CT
ps ps
= 90 , 718 . 449 00 , 063 . 499 . 1 3 , 0 = = x CT
ps lei
After distributing total expenses afferent to main and secondary wood mass products,
we have to distribute expenses for wood species (table no 4):
Table no.4. Total cost of main wood products and species
Main
species/ products
Wood
mass gross
volume(m
3
) acc.
to the note of
expenses
Percentage:
pp
pp
pp
Q
Q
i
i
=
Expenses afferent to
the species :
pp pp pp
CT CT
i i
=
FA 38.400 0,7780 816.389,71
GO 5.330 0,1080 113.329,16
BR,MO,PI 1.650 0,0334 35.048,09
CA 160 0,0032 3.357,90
DT 3.130 0,0634 66.528,42
DM 540 0,0110 11.542,79
DR 150 0,0030 3.148,03
TOTAL 49.360 100% 1.049.344,10
Expenses afferent to secondary wood products are determined in the same way.
According to dimension types: thick GI, GII, GIII; middle MI, MII, MII; thin wood
and wood for fire we can now determine the wood mass cost for functional species and
categories. The rind is considered to be unusufull waste and it will influence the unit cost of
wood mass per foot. The equivalence indexes principle is available only when the same raw
material, within the same technological process, we obtain more types of products different in
their format, dimensions, technological and chemical properties, with no possibility for
11
delimiting or differentiating production costs on products types. We know four ways of
applying the same method: simple equivalence indexes method, complex equivalence indexes
method, aggregate equivalence indexes method, reversed equivalence indexes method.
Using equivalence indexes on dimension species and types involves mainly running
through the following methodological stages
7
:
determining the equivalence value for each type on functional categories :
feature product dard s
amounted i product feature
K
i
tan
" "
=
turning production into conventional measure units, by multiplying the
physical quantity obtained of each type with the adequate equivalence index or value:
i i i
K Qfizica Qechiv =
determining the conventional unit cost comparing the total production
expenses to the equivalent production quantity :
=
i
echiv
Qechiv
CT
cu
determining the unit cost for each product unit (functional type), by
multiplying the conventional unit cost with the equivalence value :
echiv i
cu K cu =
We shall exemplify our method for the main products, beech wood species, using the
simple equivalence indexes method (table 5). The simple equivalence index is determined as a
relation between the characteristic of the product to be validated and the characteristic of the
product chosen as sample. No matter the sample product the cost level is not affected. As a
rule the product with the smallest characteristic is chosen. The trees rind will not be taken into
account. The characteristic taken into account by our present analysis is the average thickness
of the functional type i. The total cost has been noted CT and the main product total cost for
beech wood -
i
pp
CT
. We shall determine the unit cost for each functional type, by
multiplying the equivalent unit cost with the equivalence value:
Table no.5. Determining the unit cost equivalence indexes method
Main beech
types
i
Average
diameter
(cm)
Physical
quantity
(m
3
)
Equivalence
value
K
i
Equivalent
quantity
(m
3
)
Equivalent
unit cost
(lei/m
3
)
Type
unit cost
(lei/m
3
)
G.I 78 12.950 14,18 183.631,00 2,46 34,88
G.II+III 51 11.250 9,27 104.287,50 22,80
M.I+II+III 28 6.920 5,09 35.222,80 12,52
thin 12,5 2.480 2,27 5.629,60 5,58
Fire+branches 5,5 3.500 1 3.500,00 2,46
7
Clin O., Crstea Gh. Contabilitate de gestiune i calculaia costurilor, Ed. Genicod, Bucureti, 2002, pag 137
12
TOTAL 332.270,90 * *
Reconsidering management accounting methods and costs calculation is one of the
main factors of efficient organization of the economic activity which should be able to
provide information adequate to efficient management process requirements of forestry
activities in the market economy. Information about production costs occupy a central
position, determined by their implications on the present situation and on the future evolution
of the unit activity. So, an efficient management process at forestry units cannot be envisaged
without assuring an adequate informational system that can meet the requirements of a
modern production management activity, that can allows decisions and operational measures
quick adoption at the right time and on thorough bases. In the present market economy,
forestry managers should be concerned with costs reduction, having in view the
interdependence and inverse proportionality that exist between products costs obtained and
the profit, as an essential objective of any entrepreneur. They have in view obtaining the
smallest cost or one as small as that of competitive units, avoiding unjustified deviations and
losses and finally achieving a maximum profit, either by a high price that can assure other
services, or by a small profit and a high volume of sales, that is a quick rotation of production
factors product consumption recovery plus value. The price will include the total cost
(the unit cost twill be adjusted according to the accessibility level plus a 20-25% quota for
constituting the forests conservation and regeneration fund) and a profit expected by the unit.
References
Clin O., Crstea Gh. (2002) Contabilitate de gestiune i calculaia costurilor, Ed.
Genicod, Bucureti.
I.Florescu. N.V. Nicolescu (1998) Silvicultur- vol II silviotehnic, Publishing House
Transilvania University, Braov.
C.O. Tenovici (2007) "Proiectarea sistemului informatic de calculatie si analiza a
costurilor in silvicultura", Editura Universitaria, Craiova.
O.G. nr.635/23 dec 2002
13
The Ministry for Environment Protection, Waters and Forests, Forests National
Administration, - regulations for forest roads maintainance and repairing projects and
the traffic adjustment on these roads , Bucharest, 1999.
14
Decizii economice in conditii certe
Belu , Nicoleta; Albici, Mihaela; Tenovici, Cristina and
Parpandel, Denisa
University Constantin Brancoveanu Rm. Valcea
30. October 2009
ECONOMIC DECISIONS IN CERTAINTY CONDITIONS
Tenovici Cristina Constantin Brancoveanu, Rm. Valcea
Parpandel Denisa Constantin Brancoveanu, Rm. Valcea
Abstract. Decisions basic factors during decision making are interdependent, which
reflects the features of the decision making they generate. Economic decisions in certainty
conditions are characterized by maximum probability to accomplish pursued goals using the
predicted ways. The elements involved in decision making are controllable variables, their
features are known and their progress can be precisely anticipated.
JEL classification: D80, D81
Keywords: Decision, certainty conditions, ELECTRE Method
Certainty conditions are neither merely theoretical, nor commonplace. There are several
short-term situations [7] when decision makers have all the necessary information: current
prices, ordered quantities, terms of reception/delivery of orders. The marginal analysis, the
linear optimization linear programming issues with one or several restrictions, the transport
matter -, the non-linear optimization are just a few examples of decisional processes in
certainty conditions.
Optimization issues refer either to source allocation such as: patterns for diets and
mixtures, patterns for damage matters related to workers operating their machines,
equipment upon works, specialists in various complex tasks either upon ordering factors
(algorithms for limited restriction ordering, ordering patterns based on linear programming in
integer numbers, flow ordering - flow shop), or to profit, or turnover maximization or to
production cost minimization (patterns to set up production structure within a certain period
of time). Most of these issues are descriptive and theoretical.
In the event of economic decisions in certainty conditions, managers surely know what
conditions are to emerge later and to affect decisions results. Since there is only one nature
state whose future manifestation is surely known by decision makers, each potential action is
to generate only one result (the accomplishment probability is 1). Such decisions regard the
situations when after a managerial action only one consequence will occur. Therefore,
decision makers surely know what result each alternative course of action will have. In such a
circumstance, a sensible decision maker will choose from among the potential alternatives the
one generating the best result.
Optimization methods and techniques of multidimensional decisions in certainty
conditions are based on utility theory. Stated by Neuman and Morgenstern, utility theory
though subject to controversy in some respects due to the subjective trait of the utility
associated with each decisional consequence introduces the following essential features:
if A and B are the consequences of some distinct ways of action, then A is
preferred to B (A > B) provided that
( ) ( ) B u A u >
, where u is the utility function;
if C is the probabilistic mixture of two consequences A and B,
( ) [ ] B p pA C = 1 , , where p is a probability, so 0 < p < 1, and
1
C
is a
1
consequence for which
1
C
~ C (indifference between
1
C
and C), then:
( ) ( ) ( ) ( ) B u p A pu C u + = 1
1
;
if u function has these traits, then it can be subject to a positive linear change:
( ) ( ) R > + = b a b A au A u , 0 ,
.
Consequently, if the utilities of two of the consequences are known, it will always be
possible to set up the utility size of any other consequence. For example, if
1
max
= u
and
0
min
= u
, the utility means subjective probability. As a rule, when setting decisional
consequences utilities, interval [0,1] is used, and grounding the size of utilities between the
two extremes is done by means of the linear interpolation between 0 and 1.
In order to solve complex decisional issues in certainty conditions, the French School
represented by Bernard Roy set up in 1967 the ELECTRE
1
Method (Elimination et Choix
Traduisant la Realit). The method combines various theories: the theory of utility, graphs,
linear interpolation, decisional variants outranking, analyzing
i
V
variants by pairs according
to several j
C
criteria.
A decisional issue may occur under the following scheme:
j
C
i
V
1
C
j
C

m
C
1
V
-
i
V
-
n
V

ij
R

where:
i
V
i decisional variant;
j
C

j decisional criterion;
ij
R
consequence of the decisional variant influenced by j decisional criterion.
In some circumstances, the results of decisional variants are not quantifiable (qualitative
results emerge) and therefore it is necesarey they should be changed into utilities.
If utility scale from 0 to 1 is used, where 1 is given to the most favourable utility from
the economic perspective, and 0 is given to the most unfavourable one, then ij
R

consequences are turned into ij
U
utilities as such:
ij ij
U b aR = +
.
If j criterion is optimized by maximization, then:
min max
min
R R
R R
U
ij
ij
=
.
If j criterion is optimized by minimization, then:
min max
max
R R
R R
U
ij
ij
=
.
1
ELECTRE method to rank and select when multiple points of view are present
2
The table of utilities is as follows:
j
C
i
V
1
C
j
C
m
C
1
V
-
i
V
-
n
V
ij
U
The following stage is introducing the importance coefficients of j
k
and
m j , 1 =

criteria set up by decision makers according to various aspects:
a companys economic and financial situation;
the share of j
C
criterions importance in the set of issues overall criteria;
the goals pursued by the company.
Setting up these criteria is the result of collective decisions as specialists in various
company departments get involved. Every specialist
( )
i
S
has an equal number of points
( ) P

that are distributed to the n criteria.
The sum of points granted to j
C
criterion shall be:
=
=
n
i
ij j
P P
1
.
The importance coefficient of j
C
criterion shall be:
=
=
m
j
j
j
j
P
P
k
1
,
1
1
=
=
m
j
j
k
.
Then the variants compliance indicators are set up as follows:
( )
=
j
j
J j
j
h g
k
k
V V C
c
,
,
m j , 1 =
,
where
c
J j
j
k
is the sum of criterias importance coefficients for which the restriction
( ) ( )
h g
V U V U
is taken into account.
The table of compliance indicators is achieved:
j
V
i
V
1
V
..
h
V
.
m
V
1
V
-
g
V
-
n
V
( )
h g
V V C ,
Outranking the two variants shall be higher as the compliance indicator is closer to 1
and total outranking corresponds to a compliance index that equals 1.
3
The next stage is the calculation of non-compliance indicators with the purpose to know
the opposition intensity which can occur as related to a certain variant or the risk a decision
maker assumes when choosing either variant.
( )
( ) ( ) ( ) ( ) ( )
( ) ( )
<
=
h g
h g h g
h g
V U V U if
V U V U if V U V U
V V D
, 0
, max
1
,

where
is the maximum difference among utilities.

The result is the table of non-compliance indicators.
j
V
i
V
1
V
.. h
V
. m
V
1
V
-
g
V
-
n
V

( )
h g
V V D ,

Choosing the best solution is done by means of graphs theory and variants outranking
theory. A variant
( )
g
V
outranks another variant
( )
h
V
, (this outranking is marked in the
synthesis graph by a curve oriented from g
V
to
h
V
) if:
( ) p V V C
h g
,
(1)
( ) q V V D
h g
,
(2)
where: p, q are values selected by a decision maker and go from 0 to 1;
p acceptability threshold (it is recommended its value be close to 1);
q risk threshold (it is recommended its value be as close to 0 as possible).
The variant which in certain p and q threshold values outranks all other variants is seen
as the best.
The outranking relationship betwen a
( )
g
V
variant and a
( )
h
V
variant occurs to the
extent to which restrictions (1) and (2) are taken into consideration, and it is even stronger as
p and q have values that are close to 1, respectively 0.
The economic specialized literature in our country has brought about several
improvement suggestions in the contents of the ELECTRE Method as it was originally
conceived by the French School and such improvement is directed to the removal of its main
defficiency which is the incongruence of underlying criteria in compliance and non-
compliance indicators by setting some normalized compliance and non-compliance
coefficients. The determining formula suggested there aims at both importance coefficients
and the differences among comparing variants utilities for both indices.
The main advantages lie in the fact that both in the original form and in the improved
one the ELECTRE Method is characterized by great application simplicity and easiness which
strongly recommend it in order to rationalize decision making processes in Romanian
companies.
Numerical application:
S.C. Vitalia S.A. grows its production activities by purchasing high-performance
equipment and modernizing certain departments. In order to achieve such investment, several
variants are suggested which specify: the investment value, accomplishment term, total gross
profit, profitability rate, labour productivity.
4
V
n
V
i

(thousand
monetary
units)
T
r
(months)
P
bt
(thousand
m.u.)
R
r
(%)
W
(m.u.)
1
V 2,356,780 32 230,000 0.20 1,800,000
2
V 2,100,000 36 265,000 0.40 1,850,000
3
V 2,526,000 48 244,000 0.25 1,900,000
4
V 2,620,000 42 285,000 0.30 2,000,000
5
V 2,780,000 46 320,000 0.35 1,700,000
6
V 2,340,000 40 315,000 0.15 1,770,000
where: n
V
decisional variant;
i
V
- investment value;
r
T
accomplishment term;
bt
P
- total gross profit;
r
R
- profitability rate;
W- labour productivity.
Solution:
1. The utilities matrix is calculated according to the criterions economic significance:
C
j
V
i
C
1
C
2
C
3
C
4
C
5
1
V 0.62 1.00 0.20 0.33 0.00
2
V 1.00 0.75 1.00 0.50 0.38
3
V 0.37 0.00 0.40 0.66 0.15
4
V 0.24 0.38 0.60 1.00 0.61
5
V 0.00 0.13 0.80 0.00 1.00
6
V 0.64 0.50 0.00 0.23 0.94
The calculation way investment value:
The respective criterion optimizes by minimization according to formula:
min max
max
R R
R R
U
ij
ij
=
62 . 0
000 , 100 , 2 000 , 780 , 2
780 , 356 , 2 000 , 780 , 2
11
=
= U
;
00 . 1
000 , 100 , 2 000 , 780 , 2
000 , 100 , 2 000 , 780 , 2
21
=
= U
;
37 . 0
000 , 100 , 2 000 , 780 , 2
000 , 526 , 2 000 , 780 , 2
31
=
= U
;
24 . 0
000 , 100 , 2 000 , 780 , 2
000 , 620 , 2 000 , 780 , 2
41
=
= U
;
00 . 0
000 , 100 , 2 000 , 780 , 2
000 , 780 , 2 000 , 780 , 2
` 5
=
= U
;
5
64 . 0
000 , 100 , 2 000 , 780 , 2
000 , 340 , 2 000 , 780 , 2
61
=
= U
.
The calculation way accomplishment term:
The respective criterion optimizes by minimization according to formula:
min max
max
R R
R R
U
ij
ij
=
00 . 1
32 48
32 48
12
=
= U
;
75 . 0
32 48
36 48
22
=
= U
;
00 . 0
32 48
48 48
32
=
= U
;
38 . 0
32 48
42 48
42
=
= U
;
13 . 0
32 48
46 48
52
=
= U
;
50 . 0
32 48
40 48
62
=
= U
.
The calculation way gross profit:
The respective criterion optimizes by maximization according to formula:
min max
min
R R
R R
U
ij
ij
=
0
000 , 230 000 , 320
000 , 230 000 , 230
13
=
= U
;
39 . 0
000 , 230 000 , 320
000 , 230 000 , 265
23
=
= U
;
15 . 0
000 , 230 000 , 320
000 , 230 000 , 244
33
=
= U
;
61 . 0
000 , 230 000 , 320
000 , 230 000 , 285
43
=
= U
;
1
000 , 230 000 , 320
000 , 230 000 , 320
53
=
= U
;
94 . 0
000 , 230 000 , 320
000 , 230 000 , 315
63
=
= U
.
The calculation way profitability rate:
min max
min
R R
R R
U
ij
ij
=
20 . 0
15 . 0 40 . 0
15 . 0 20 . 0
14
=
= U
;
00 . 1
15 . 0 40 . 0
15 . 0 40 . 0
24
=
= U
;
40 . 0
15 . 0 40 . 0
15 . 0 25 . 0
34
=
= U
;
6
60 . 0
15 . 0 40 . 0
15 . 0 30 . 0
44
=
= U
;
80 . 0
15 . 0 40 . 0
15 . 0 35 . 0
54
=
= U
;
00 . 0
15 . 0 40 . 0
15 . 0 15 . 0
64
=
= U
.
The calculation way labour productivity:
min max
min
R R
R R
U
ij
ij
=
33 . 0
000 , 700 , 1 000 , 000 , 2
000 , 700 , 1 000 , 800 , 1
15
=
= U
;
50 . 0
000 , 700 , 1 000 , 000 , 2
000 , 700 , 1 000 , 850 , 1
25
=
= U
;
66 . 0
000 , 700 , 1 000 , 000 , 2
000 , 700 , 1 000 , 900 , 1
35
=
= U
;
00 . 1
000 , 700 , 1 000 , 000 , 2
000 , 700 , 1 000 , 000 , 2
45
=
= U
;
00 . 0
000 , 700 , 1 000 , 000 , 2
000 , 700 , 1 000 , 700 , 1
55
=
= U
;
23 . 0
000 , 700 , 1 000 , 000 , 2
000 , 700 , 1 000 , 770 , 1
65
=
= U
.
2. In order to set the significance coefficients, four specialists are asked for consultance
and each has 20 points. The points granted to each criterion and the significance
coefficients are to be seen in the following table:
C
j

S
i
C
1
C
2
C
3
C
4
C
5
p
S
1
2 3 6 5 4 20
S
2
3 5 4 6 2 20
S
3
4 3 4 3 6 20
S
4
3 4 5 2 6 20
p
i
12 15 19 16 18 80
k
i
0.16 0.18 0.24 0.20 0.22 -
3. The calculation of compliance indicators:
V
j
V
i
V
1
V
2
V
3
V
4
V
5
V
6
V
1
- 0.18 0.34 0.34 0.54 0.62
V
2
0.82 - 0.80 0.58 0.78 0.78
V
3
0.64 0.20 - 0.16 0.36 0.44
V
4
0.66 0.42 0.84 - 0.54 0.44
V
5
0.46 0.22 0.64 0.46 - 0.46
V
6
0.38 0.22 0.56 0.56 0.54 -
( )
2 1
,V V C = 0.18;
7
( )
3 1
,V V C
= 0.16 + 0.18 = 0.34;
( )
4 1
,V V C = 0.16 + 0.18 = 0.34;
( )
5 1
,V V C
= 0.16 + 0.18 + 0.20 = 0.54;
( )
6 1
,V V C
= 0.18 + 0.24 + 0.20 = 0.62;
( )
1 2
,V V C = 0.16 + 0.24 + 0.20 + 0.22 = 0.82;
( )
3 2
,V V C
= 0.16 + 0.18 + 0.24 + 0.22 = 0.80;
( )
4 2
,V V C = 0.16 + 0.18 + 0.24 = 0.58;
( )
5 2
,V V C
= 0.16 + 0.18 + 0.24 + 0.20 = 0.78;
( )
6 2
,V V C
= 0.16 + 0.18 + 0.24 + 0.20 = 0.78;
( )
1 3
,V V C
= 0.24 + 0.20 + 0.20 = 0.64;
( )
2 3
,V V C
= 0.20;
( )
4 3
,V V C
= 0.16;
( )
5 3
,V V C
= 0.16 + 0.20 = 0.36;
( )
6 3
,V V C
= 0.24 + 0.20 = 0.44;
( )
1 4
,V V C = 0.24 + 0.20 +0.22 =0.66;
( )
2 4
,V V C = 0.20 + 0.22 = 0.42;
( )
3 4
,V V C
= 0.18 + 0.24 + 0.20 + 0.22 = 0.84;
( )
5 4
,V V C
= 0.16 + 0.18 + 0.20 = 0.54;
( )
6 4
,V V C
= 0.24 + 0.20 = 0.44;
( )
1 5
,V V C
= 0.24 + 0.22 = 0.46;
( )
2 5
,V V C
= 0.22;
( )
3 5
,V V C
= 0.18 + 0.24 + 0.22 = 0.64;
( )
4 5
,V V C
= 0.24 + 0.22 = 0.46;
( )
6 5
,V V C
= 0.24 + 0.22 = 0.46;
( )
1 6
,V V C
= 0.16 + 0.22 = 0.38;
( )
2 6
,V V C
= 0.22;
( )
3 6
,V V C
= 0.16 + 0.18 + 0.22 = 0.56;
( )
4 6
,V V C
= 0.16 + 0.18 + 0.22 = 0.56;
( )
5 6
,V V C
= 0.16 + 0.18 + 0.20 = 0.54.
4. The calculation of non-compliance indicators:
V
j
V
i
V
1
V
2
V
3
V
4
V
5
V
6
V
1
- 0.80 0.33 0.67 1.00 0.94
V
2
0.25 - 0.16 0.50 0.62 0.56
V
3
1.00 0.75 - 0.46 0.85 0.79
V
4
0.62 0.76 0.13 - 0.39 0.40
V
5
0.87 1.00 0.66 1.00 - 0.64
V
6
0.50 1.00 0.43 0.77 0.80 -
( )
2 1
,V V D = max {|0.62-1|, |0.20-1|, |0.33-0.50|, |0.00-0.38| }= 0.80;

( )
3 1
,V V D
= max {|0.20-0.40|, |0.33-0.66|, |0.00-0.15|} = 0.33;
8
( )
4 1
,V V D = max {|0.20-0.60|, |0.33-1.00|, |0.00-0.61|} = 0.67;

( )
5 1
,V V D
= max {|0.20-0.80|, |0.00-1.00|} = 1.00;

( )
6 1
,V V D
= max {|0.00-0.94|, |0.62-0.64|} = 0.94;
( )
1 2
,V V D = max {|0.75-1.00|} = 0.25;

( )
3 2
,V V D
= max {|0.50-0.66|} = 0.16;
( )
4 2
,V V D = max {|0.50-1.00|, |0.38-0.61|} = 0.50;
( )
5 2
,V V D
= max {|0.38-1.00|} = 0.62;
( )
6 2
,V V D
= max {|0.38-0.94|} = 0.56;
( )
1 3
,V V D
= max {|0.37-0.62|, |0.00-1.00|} = 1.00;
( )
2 3
,V V D
= max {|0.37-1.00|, |0.00-0.75|, |0.40-1.00|, |0.15-0.38|} = 0.75;
( )
4 3
,V V D
= max {|0.00-0.38|, |0.40-0.60|, |0.66-1.00|, |0.15-0.61|} = 0.46;
( )
5 3
,V V D
= max {|0.00-0.13|, |0.40-0.80|, |0.15-1.00|} = 0.85;
( )
6 3
,V V D
= max {|0.37-0.64|, |0.00-0.50|, |0.15-0.94|} = 0.79;
( )
1 4
,V V D = max {|0.24-0.62|, |0.38-1.00|} = 0.62;
( )
2 4
,V V D = max {|0.24-1.00|, |0.38-0.75|, |0.60-1.00|} = 0.76;
( )
3 4
,V V D
= max {|0.24-0.37|} = 0.13;
( )
5 4
,V V D
= max {|0.60-0.80|, |0.61-1.00|} = 0.39;
( )
6 4
,V V D
= max {|0.24-0.64|, |0.38-0.50|, |0.61-0.94|} = 0.40;
( )
1 5
,V V D
= max {|0.00-0.62|, |0.13-1.00|, |0.00-0.33|} = 0.87;
( )
2 5
,V V D
= max {|0.00-1.00|, |0.13-0.75|, |0.80-1.00|, |0.00-0.50|} = 1.00;
( )
3 5
,V V D
= max {|0.00-0.37|, |0.00-0.66|} = 0.66;
( )
4 5
,V V D
= max {|0.00-0.24|, |0.13-0.38|, |0.00-1.00|} = 1.00;
( )
6 5
,V V D
= max {|0.00-0.64|, |0.13-0.50|, |0.00-0.23|} = 0.64;
( )
1 6
,V V D
= max {|0.50-1.00|, |0.00-0.20|, |0.23-0.33|} = 0.50;
( )
2 6
,V V D
= max {|0.64-1.00|, |0.50-0.75|, |0.00-1.00|, |0.23-0.50|} = 1.00;
( )
3 6
,V V D
= max {|0.00-0.40|, |0.23-0.66|} = 0.43;
( )
4 6
,V V D
= max {|0.00-0.60|, |0.23-1.00|} = 0.77;

( )
5 6
,V V D
= max {|0.00-0.80|, |0.94-1.00|} = 0.80;
The graph construction:
Iteration 1:
1 = p
0 1 = = p q
The two matrices are checked (they correspond to tables
( )
h g
V V C ,
and
( )
h g
V V D ,
) and
the aim is to identify relationships:
( ) 1 ,
h g
V V C
;
( ) 0 ,
h g
V V D
.
There are no such relationships.
Iteration 2:
84 . 0 = p
16 . 0 1 = = p q
( ) p V V C = 84 . 0 ,
3 4
( ) q V V D = 13 . 0 ,
3 4
9
The result is 3 4
PV V
and curve 3 4
V V
is drawn according to what graph
( ) [ ] 13 . 0 ; 84 . 0 V G shows.
Iteration 3:
82 . 0 = p
18 . 0 1 = = p q
( ) p V V C = 82 . 0 ,
1 2
( ) q V V D > = 25 . 0 ,
1 2
Iteration 4:
80 . 0 = p
20 . 0 1 = = p q
( ) p V V C = 80 . 0 ,
3 2
( ) q V V D < = 16 . 0 ,
3 2
The result is
3 2
PV V
and curve
3 2
V V
( ) [ ] 16 . 0 ; 80 . 0 V G
shows.
Iteration 5:
78 . 0 = p
22 . 0 1 = = p q
( ) 78 . 0 ,
5 2
= V V C
( ) 62 . 0 ,
5 2
= V V D

( ) 78 . 0 ,
6 2
= V V C

( ) 56 . 0 ,
6 2
= V V D
Iteration 6:
66 . 0 = p
10
V
5
V
1
V
2
V
3
V
4
V
6
V
5
V
1
V
2
V
3
V
4
V
6
34 . 0 1 = = p q
( ) 66 . 0 ,
1 3
= V V C
( ) 00 . 1 ,
1 3
= V V D
( ) 66 . 0 ,
1 4
= V V C
( ) 62 . 0 ,
1 4
= V V D There are no such relationships.
Iteration 7:
64 . 0 = p
36 . 0 1 = = p q
( ) 64 . 0 ,
3 5
= V V C
( ) 66 . 0 ,
3 5
= V V D
Iteration 8:
62 . 0 = p
38 . 0 1 = = p q
( ) 62 . 0 ,
6 1
= V V C
( ) 94 . 0 ,
6 1
= V V D
Iteration 9:
58 . 0 = p
42 . 0 1 = = p q
( ) 58 . 0 ,
4 2
= V V C
( ) 50 . 0 ,
4 2
Iteration 10:
56 . 0 = p
44 . 0 1 = = p q
( ) p V V C = 56 . 0 ,
3 6
( ) q V V D < = 43 . 0 ,
3 6

The result is
3 6
PV V
and curve
3 6
V V
( ) [ ] 45 . 0 ; 56 . 0 V G
shows.
( ) 56 . 0 ,
4 6
= V V C
11
V
5
V
1
V
2
V
3
V
4
V
6
( ) 77 . 0 ,
4 6
= V V D
Iteration 11:
56 . 0 = p
46 . 0 1 = = p q
( ) 54 . 0 ,
5 4
= V V C
( ) 39 . 0 ,
5 4
= V V D

The result is
5 4
PV V
and curve
5 4
V V
( ) [ ] 39 . 0 ; 54 . 0 V G
shows.

( ) 54 . 0 ,
5 6
= V V C
( ) 80 . 0 ,
5 6
= V V D
( ) 54 . 0 ,
5 1
= V V C
( ) 00 . 1 ,
5 1
= V V D
Iteration 12:
46 . 0 = p
54 . 0 1 = = p q
( ) 46 . 0 ,
1 5
= V V C
( ) 87 . 0 ,
1 5
= V V D
( ) 46 . 0 ,
4 5
= V V C
( ) 00 . 1 ,
4 5
= V V D
( ) 46 . 0 ,
6 5
= V V C
( ) 64 . 0 ,
6 5
= V V D
Iteration 13:
44 . 0 = p
56 . 0 1 = = p q
( ) 44 . 0 ,
6 3
= V V C
( ) 79 . 0 ,
6 3
= V V D
( ) 44 . 0 ,
6 4
= V V C
( ) 40 . 0 ,
6 4
= V V D

12
V
5
V
1
V
2
V
3
V
4
V
6
The result is 6 4
PV V
and curve 6 4
V V
( ) [ ] 40 . 0 ; 44 . 0 V G shows.
Iteration 14:
42 . 0 = p
58 . 0 1 = = p q
( ) 42 . 0 ,
2 4
= V V C
( ) 76 . 0 ,
2 4
Iteration 15:
38 . 0 = p
62 . 0 1 = = p q
( ) 38 . 0 ,
1 6
= V V C
( ) 50 . 0 ,
1 6
= V V D

The result is
1 6
PV V
and curve
1 6
V V
( ) [ ] 50 . 0 ; 38 . 0 V G
shows.
Iteration 16:
36 . 0 = p
64 . 0 1 = = p q
( ) 36 . 0 ,
5 3
= V V C
( ) 85 . 0 ,
5 3
= V V D
Iteration 17:
34 . 0 = p
66 . 0 1 = = p q
( ) 34 . 0 ,
3 1
= V V C
( ) 33 . 0 ,
3 1
= V V D

13
V
5
V
1
V
2
V
3
V
4
V
6
V
5
V
1
V
2
V
3
V
4
V
6
The result is 3 1
PV V
and curve 3 1
V V
( ) [ ] 33 . 0 ; 34 . 0 V G shows.
( ) 34 . 0 ,
4 1
= V V C
( ) 67 . 0 ,
4 1
= V V D
The result is
4 1
PV V
and curve
4 1
V V
( ) [ ] 67 . 0 ; 34 . 0 V G
shows.
Iteration 18:
22 . 0 = p
78 . 0 1 = = p q
( ) 22 . 0 ,
2 5
= V V C
( ) 00 . 1 ,
2 5
= V V D
( ) 22 . 0 ,
2 6
= V V C
( ) 00 . 1 ,
2 6
= V V D
Iteration 19:
20 . 0 = p
80 . 0 1 = = p q
( ) 20 . 0 ,
2 3
= V V C
( ) 75 . 0 ,
2 3
= V V D

The result is 2 3
PV V
and curve 2 3
V V
is drawn in contradiction with iteration 4.
14
V
5
V
1
V
2
V
3
V
4
V
6
V
5
V
1
V
2
V
3
V
4
V
6
Iteration 20:
18 . 0 = p
82 . 0 1 = = p q
( ) 18 . 0 ,
2 1
= V V C
( ) 80 . 0 ,
2 1
= V V D
The result is
2 1
PV V
and curve
2 1
V V
( ) [ ] 80 . 0 ; 18 . 0 V G shows.
Iteration 21:
15 . 0 = p
85 . 0 1 = = p q
( ) 15 . 0 ,
4 3
= V V C
( ) 46 . 0 ,
4 3
= V V D

The result is
4 3
PV V
and curve
4 3
V V
is drawn in contradiction with iteration 2.
Conclusion: The result is optimal variant
1
V
, but the contradiction level is high (
85 , 0 = q
).
References:
Andronic B.-C. (2000), Company Performance, Polirom Publishing House, Iai.
Belu N. and Co. (2002) Management. Applications, Case Studies and Practical Exercises,
Cooke S., Slack N. (1991) Making Management Decisons, Prentice Hall International,
U.K.
Coea M., Nastovici L. (1987), Risk Assessment. Analysis Methods and Techniques at
Micro- and Macro-Economic Levels, Lux Libris, Braov.
Gil Aluja J. Towards a New Concept of Economic Research, Fuzzy Economic
Review, nr. 10/1985, Spain.
Knight F.H. (1985), Risk, Uncertainty and Profit, University of Chicago Press, Chicago.
15
V
5
V
1
V
2
V
3
V
4
V
6
Maynard B.H. (1973), Economic Activities Management, Technical Publishing House,
Bucharest.
Niculescu O., Verboncu I. (1999) Management, Economic Publishing House, Bucharest.
Raiu-Suciu C. (1995), Modelling and Simulating Economic Processes, Didactic and
Pedagogical Publishing House, Bucharest.
Raiu-Suciu C. (1993), Economic Modelling, Sylvi Publishing House, Bucharest.
Varian R. Hal (1996) Intermediate Microeconomics. A Modern Approach, Fourth Edition,
W.W. Norton, New York.
16
INFORMATIC SYSTEMS IN TOURISM SERVICES
c_radut@yahoo.com
mturmacu@yahoo.com
Abstract:
The great companies which are specialized in international human transportation introduced the use of
informatical systems specific for certain activities. Proving to be very dynamic and versatile the system was used for
hotels, restaurants and entertainment. Even though in the great organizations, especially the ones from the services
domain and the ones from the touristy domain, the informatic system reunites more than 90% of the informational
elements but there will always be other informational elements which will rest on the human with a pronounced
informal character, which will never be a part of the informatic system. The success of the normalization of the touristic
activities is undisputed and today developing such activities without the use of such systems is inconceivable. Without
analyzing the evolution of the informatic systems used in tourism activities. We will make a short presentation of the
most important programs.
Key words: information systems, tourism, Global Distribution Systems
JEL classification: D83 - Search; Learning; Information and Knowledge; Communication; Belief
INTRODUCTIONS
The second half of the 20
th
century was marked by the fact that the informatic systems
became more and more important in the tourism companies' administration. This was rightful
towards the possibility of expanding the informational system through the informatic systems. It is
well known that there is a ratio between the informatic system and the informational system. The
informational system includes both the manual phases and the mechanized phases of the:
Information gathering and recording, Information spreading, Information processing
At this moment we can see a growth of the share and the importance of the informatic
system in the overview of the informational system.
FRONT OFFICE INFORMATIC SYSTEMS
These are information processing systems which offer reports in visual or written form.
They are used especially in the management of touristic check-ins and by travel agencies (figure 1).
Figure 1. Front Office system
These systems can be:
Systems for tourist management - systems which record tourist's personal data
Systems for commercialization of different products (car renting, etc.)
Systems for room management systems which offer information regarding the
status of a room, messages and much more.
Systems for income management systems which process different transactions and
offer information regarding the clients
Such Front Office systems are successfully used since 1990 in Romania. The development
of such applications has made progresses related to the size of the hotels.
INFORMATIC SYSTEMS USED FOR RESERVATIONS
These are systems that can communicate with both individual tourists and travel agencies.
These systems are characterized by the fact that they combine information and are able to deliver
accurate information which leads to an optimal choice.
It is good to know that today, besides the classic reservation systems there are more and
more such programs which use the Internet.
The Internet is well known and it revolutionized the way the information is spread around
the globe tearing down the geographical limits. There were 14.4 million users in 1995 and by 2002
there were over 500 million.
In our country the internet became popular in 1993 but it's evolution was very fast especially
in the domain of education, communication and last but not least the domain of tourism services.
In the last years there has been recorded a growth of the number of sites for each flight,
hotel, Rent-A-Car Company, trip which can be reserved directly on the web without having to talk
to a travel agent. These web pages include: Travelocity (www.travelocity.com), Travelweb
(www.travelweb.com), Expedia (www.expedia.com ), Tiss (www.tiss.com), Enquest
(www.enquest.com ), Vizion (www.vizion.com ), Yahoo! (www.yahoo.co.uk/business and
Economy/ Campanies/ Travel). For example, Expedia is powered by Microsoft and it has links to
travel agencies like Amadeus, Worldspan which offer: Plane tickets, Hotel room reservations, Car
rentals, Train tickets.
According to the technological evolution, the three major phases of touristy commerce over
the internet are:
The new systems generate strategies which point out the globalization effect and the
leveling of the touristy markets and especially the air transportation.
The computerized reservation and distribution are essential components of the
marketing strategies regarding the air transportation. They send and process information
more efficient than any other traditional system used by the individual companies (figure
2).
Every company has it's own CRS (computer reservation system). These can be connected to
a GDS (global distribution system) which is used by the travel agents to find out information
regarding all of the air travel companies and other companies which already have information
stored in the system. The international reservation and distribution systems have an important role
in the international tourism because they create a link between the producers and the buyers of
tourism products. The North-American travel agencies and Europe uses GDS. 2/3 of the agencies
connected to a GDS are located in North-America or Europe. Even though the Global Systems
process information and reservations much more efficient than a single-access system, the strategic
importance of the GDS has dropped when the American and European authorities introduced new
rules to prevent someone from having unfair advantages by disturbance information uploaded by
different operators and that someone having greater incomes even if the someone would be the
owner of a GDS.
Figure 2. Informatic system of distribution
The most used international systems used are: Amadeus especially used in France,
Germany, Scandinavian Countries and Spain; Galileo preferred by Austria, Ireland, Italy,
Portugal, Netherlands, Swiss Confederation and Great Britain
From 1990 to 1991 there were negotiations initiated by Sabre to buy a part of Amadeus. The
CRS (computer reservation systems) is in a continuous evolution.
The majority of the hotel chains have their own reservation systems or they are connected to
an international system. The railway transportation system initiated too a system called SOCRATE
System Offrant a la Clientele la Reservation d'Affaires et de Tourisme en Europe which is
interconnected with Sabre.
Overall, there are three types of information and reservation systems:
Information systems that are used as databases.
Availability systems which offer information regarding the status of a hotel at a
given moment. These systems are meant to help the customers that arrived unprepared.
There are terminals placed in strategic places (Airport, train station etc.) that have the map
of the city and the locations of different hotels which are connected to the system and the
prices for different types of services. When the customer chose the hotel that suits his needs
he can reserve a room from that terminal.
The computerized reservation systems can be considered management systems of
stocks because they only offer information regarding the status of rooms, if they are
reserved or occupied.
Using the same system there can be created easier ways to come in contact with a certain
hotel just by picking up a phone. This phone booth can be placed in strategic places. This system is
used by Novotel at this moment. The reservation systems of the main hotel chains are: Holidex
Holiday Inn, Roomfinder Ramada, Marsha Marriot
Besides the grand reservation systems, there have been created reservation systems which
work just like independent societies that sign contracts with different hotels that are interested by
this system. Most often the founders of this type of system are independent hotels. Once created,
this system will be attractive to many types of hotels even if they are part of a bigger chain,
permanent or seasonal. The main features are similar to the specialized systems: to inform the
customer regarding the status of the rooms and the ability to reserve one.
Some of the systems, besides the reservation ability, have the possibility of communicating
with customers from different markets. For example, the role of this type of system is very
important for the clients in Europe who want to go to a hotel in the US. The biggest reservation
systems are dominated by the European and American air travel companies. The following 5 are
considered the most important:
Galileo International Was created after the American network Covia-Apollo fused with the
European network Galileo, created in Great Britain by British Airways, Alitalia, Swissair,
KLM and Olympic Airways.
Sabre Created by America Airlines, was the greatest network in the world before it joined
Apollo-Galileo.
Worldspan Was created by the American companies Delta, TWA and Northwest and
associated with Abacus, a system created by a group of Asian companies.
Amadeus Created by the European companies Air France, Lufthansa, Iberia and SAS as a
response to the American network.
Abacus Created by Asian air companies.
Worldspan and Amadeus are two of the reservation systems that are present in our country
and are used by our travel agencies.
INFORMATIC SYSTEMS THAT USE INTERNET
The informatic systems are supposed to manage the travel agencies' activities at a global
size. It is known that at this moment most of the customers that use air traveling are either doing it
for business purposes or for pleasure purposes. The ones that are traveling for business purposes
have the tickets paid by the company which they represent and sometimes meetings can be canceled
and there must be created a flexible relationship between the two companies. For this thing to
happen, a very quick and reliable informing is needed. All these are offered by the informatic
systems which use Internet.
Table 1. The major informatic systems which divide the market
Name Country of origin Air Companies Share Comments
Amadeus
-1987
France, Germany,
Spain, Sweden
Air France,
Lufthansa,
Iberia, SAS
Approximately
40.000 terminals.
Approximately 60%
of the European
market.
The connection with Sabre
was canceled in 1992.
The connection with
Worldspan was discussed in
1992.
Apollo -
1987
USA, Great
Britain,
Netherlands, Italy,
Sweden, USA,
Greece, Belgium,
Portugal
United Airlines,
US Air, Air
Canada, British
Airways,
Swissair, KLM,
Alitalia, Olympic
Airways, United
Airways
Approximately 30%
of the US market.
Approximately 80%
of Great Britain's
market
Approximately 40%
of Europe's market.
Galileo is the most used
system from GB. It
established strong
connections with Apollo in
the US and with Gemini
from Canada.
The two are expected to fuse
together in 1993
Sabre
1976
USA American
Airlines
Especially used in
USA and a more and
more important
presence in GB.
Approximately 45%
of the US market.
Approximately 7000 agents
use Sabre Vision to transmit
pictures with the products.
Worldspan
1990
SUA and Asia
(Abacus)
Delta, TWA,
NorthWest
Airlines, Abacus
and 7 more
companies
Approximately
38.000 terminals in
the US and 5000
more around the
world.
Approximately 15%
of the US market.
It has connections with
American Express.
In 2001 there was a study which stated that 8 out of 10 people who use the Internet, are
doing it in order to do a reservation for a trip while 6 out of 10 people were using the Internet in
order to create a reservation. At this moment there are 4 major informatic systems which divide the
market. These are Galileo International, Sabre, Amadeus and Worldspan (Table 1).
Next to these companies but with limited resources are: System One (USA), Abacus (Far
East), Gemini (Canada), Fantasia, Qantam, Jalcom (Far East)
These last years created relations between these companies which hope to create a global
system. This kind of systems use specific hardware and software for developing these activities. At
this moment the travel agencies from Romania that use these systems are only doing ticketing
activities and it's good to know that these systems can be used in marketing, management and
communication activities too. We will continue with two of the most used informatic systems that
can be used in Romania too.
AMADEUS
The Amadeus Global Travel Distribution group was founded in 1987 (60% is owned by Air
France, Iberia and Lufthansa) and it became operational in 1992. After the launch, the reservation
system Amadeus was going to become a European market leader in a short notice. Three years later,
after taking over System One, Amadeus becomes the most developed reservation system in the
world. Together, these two reservation systems are used by more than: 33.000 travel agencies, 700
air travel companies, 30.000 hotels and 41 Rent-A-Car companies.
Amadeus is one of the leading companies regarding the communication technology. It offers
on-line means of distribution, marketing and management for the travel agencies' activities. The
headquarters is placed in Madrid (Spain), The Marketing and Development Centre is at Nice
(France) and the Technical Centre at Munchen (Germany). Amadeus also has regional help desks in
Bangkok, Buenos Aires and Miami. The Amadeus branches from 132 countries offer local specific
products, help desks and training.
The global network Amadeus (AMANET) provides communication between users by using
a high-speed network for data transfer, voice and video feed.
Amadeus (figure 3.) is the most developed reservation system with global distribution from
the tourism industry. It offers the ability to every travel agency to create reservations and in real
time. The system is the most important way of selling for the travel agencies which represent the
majority of Amadeus' users.
In front of a terminal, the user is connected to a huge database. Besides reservations, the
system provides the user with important information such as medical precautions, visas, exchange
rates and even weather information. New Amadeus products included: Amadeus Vista, a browser
for travel agencies; Value Pricer which allows a more efficient search for the smallest prices.
In December 1998, Amadeus acquired an ISO 9002 certificate becoming the first global
distribution system which received this prestigious recognition. ISO 9002 follows the pattern of the
quality standard ISO 9000 which refers to the quality management methods of the products and
services. Amadeus started the process of gaining the ISO 9002 standard in late 1997 after the
foundation of the Quality Management Department that has specific objectives of implementing the
quality system all over the world. This meant that the main sections which had priority through this
process, were the departments which were permanently in contact with the clients, especially
Global Customer Support, Help Desk & Training and Data Management Services. The products
that Amadeus offers are:
Amadeus AIR started in 1996 when were introduced 730 airlines with the possibility to
create reservations on 432 of them. This service provides the client with real-time details of
his flight such as departure hour, arrival hour and the menu served in the plane.
Amadeus CAR is a service through which travel agencies can reserve cars from more than
50 Rent-A-Car companies from the world in more than 22.000 locations. The car reservations
can be done along with other reservation types such as train, plane, hotel. These are processed
in real-time in less than 10 seconds.
Figure 3. www.amadeus.com
Amadeus HOTELS with this service the travel agents can create reservations for more
than 51.000 hotels around the world. From the 200 hotel chains present in the system, 95%
offer real-time connections.
Amadeus LEISURE allows the travel agents from England to connect to AT&T and use
video connections.
Amadeus SERVICE groups all of the functions offered and makes the reservation process
easier.
Amadeus INFORMATION SYSTEM offers detailed and precise information about travel
destinations with multilingual support.
All travel agents around the world who are working with Amadeus, are allowed to create
reservations for the American railroad company AMTRAK without needing a special agreement
with this company. The other services such as Ferry, Tours, Cruise and Destination are not yet
available in Romania.
WORLDSPAN
The latest reports show that Worldspan is the leader of the e-commerce tourism industry
considering it has more than 50% of the total number of reservations done on-line.
Just like Amadeus, Worldspan is a global distribution system which offers tourism services
such as: Air companies; Hotel chains; Rent-A-Car Companies.
There are more than 20800 travel agencies that use Worldspan for managing travel
information. In Romania, Worldspan has proven to be very dynamic and welcomed
(www.worldspan.com).
INTELLIGENT INFORMATIC SYSTEMS USED IN THE SEARCH OF INFORMATION
(IN TRAVEL AND TOURISM)
These intelligent agents help the customer fast and efficient allowing to compare offers and
to choose the one that suits the customer's needs. This system can be used by both the tourist and
the specialized travel agents. At this moment this kind of systems are widely used in North
America, which lead to a decrease of the number of travel agencies.
The travel and tourism industry is a global (and a globalization) industry, with very specific
features:
Travel and tourism represents approx. 11% of the world wide GDP (following the
tourism satellite account method of the World Travel & Tourism Council).
There will be one Billion international arrivals in the year 2010 (following the World
Tourism Organization). And tourism grows faster than the other economic sectors.
It represents a cross-sectoral industry, including many related economic sectors such as
culture, sport or agriculture, where over 30 different industrial components have been
identified that serve travelers.
This explains the industrys heterogeneity, and due to its SME structure it has a huge
importance for regional development.
The supply and the demand side form a worldwide network, where both production and
distribution are based on cooperation.
The product is perishable, complex and emotional: i) a hotel bed not sold for one night
represents a lost income. Suppliers are in a risky situation, which can be reduced if access to
information is available; ii) the tourism product is a bundle of basic products, aggregated by
some intermediary.
Figure 4 differentiates between the supply and demand side and the respective
intermediaries. Links mark the relationships as well as the flow of information, showing only the
most relevant links. Nodes indicate the relevant types of players.
On the supply side we denote with primary suppliers enterprises like hotels, restaurants,
etc., which are mostly SMEs. One should note that with respect to a functional differentiation these
companies are at the same level as the big players like airlines. Tour operators can be seen as
product aggregators, travel agents act as information brokers, providing final consumers with the
relevant information and booking facilities. CRS/GDS (Central Reservation Systems / Global
Distribution Systems), stemming from the airline reservation systems already developed in the 60s,
include also other products such as packaged holidays, or other means of transport. Whereas the
intermediaries on the right side can be seen as the professional connection between supply and
demand (mainly based on the electronic infrastructure of the CRS/GDS), the left side is relevant for
the management, planning and branding of a destination. Normally, these entities have to act on
behalf of all suppliers within a destination and are not engaged in the booking process. The links to
governmental as dotted lines indicate that Destination Marketing Organizations are often
governmental organizations.
Figure 5. Structural view of the market
The upstream flow of Figure 4 consists of product information, whereas the downstream
flow reports on market behavior, mostly represented in terms of statistical aggregates. Both
information flows create a tourist information network tying together all market participators and,
apparently, reflecting the economic relationships between them.
The described business scenario is based on flexible network configurations and the further
integration of consumers into internal business processes. An application example of such an
approach is Trip@dvice. It adapts its dialogue as it learns more about the user, supports product
aggregation for a given travel, provides personalized recommendations based on previous system
experience, and it applies query refinement methods helping to adjust queries according to the data
available in a given product catalogues. Thus, it integrates topical information and good" examples
of product bundling contained in previous travels built by a community of users.
Figure 5. Sequence of interaction in Trip@dvice
Dietorecs, another example (figure 5), extends this approach by integrating the iterative
presentation and evaluation of alternative proposals. It assumes that by presenting specific images,
which implicitly represent the most discriminating offers within a given product catalogue, the
evaluation of the user provides indications about his/her references. At the beginning the systems
performs a cluster analysis of the offers within a given catalogue. The users choice is the starting
point of an iterative process of refocused clustering and presentation.
CONCLUSIONS AND FUTURES
The tourism business is changing. More specialized services, flexible network
configurations and further consumer integration into internal business processes will lead to smart
market places, integrating all stakeholders. It also demonstrates that this industry poses hard
challenges, which offer interesting research opportunities. This has also been acknowledged by the
European Union, placing tourism as one of the preferred application fields of the European IT
research.
Presentation Systems based on virtual reality. These systems are used more and more in
order to offer the customer the very complete information regarding a certain offer. There are
different programs which allow the user to see panoramic views and many other aspects that relate
to the virtual reality. Starting from pictures and going to live streaming video transmitted from the
location contribute to a better information of the customer and reducing the time needed to settle on
a certain holiday place. The systems based on virtual reality can be successfully used both for
offering information about that specific place to the customer and for documentation for a travel
agent. Unfortunately these virtual systems are used only by countries and organizations who have a
tradition regarding the tourism activity and who consider that a system like that can expand the
sales and the flow of tourists.
REFERENCES
1. Bigne J. E. Strategic Marketing in the Travel Agency Sector, Ed Aardvark Editorial 1999,
pag. 223
2. Cooper C., Fletcher J., Gilbert D., Wanhill S. Tourism, Principles and Practice, Longman,
Harlow, 1998, pag. 502503
3. DellErba, O. Fodor, F. Ricci and H. Werthner. Harmonise: a solution for data
interoperability. In Proceedings of IFIP I3E 2002 Conference, pages 114-127, Lisbon,
Portugal, Oct. 2002.
4. Fesenmaier D., Ricci F., Schaumlechner E. , Wber K. and C. Zanella. DIETORECS:
Travel Advisory for Multiple Decision Styles. In Proceedings of the ENTER 2003
Conference, pages 232-242, Helsinki, Finland, January 2003.
5. Grabler K. and A. Zins. Vacation trip decision styles as basis for an automated
recommendation system: Lessons from observational studies. In Proceedings of the ENTER
2002 Conference, pages 458-469, Innsbruck, Austria, January 2002.
6. Gretzel U, Fesenmaier D. Experience-based Internet Marketing: An Exploratory Study of
Sensory Experiences Associated with Pleasure Travel to the Midwest US. In Proceedings of
the ENTER 2003 Conference, pages 49-57, Helsinki, Finland, January 2003.
7. Francois V., Lionel B. The International Marketing of Travel and Tourism, Editura
MacMillan Press, 1999, pag. 75
8. Tinard Y. Le tourisme. Economie et Management, Edisience International, Paris, 2004,
pag. 149
9. Vellas Fr., Becherel L. International Tourism. An Economic Perspectiv, Mac Millan Press
Ltd., London, 1995, pag. 188
10. www.amadeus.com
11. www.worldspan.com

Setting the optimal type of equipment to
be adopted and the optimal time to
replace it
Albici, Mihaela
03. November 2009
MPRA Paper No. 18320, posted 03. November 2009 / 10:18
Setting the Optimal Type of Equipment to Be Adopted and the Optimal
Time to Replace It
Abstract. The mathematical models of equipments wear and tear, and replacement
theory aim at deciding on the purchase selection of a certain equipment type, the optimal
exploitation time of the equipment, the time and ways to replace or repair it, or to ensure its
spare parts, the equipments performance in the technical progress context, the opportunities
to modernize it etc.
JEL classification: O14, M11,
Keywords: Equipment, optimal type, optimal time
In any economic activity, the equipment (machinery) suffers from a natural process of
wear and tear during its usage which is called physical wear and tear. While it is used, the
equipment needs ongoing maintenance and repairing of potential damages which pursue the
prevention, decrease or delay of the wear and tear process. While the equipment is
functioning, technical progress may lead to the emergence of new equipment having the same
use scope but higher qualitative and economic performance. It leads to another type of wear
and tear in equipment which is called obsolescence [1].
An important aspect in the organizing process of any economic activity is decision
making that investment implies both at macro- and micro-economic level. It is either
investment referring to limited-function equipment or to unlimited- (long-lasting) prospect
objectives, that decision making pursues optimization according to an economic criterion.
The mathematical models of equipments wear and tear, and replacement theory aim at
deciding on the purchase selection of a certain equipment type, the optimal exploitation time
of the equipment, the time and ways to replace or repair it, or to ensure its spare parts, the
equipments performance in the technical progress context, the opportunities to modernize it
etc. Decisional criterion can be total minimum expenses when economic issues are
considered, or maximization of benefits reached by equipment exploitation when the pursued
goal is its efficaciousness.
Equipment replacement is generally caused by [6]:
the wear and tear due to its functioning for a certain period of time and in certain
circumstances;
its low-quality functioning as a result of another better equipments emergence.
The issue of the best policy to maintain equipment ranks first the timely replacement
of used equipment with new ones which supposes setting the optimal type of equipment to be
adopted in order to replace the one used and setting the best time to replace it [2].
Within the current evolution of science and technique, several types of equipment can
be used to execute products, operations or stages in technological processes.
Since company management is forced to purchase new equipment to replace the old
one, it faces the need to adopt a decision regarding the optimal equipment type it should
choose from among various possible ones.
1
As equipment is different from one another by its annual maintenance and repairing
costs, and by its functioning duration until full wear and tear, it is thought the method to
decide upon the equipment type to be adopted should be based on the average size of such
costs either per one year, or per one maintenance and repairing duration. In such context, it is
believed that the best equipment type to be adopted is the one at minimum average cost to
purchase or repair during one year or one maintenance period.
The size of the average purchase, maintenance and repairing cost per one year or one
maintenance and repairing period is:

,
_
m
i
n
j
ij i
C A
n m n m
K
k
1 1
1
,
where K total cost to purchase, maintain and repair;
k average cost to purchase, maintain and repair per one year or one maintenance and
repairing period;
m number of equipments purchases during the period under consideration;
i a certain equipment replacement;
n number of years to use the equipment between two replacements or the number of
periods (cycles of maintenance and repairing between two replacements);
j a certain concrete year or a certain period (cycle) of maintenance and repairing, and
j varies from 1 to n;
i
A
- purchase cost during i replacement of equipment and i varies from 1 to n;
ij
C
- maintenance and repairing cost of i equipment purchase in j year or during j
maintenance and repairing period.
1

Example: In order to replace used equipment, it is possible for three types of
equipment to be purchased having the costs and expenses shown below:
Equipment type I Equipment type II Equipment type III
Purchase cost 60 000 63 000 70 000
Maintenance and repairing expenses during years 1, 2 and 3, those by equipment
1 7 000 10 000 11 500
2 10 000 12 000 15 000
3 - 15 000 10 000
The average purchase, maintenance and repairing cost is calculated for each type of
equipment:
( ) 38500 77000
2
1
10000 7000 60000
2
1
1
+ + k
( ) 3 . 33333 100000
3
1
15000 12000 10000 63000
3
1
2
+ + + k
( ) 35500 106500
3
1
10000 15000 11500 70000
3
1
3
+ + + k
The analysis of the three average annual costs above leads to the conclusion that the
best equipment type that should be adopted is the second one as it has the lowest average
annual cost of purchase, maintenance and repairing.
1
Brbulescu C. (1997) Industrial Production Management, vol.II, Sylvi Publishing House, Bucharest,
pp.58.
2
Let us mark by
( ) 0 V
the equipments value in the beginning of its activity, a value
which decreases annually for various reasons. Let
( ) k D
be the depreciation of year k and
( ) k V
the equipments value in year k. There is:
( ) ( ) ( ) 1 0 , 1 1 + + n k k D k V k V
(1)
supposing the functioning duration is n years. In other words, the equipments value in late
current year equals the equipments value in late previous year minus the equipments
depreciation during the current year.
Additionally, let
( ) k F
be the functioning expenses in year k. Consequently, the total
expenses involved in equipment operation from the very beginning until year k marked by
( ) k C
are:
( ) ( ) ( ) [ ]
+
k
s
s F s D k C
1
(2)
if their updating is not taken into consideration and :
( ) ( ) ( ) [ ] ( )
s
k
s
i s F s D k C

+ +
1
1
(3)
if their updating is considered at an annual percentage of 100i.
Expression
( ) k C
is also called the total cumulated cost of equipment usage or, in
other words, the total cumulated cost of equipment usage equals the sum of all annual
depreciations of the equipment plus the sum of all annual expenses for equipment operation.
Let us mark by ( ) k C the average annual cost of equipment usage in the first k years.
The issue arising is to find moment
0
k
when the average cost of equipment usage is
minimum.
Marking the existing updating by 0 > i and its lack by 0 i , one can immediately
deduce from relationships (2) and (3):
Proposition 1. The average annual cost of equipment usage in its first k years of
operation
( ) n k
is:
( )
( ) ( ) [ ]
( )
( ) ( ) [ ]( )
'
> + +
+
+
0 , 1
1 1
1
0 ,
1
1
1
i if i s F s D
i
i if s F s D
k
k C
s
k
s
k
k
s
(4)
Definition 2. It is said that the optimal time to replace equipment is number
N
0
k

having the following trait:
( ) ( ) ( ) 1 1
0 0 0
+ k C k C k C (5)
Observation 3. It is likely that:
i) ( ) k C be monotonously ascendent during equipment lifetime when it is recommended it
should be replaced in its early functioning;
ii) ( ) k C be monotonously descendent during equipment lifetime, therefore its replacement is
done in the end of its life;
iii) one of inequalities (5) be an equality, therefore there are two consecutive optimal
moments to replace the equipment.
2

Example: A company starts operating a certain type of automatic equipment which
costs
1000000
0
V
monetary units (m.u.) and works for ten years with the following
estimations:
2
Purcaru I., Berbec F., Sorin D. (1996) Financial Mathematics & Business Decisions, Economic Publishing
House, pp. 422
3
a) its annual degradation is 35, 30, 25, 20, 16, 12, 10, 8, 5, 3 thousand m.u.;
b) its annual operation cost is 10, 12, 14, 18, 22, 28, 32, 37, 40, 44 thousand m.u.
It is known the equipment is not technically obsolete and consequently while operating
it can be replaced with an identical one if necessary. Which is the optimal time to replace it if
its updating is not taken into account whereas its upgrading by an annual coefficient of
1 , 0 i
is considered?
By synthesizing all the calculations of formulae (4) and (5), the result is Table 1 for
0 > i and Table 2 for 0 i :
4
Table 1
It is easy to notice that ( ) k C is monotonously descendent during the equipments lifetime, therefore its replacement shall be done
in the end of its life.
Operation
years
s
Annual
operation
expenses
( ) s F
Annual
depreciation
( ) s D
Updating
factor
( )
s
i

+ 1
Updated
annual
operation
expenses
( ) ( )
s
i s F

+ 1
Updated
annual
depreciation
( ) ( )
s
i s D + 1
Updated total annual
expenses
( ) ( ) [ ] ( )
s
i s D s F

+ + 1
Updated
and
cumulated
total annual
expenses
( ) k C
Cumulated
updating
factor
( )
k
i
i
+ 1 1
Average
total annual
cost of
usage
( ) k C
Optimal
replacement
time

0
k
1 10 000 35 000 0.909090 9090.90 31818.15 40909.05 40909.05 1,1 44999.95
2 12 000 30 000 0.826446 9917.35 247933.8 34710.73 75619.78 0.576189 19999.94
3 14 000 25 000 0.751314 10518.39 18782.85 29301.24 104921.02 0.402113 11782.40
4 18 000 20 000 0.683013 12294.23 13660.26 25954.49 130875.51 0.315470 8187.86
5 22 000 16 000 0.620921 13660.26 9934.73 23594.99 154470.50 0.263797 6224.28
6 28 000 12 000 0.564473 15805.24 6773.67 22578.92 177049.42 0.229606 5184.25
7 32 000 10 000 0.513158 16421.05 5131.58 21552.63 198602.05 0.205405 4427.01
8 37 000 8 000 0.466507 17260.75 3732.05 20992.81 219594.86 0.187443 3934.95
9 40 000 5 000 0.424097 16963.88 2120.48 19084.36 238679.22 0.173640 3313.80
10 44 000 3 000 0.385543 16963.89 1156.62 18120.52 256799.74 0.162745 2949.02
5
Table 2
The optimal replacement time in this case is in year 4 or year 5.
Observation 4. Irrespective of the situation, the issue always has a solution in the
respect of relationship (5). Sensitive differences among the optimal solutions reached with or
without any updating can be seen in the equipment whose lifetime is medium and long.
References
Badea F. (1998) Industrial Production Management, All Educational S.A. Publishing
House, Bucharest
Brbulescu C. (1997) Industrial Production Management, vol.II, Sylvi Publishing House,
Bucharest
Popescu O. coordinator (1993) Economics Applied Mathematics, Didactic and
Pedagogical Publishing House, R.A. Bucharest.
Purcaru I., Berbec F., Sorin D. (1996) Financial Mathematics & Business Decisions,
Economic Publishing House.
Vduva I. Dinescu C., Svulescu B. (1974) Mathematical Models of Production
Organization and Management, vol. I and II, Didactic and Pedagogical Publishing House,
R.A. Bucharest.
Years
s
Annual
operation
expenses
( ) s F
Annual
depreciation
( ) s D
Total
annual
expenses
( ) ( ) s F s D +
Total
cumulated
expenses
( ) k C
Average
annual cost
of usage
( ) k C
Optimal
time
0
k
1 10 000 35 000 45 000 45 000 40909.05
2 12 000 30 000 42 000 87 000 38181.78
3 14 000 25 000 39 000 126 000 35454.51
4 18 000 20 000 38 000 164 000 34545.42
4
0
k
5 22 000 16 000 38 000 202 000 34545.42
5
0
k
6 28 000 12 000 40 000 242 000 36363.60
7 32 000 10 000 42 000 284 000 38181.78
8 37 000 8 000 45 000 329 000 40909.05
9 40 000 5 000 45 000 374 000 40909.05
10 44 000 3 000 47 000 421 000 42727.23
6
Traditional methods versus modern
methods of determining unitary cost in
forestry
Tenovici , Cristina; Albici , Mihaela and Parpandel, Denisa
Elena
17. November 2009
MPRA Paper No. 18684, posted 17. November 2009 / 09:49
Traditional methods versus modern methods of determining unitary cost in
forestry
Parpandel Denisa, University Constantin Brancoveanu, Rm. Valcea
Abstract: Top level management has in view costs minimizing, so profit maximizing, so that
costs adjustment seems to be a vital necessity when the activity developed within the company
does not assure the maintenance and stability of the necessary relation between consuming
factors and costs. In such circumstances, approaching differing sides of the production cost and
improving the methods of calculation has much significance in determining the most appropriate
measures necessary for its adjustment and for profit increasing. The whole informational process
of costs formation, control and analysis of costs involves a careful use the methodological
concepts known under the name of classical methods and modern or complementary methods, as
well as of other proceedings. Such methods and proceedings cannot be applied separately, only
conjugated and integrated in a unitary methodological system, each of these methods and
proceedings participating at achieving one or more objectives. Only by their unitary action they
can fulfill all the system objectives.
JEL classification: D24, M41
Key words : Cost, economic efficiency, decisions substantiation, traditional and modern
methods for costs determining.
The economic environment changes are accentuated so that entities find themselves forced
to create a management information system meant to assure protection and the possibility to react
to choques caused by competition. The future managers will not be able to perform without data
provided by management accounting and they have to get used to the proper terminology, its
techniques and the way in which the supplied data can be used, as well as the possible limits of
this information.
The forestry unit has to make up and to use a system of knowing products, working and
services costs so that it can be able to set the sales price according to the market demands and the
expected margins
1
. Costs determination and their evolution for the products specific to forestry
units does not represent a purpose but it is due, on the one hand, to managers orientation changes,
who are forced to use a certain tool capable to make possible an intervention for prices
adjustment. Consequently they ask for competent, relevant and appropriate accounting
information on costs. On the other hand, maintaining the forestry unit economic efficiency in the
present conditions of technological improvement acceleration and competition intensification
which involves competitiveness (private floristries) depends on the managers possibility of
knowing costs and consequently, performing, through appropriate decisions.
The process of decision making involves cost. It influences the decision process in many
ways: the relation costs-prices; relation costs-profit; relation costs- economic efficiency. These
relations do not represent something new, as they have been present in traditional economic
literature. Only it is necessary to rearrange them on according to new principles, taking into
consideration the market economy demands and fundamentals. Thus, in the countries with
planned economy they have paid more attention to costs than to prices, considering it to be a
1
C.O. Tenovici Projecting the informatic system of cost determination and analisys in forestry,
Universitaria Publishing House, Craiova, 2007, pag.12
1
direct relation, prices being established according to costs, in the market economy the relation
between cost and price becomes a dominant feature.
The costs influences directly the price formed on the market, by means of the cost
included in the product offer price. In addition, the market price has an indirect role on costs,
forcing producers to reduce costs for increasing profit, the producers with reduced costs having
more advantage.
The changing perspective on the relation between cost and profit had determined
important changes in costs determining process, analysis and control, turning it into a permanent
activity of operational checking each and every operation that generates expenses included in
cost, in order to find out the ways and means of reducing them
2
.
Top level management has in view costs minimizing, so profit maximizing, so that costs
adjustment seems to be a vital necessity when the activity developed within the company does not
assure the maintenance and stability of the necessary relation between consuming factors and
costs. Costs level and their structure reflects the forestry unit managers concern with practicing
the new technique, with an efficient using of production factors, their approach on productive
activity organizing and managing process, the substantiation level of decisions. In such
circumstances, approaching differing sides of the production cost and improving the methods of
calculation has much significance in determining the most appropriate measures necessary for its
adjustment and for profit increasing.
The whole informational process of costs formation, control and analysis of costs
involves a careful use the methodological concepts known under the name of classical methods
and modern or complementary methods, as well as of other proceedings such as: supplement
process, simple division process, process of equivalent coefficients, etc. Such methods and
proceedings cannot be applied separately, only conjugated and integrated in a unitary
methodological system, each of these methods and proceedings participating at achieving one or
more objectives. Only by their unitary action they can fulfill all the system objectives.
Perfecting the costs informational system by means of automatic data processing should
be preceded by the existent costs informational system reorganization. If this aspect is neglected
the success and the efficiency of system improvement is harder to be achieved, as the new system
will be based on weak system, which still contains many flaws resulted from data manual
processing. It is recommended the integrated reorganization by means of models established
beforehand that unify in a unitary conception all methods, procedures, the forms of data gathering,
processing, valorization and storing.
Reconsidering management accountability and costs calculation is one of the main factors
of efficient organization of economic activity. It should become able to supply information that
meets the requirements of the forestry activity efficient management in the present market
economy. The information about production costs occupies a central position, determined by their
implications on the actual state and on the future evolution of the unit activity. Thus, an efficient
leadership on the forestry unit level cannot be undertaken without an informational system able to
meet the requirements of a modern production management that allows taking operative decisions
and measures, thoroughly founded and on the right time
3
.
The traditional methods of cost determining, including the global method used in forestry
for determining and calculating costs, cannot meet the present requirements that aim at
performing a modern management which involves adapting and perfecting such methods.
A first drawback of these classical (traditional) methods is the great labor volume, as they
involve performing two series of calculations on the production cost: provisional calculation and
historical costing. Provisional calculations are done before the productive process beginning
through budget processing and the production expenses on the forestry unit level as well as the
wood mass cost budget, according to the wood mass spore supposed to be gained according to the
2
T.A. Baciu - Costs organization, planning, accounting, calculation, control and analisys,
Dacia Publishing House, Cluj- Napoca, 2001, pag 34
3
C.O. Tenovici Projecting the informatic system of cost determination and analisys in
forestry, Universitaria Publishing House, Craiova, 2007, pag.20
2
regulations in force and the consumption laws established. They also involve the exploitation
budget for plots that are to be exploited on the forestry unit level as well as the budget of the
unitary cost for each type of wood mass processed. Budget processing starts from the integral
achievement of works and assignments stipulated in the regulations.
Historical costing is done after finishing the productive process. In forestry, as we have
mentioned before, the productive process takes place over one year and it involves all measures
taken for treating the trees necessary for obtaining wood mass spore, according to regulations.
Such calculations are to be done at the end of each month, called partial historical costing, using
the global accumulated calculation.
Even if the effective cost is more likely to be precise and more detailed, these aspects
cannot make for the delay with which it is obtained, since modern leadership asks for proper and
pertinent data, instead of the exact ones but obtained too late
4
.
Traditional calculation methods, that are the global method used in forestry, allow the
regular determination of cost, but only at the end of the production cycle. Consequently, the
information supplied by means of such classical methods has a historical character and they can
be useful at directing the activity in future.
Although they have in view an operational approach of the main productive consumption
through consumption laws, this aspect is limited to the quantitative part and it usually takes place
especially for statistical reporting and data gathering for the programming period of the future
activity and not for informing the staff involved in taking decisions. This approach is incomplete
as, on the one hand, it does not constitute one of the staffs concern and, on the other hand, the
information obtained are not rendered in figures, in terms on money, only from quantitative point
of view.
Thus, another drawback of this classical method, consequently of the global method used
for determining cost, consists in the impossibility of assuring an efficient and systematic control
on exploiting expenses found in costs. The activity of gathering and processing such expenses
represents the base in establishing the effective cost. Determining cost at the end of the production
cycle does not supply information operationally about deviations from the established level which
allow decision makers to make proper decisions for setting aside deficiencies.
In order to be able to find deviations from the established level it is necessary to achieve a
series of accounting statements, as the accounts system used and the effective way of traditional
cost calculation procedure cannot permit finding such deviations. The deviations determined by
comparing effective cost with the one that has been established, either economies, or excess
levels, are expressed in effective value, without having the possibility to identify the places or the
factors that have generated them neither the persons in charge. In order to possibly identify these
deviations supplementary calculations have to be done, which involves much work and most
times they face the impossibility of providing exact information, even after concluding the
productive cycle.
The system of expenses monitoring, adequate to these classical methods, is not able to
provide simultaneous supervision of expenses and deviations, their analysis is done most of the
times later than necessary and the supplied information cannot be used in the decision-making
process. They cannot be used for balancing the productive activity while it is being developed,
only in subsequent calculations. Neither do they allow each activity department, as a cost centre,
to determine clearly and to appreciate objectively the activity results in order to be able to make
correct decisions and take proper measures for work improvement for an optimal fulfillment of
the budget objectives, of deviations adjusting and avoiding. It is not about only deviations
identified later (that are usually seen too late) but all deviations that can cause a maximum
decrease of the information value.
Another limit of the global cost calculation method identified during a study undertaken
within one forestry unit is the distribution of indirect expenses to products costs by using
conventional criteria, most of the time inadequate, without taking into consideration the cause
4
O. Calin, Gh. Carstea Management accountability and costs calculation, Genicod Publishing
House, Bucharest, 2002, pag.65
3
relationship between expenses to be distributed and the actual base of distribution. As the method
is oriented towards the integral unitary cost calculation, it underline especially the production
expenses division in direct and indirect expenses and this division do not allow their analysis in
relation to production volume. It is a very well-known aspect, from economic point of view, that
costs are appreciated in relation to production volume. This aspect involves costs calculation by
dividing production expenses into fixed and variable ones, such division being assured only by
modern methods of costs calculation.
Consequently, in forestry it becomes compulsory to perfect and diversify the methods of
management accountability and costs calculation by introducing some new methods and
proceedings able to increase from the qualitative point of view costs information, allowing thus
management accountability to fulfill successfully its role.
The effective development of the activity within the forestry unit, as well as its managing
draws more and more often the attention to determine beforehand productive consumption levels,
costs evolution and to compare them to the level established by the forestry Administration,
according to which there are organized wood auctions (for forestry units in the system) as well as
to the level reached by private forestry units which have already become a powerful competitor on
the market. It also become necessary to supervise efficiently expenses, to know expenses size and
their structure, to determine in the shortest possible time the deviations from the established level,
the causes that have lead to such deviations and last but not least to identify their exact position.
Management accountability should assure the quick gathering of exact, clear data,
adequate to different aspects of the current management activity. The rational use, as well as the
sending in time of such information will entitle the forestry unit management staff to react to
problems in the shortest possible time, to name the cause and to elaborate a coherent system of
measures which will determine sustainable and efficient forests management.
Thus, the necessity of permanent costs reduction for assuring economic efficiency within
each forestry unit, as well as the requirements imposed by entities management in the present
market economy, calls for perfect methods of costs calculation. They have in view increasing the
role of such methods for founding current and future decisions about the rational using of
production factors (the forest seen from economic point of view and its social and ecological
functions), perfecting technological processes and adjusting an efficient organizational structure.
It becomes necessary to adopt certain methods, systems and techniques of funding,
collecting and distributing production expenses and costs calculations, which can assure
promptitude, time saving and simplicity, qualities that in the end determine the improvement of
results quality for each forestry unit. Thus, such new systems, methods and techniques used for
costs calculation should result out of the analysis of the real present situation within each forestry
unit as well as taking into consideration the future requirements necessary for the aimed
objectives, so that to perfect the functional position accounting detains in general and
management accounting especially within the leadership activity. According to a critical analysis
of the present situation, which still offers positive elements, they should promote new methods,
capable to supply useful information to the managerial staff, needed when making decisions,
capable to allow an adequate valorization of information related to the production process.
The method that can meet the requirements of scientific management and of the economic
activity within the forestry unit is the standard cost one:
The advantages that can be obtained after having applied the standard-cost method can be
noted as follows
5
:
It assures an operational control on production costs, as the information supplied, concerning
the deviations from the standard costs can be registered at short intervals, so they have an
operational and favorable character. The method allows thus making decisions during the
production process development and not only after it has been performed;
5
C.O. Tenovici Projecting the informatic system of cost determination and analisys in
forestry, Universitaria Publishing House, Craiova, 2007, pag.23
4
It represents an efficient means for performing preventive control on production expenses, by
establishing before some standards for the rational use of materials, salaries and other details
for each work place;
By comparing the effective cost with the established one we can identify not only the size of
savings, but we can also know in due time the causes and the responsible staff who has caused
such deviations. Moreover, the deviations can be analyzed thoroughly, both on cost elements
and on price and quantity elements;
The standard costs are pre-calculated production costs on scientific, rigorous base, and they
are considered real, normal costs, each deviation related to these being considered a deviation
from the normal which will affect the financial results of the unit;
They cannot offer as an excuse the lack of a pattern that can be used in effective production
costs comparison, which can permit us to identify what is normal (by applying the traditional
calculation methods the reference elements used for comparing effective expenses could have
contained inefficiencies up to an undetermined level), offering the possibility of performing
costs control;
The standard-cost method includes in its working technique adequate systems of production
cost concrete processing and of relating a pre-calculated cost deviations, in comparison with
the classical methods used for costs calculation which do not include these systems
organically, each enterprise having in view their possible organization;
The standard cost is considered a normal production cost; the calculation of the effective cost
is no longer necessary. From mathematical point of view, the effective cost is transformed into
a derivative quantity and it will be obtained by calculating the plus or minus of the standard
cost and the deviations of the present expenses in comparison to the standard ones. It avoids
thus two series of operations (provisional calculation and historical costing) as in the case of
traditional calculation methods;
From economic point of view, costs are judged in relation to production size, some being
variable and some others stable. Thus, the standard cost method emphasizes costs grouping
according to their evolution against the physical volume of production (indirect expenses have
a mobile and a stable side), unlike classical methods which are oriented towards grouping
production costs in direct and indirect ones;
It allows grouping costs into stable and variable according to their evolution in comparison to
the evolution of the physical size of production, on the one hand, and costs grouping into
direct and indirect ones, according to their proportion in the products costs. Deviations are
thus determined within the organizational structures, both on calculation item and on other
causes, creating analyzing possibilities of the financial results and activity control for each
responsibility department;
It makes possible future costs estimations, as they reflect future objective-costs based on
deficiencies elimination and they are preferred against estimations based on adjusting costs
registered in the past which could have contained previous deficiencies;
Standard costs represent an important information source by means of which planned
production can be transformed into physical and monetary necessary resources and they help
budget planning;
Standard costs are set costs, with normative character which allows managerial performances
assessment within the company for a given period.
Encouraging modern management methods should take into account the fact that they rely,
from the point of view of their characteristics, their structure and their perfection level, on a series
of factors, such as: the social and economic system characteristics, an adequate informational
system and the staffs level of training and knowledge. Management techniques and methods,
from the point of view of their characteristics, have a collective character and a general structure
with possibilities of scientific application on different levels of management. Through their
content they determine responsibility improvement, allow classifying social and economic
phenomena and are based on a scientific language.
5
Managing a forestry unit involves, on the one hand, a good knowledge of the present
activity in order to be able to interfere with operational decisions in its directing and, on the other
hand, prefiguring its future evolution and setting up a predictive research which can underline the
development principles in perspective. The information determines the managerial staff
involvement through decisions which have the role of setting objectives, of organizing,
coordinating and directing collective actions for achieving the purpose. The decision represents
the essential moment for every managerial process as it involves all managerial functions. By
making decisions, the managerial staff chooses the most appropriate way of acting among many
possibilities. The decision, as a behavior form, based on information has been always a means of
directing and coordinating economic activities.
Using modern methods and techniques of management provides a higher level of accuracy
and confidence. Thus mathematical approaches on economic processes, operational research
development and its application, cybernetics and informatics are the most significant progresses
that the science offers to any economic management process.
Scientific management involves data automatic processing, using a mathematical
apparatus adequate to decisions preparation and applying modern methods of activity control.
Through modeling we have in view the logical arrangement of a set of operations or of a process,
by using a formalization methodology. A formal model represents, in fact, a simplified, but
suggestive, configuration of the reality it represents.
According to some models of operational research we can proceed to a comprehensive
analysis of all variables for evaluating the consequences of some different solution given to the
problem, offering a simple and real base that helps management in the making decisions process.
Thus, operational research becomes a priceless tool in forecasting different variants
consequences, offering the managerial staff the possibility of choosing the most efficient one.
Decision, as part of the decisional process, does not represent a purpose itself, but it has to be
applied correctly through correct actions and deed, its finality depending directly on the staffs
capacity.
Besides decision, economic information represents the second element of the cybernetic
concept used in management and economic activities adjustment activities. Therefore, we can
speak about the necessity of organizing an informing activity for managerial staff, capable to see
promptly what is essential and characteristic in the current activity of the forestry unit. Setting up
a modern informational system in forestry units have in view offering solutions to problems so
that the informational process to be related to the decisional one. In taking decisions we always
start from an existent result and we have in view a desirable one. The need of making a decision
appears when the system faces a problem which looks forward to a quick solution. The decision
involves, besides the human factor, the unit environment, as we have to take into account any
social, political, technological and economic changes, etc. both on national level and international,
especially now when we face a strong globalization trend. It also involves increasing the
complexity of the decisional activity, increasing thus the number of variables and limit conditions
where decisions will be adopted.
References:
C.O. Tenovici Projecting the informatic system of cost determination and analisys in forestry,
Universitaria Publishing House, Craiova, 2007.
O. Calin, Gh. Carstea Management accountability and costs calculation, Genicod Publishing
House, Bucharest, 2002.
T.A. Baciu - Costs organization, planning, accounting, calculation, control and analisys,
Dacia Publishing House, Cluj- Napoca, 2001.
6
The need for standardization in the use of the database design - case study
c_radut@yahoo.com
mturmacu@yahoo.com
Abstract
Relational database design is an area in which research methodologies have evolved to
develop theoretical and practical software tools that ensure a high degree of normalization of
relation schemes, maintaining integrity, to avoid anomalies due to non-systematic designs
and eliminate subjectivity by designer replacing it with the accuracy of the method. Initially it
started from a collection of schemes and relations from functional dependencies and
associated multivalorice and reach, applying normalization algorithms to schedule a
normalized database. This papers presents the process of normalization in two studies that
event.
Keywords: Normalization, Normal Forms, Database, Data Redundancy
When designing a relational database, the main objective in making a logical model is to
create an accurate representation of the data, their relations and constraints. To achieve this
objective, it identified an appropriate set of relationships. Normalization is a bottom-up
processing, database design, which begins by examining the relationship between attributes.
However, often the design methodology addresses a top-down treatment of database (which
begins by identifying key entities and relationships), in which case the normalization is used
as a means of validation.
The process of normalization is a formal method that identifies relations based on their
primary keys and functional dependencies between attributes. Standardization helps designers
databases, by presenting a series of tests that can be applied to individual relations to prevent
update anomalies. One of the main goals pursued in the design of relational database is the
grouping of attributes into relations so as to minimize redundant data and thereby reduce
storage space required basic relations implemented.
Update abnormalities are classified into:
Insertion anomalies that may be of two types:
- abnormalities of the identity data redundancy: for example, to insert new staff should
include details about the branch that will work, details of which should coincide with
the output of the other rows in the relationship, if not cause a database inconsistency.
- anomalies on the need for rows with null for primary key: for example, to insert a new
subsidiary, which has no staff for the introduction of nulls for attributes of staff, is not
allowed null site (because it violates integrity entities).
Deletion anomalies: delete certain records result in loss of details are not stored
elsewhere: if you delete the last member of staff at a branch, subsidiary details are lost.
Adjustment anomalies.: the need for modification of redundant data, it requires
changes in all records as it appears: if we modified one of the attributes of a subsidiary, is
required for updating rows corresponding to all members of that branch, otherwise the
database is inconsistent .
I will address further normalization technique through several case studies.
Normalization.
A table is ofen referred to as an entity in an ERD (figure 1-8)
Figure 1. An Entity Relationship Diagram (ERD)

Figure 2. A one-to-one relationship
implies exactly one entry in both
tables

Figure 3. One-to-many implies one
entry to many entries two tables
Figure 4. Resolving a many-to-
many relationship
Figure 5. Primary key and the
foreign key
Figure 6. Authors and their in a
1NF master-detail relationship

1) First normalized form (1NF) is obtained when the intersection of each line of each
column in any relationship of the scheme is only one value. It is necessary to identify
and eliminate repetitive groups of the table, by introducing new lines and defining a
primary key consisting of several attributes. If a compound primary key attribute of
repeat, this is not a duplication of data, but can cause problems when updating
database.
Figure 7. Insert anomaly occurs
when detail record added with no
master record
Figure 8. Delete anomaly occurs when
detail records removed without
deleting master record first
Figure 9. The AUTHORSBOOKS
table in 0th Normal Form
1NF requires:
Eliminates repeating groups,
Defines primary keys,
All records must be identified uniquely with a primary key. A primary key is unique
thus no duplicate values are allowed,
All fields other than the primary key must depend on the primary key, either directly
or indirectly,
All fields must contain a single value,
All values in each field must be of the same datatype,
Create a new table to move the repeating groups from the original table.
2) The second form normalized (2NF) apply to relations with key compound and each
attribute is that which belongs to the primary key that is totally dependent functional.
Full functional dependency occurs when the dependent attribute is not dependent on a
subset of attributes of a key and remove any components in determining lead to loss of
dependency. Otherwise, it is considered a partial functional dependency. A single
primary key relationship (with one attribute) is in 2NF. For a composite primary key
relation, the shift in the 2NF is made by removing partial functional dependencies. For
this, each attribute functionally dependent part is copied into a new table with a copy
of the determinant. Standardization in the second way is by identifying and
eliminating all partial functional dependencies primary key, and keys any candidate.

Figure 9. The BOOKS table in 1NF
2NF requires removal to new tables of fields partially dependenton primary keys.
- create the CUSTOMER table to remove static data from the SALE_ORDER table
- create the STOCK_ITEM table to remove static data from the SALE_ORDER_ITEM
table
Figure 12-13 shows all four tables after the 2NF transformation.

3) The third form normalized (3NF) is obtained by eliminating transitive dependencies of
the model. By definition, when an attribute has determined attribute B and B
determines the attribute C, is dependent transitive attribute C of attribute by attribute
B. determining a transitive functional dependencies between attributes of a
relationship can cause update errors. A firm in 1NF and 2NF relation is in 3NF if any
non-primary key attribute is dependent on primary key transition through another
attribute which are used in the primary key. To obtain the third form of normalization,
any attribute with transitive dependency is placed in a new relationship with copy
determinant (determinants).
3NF (figure 14-15) does the following:
- The table must be in 2NF
- Eliminate transitive dependencies. A transitive dependency is where a field is
indirectly determined by the primary key because that field is functionally dependent
on a second field, where that second field is functionally dependent on a second field,
where that second field is dependent on the primary key
- Create a new table to contain any separated fields
Figure 10. Using 2NF to separate static
data from dynamic data
Figure 12. Two table in
1NF
Figure 11. 2NF often requires non-
identifying one-to-many relationship
Figure 13. Four table in
2NF

4) Boyce-Codd normal form (FNBC) take into account the functional dependencies of
any candidate key in a relationship and get after creating 3NF form, if all determinants
are candidate keys. For a relationship with one key candidate is used as the default
primary key, 3NF and BCNF are equivalent forms. By analyzing all the dependencies
of a relationship is established if it is or not in BCNF form.
5) Fourth normalized form (4NF) is obtained from FNBC by removing multivalorice
functional dependencies (MVD) netriviale (not fully determine the table), which
appear in the generation of the first forms of normalization of relations due to type 1:
M independent of types of entities.
6) The fifth normalized form (5NF) is obtained from decomposition of a relation in 4NF
with two or more independent relationship dependencies deleted without loss of union
type, which ensures that the natural union of several tables decomposition of another
not generate false data or correspondence.
Conclusions
The many potential outcomes and benefits of normalization should not be confused with the
overriding goal, which is to create properly structured relations, as those contain fewer future
Figure 12. A 3NF transformation
amalgamating duplication into a new
table
Figure 13. 3NF transformation to
remove calculated fields
Figure 13. Five tables in 3NF including
removal of calculated fields calculated
fields
anomalies. Focusing on benefits instead of the goal can mislead one to bypass normalization
altogether since there are other ways to at least partially achieve some of those same benefits
that are misstated as being goals. The question of how far should a database be normalized
has been addressed by use of a simple return on investment model. Stopping short of 4NF is
not a wise business decision as many anomalies might still exist A designer should reach the
fourth normal form. Moving beyond the 4NF should be examined in terms of ROI. In this
author's experiences. striving for 5NF seldom produces significant results and typically is not
justified based on ROI. However, the sixth normal form should be reached if temporal data is
prevalent, as in a data warehouse.
References
- Date, C. J., Darwen, H., & Lorentzos, N. A. (2002). Temporal Data and the Relational
Model: A Detailed Investigation into the Application of Interval and Relation Theory
to the Problem of Temporal Database Management. Amsterdam: Elsevier Science Ltd.
- Hoffer, J. A., Prescott, M. B., & McFadden, F. R. (2007). Modern Database
Management 8th ed. Upper Saddle River, NJ: Pearson Prentice Hall.
- Kroenke, D. M. (2006). Database Processing Fundamentals Design, and
Implementation. 10th ed Upper Saddle River, NJ: Pearson Prentice Hall.
- Mannino, M. V. (2004). Database Design. Application Development and
Administration Boston: McGraw Hill Irwin.
- Pratt, P. J., & Adamski, J. J. (2005). Concepts of Database Management 3rd ed.
Boston: Thompson Course Technology.
- Rob, P., & Coronel, C. (2007). Database Systems: Design, Implementation, and
Management, 7th ed. Boston: Thompson Course Technology.
- Ulman, J. D., & Widom, J. (2008). A First Course in Database Systems, 3rd ed. Upper
Saddle River, NJ: Pearson Prentice Hall.
Decizii economice in conditii de
incertitudine
Albici, Mihaela; Belu, Nicoleta and Tenovici , Cristina
University Constantin Brancoveanu, Rm. Valcea, Romania
18. October 2009
ECONOMIC DECISIONS IN UNCERTAINTY CONDITIONS
Abstract. Uncertainty means partially or totally knowing the probabilities to
accomplish an actions potential results.
JEL classification: D80, D81.
Keywords: Decision, uncertainty conditions, utility.
Economic decision making is the action direction chosen consciously when managing
an enterprise among a certain number of possibilities with the purpose to achieve goals in
maximum efficiency contexts.
When trying to formalize economic behaviour, it is essential that facts should be
inserted about uncertaintys being inseparable from human thinking and dominating most
judgments. Since one should give up the objective measure concept, there has to be an
assessment, comparison, graduation or relation. Incorporating these concepts with subjective
nature is a basic activity for the better knowledge of the analyzed phenomenon. Thus, a state
which cannot be measured but preferred to another goes up to a higher knowledge level [5].
A model of economic decision making in uncertainty conditions can only be drafted
by including the utility function. It is based on organizing decision makers preferences
according to the risk he/she associates with the set of pursued goals.
Let us consider the mere case of selection decisions of one potential variant out of
two. The former utility concept used is ordinal utility [10], which has the exclusive task to
arrange preferences without specifying how high the utility of the formerly selected variant is
as compared to the utility of the latter variant. The latter concept is cardinal utility [10]
which states the idea that the utility difference of the two variants might have a certain
significance. Decision making means stating that a certain variant has a higher utility than
another one.
Consumers preferences and their related utilities are the nucleus of an uncertain
economy. In order to understand how preferences form, it is fundamental the notion of nature
state should be defined [1] the potential configuration of decisional environment which,
along with knowing individual actions, entirely causes all consequences. Uncertainty is found
in the fact that one can never tell which state is going to intervene. That particular state shall
be precisely known subsequently and one shall consider uncertainty being solved entirely at
that time.
Uncertainty can be specified by means of probabilities theory. The expected utility is
defined as a probabilistic construction where the expectation operates by including the
uncertainty due to nature states. The theory of expected utility was originally created by
Bernoulli, and the axiomatic growth was stated by Von Neumann and Morgenstern in 1944.
Therefore, utility function is defined on the set of goods
1
, not on the corresponding
1
Goods generically mean the complete list of products, services, revenue or time units involved in decision
making, Bogdan-Constantin Andronic, Company Performance, Polirom Publishing House, Iai, 2000, p. 157
1
configurations. Arranging preferences is done according to the expected value of utility
function.
In uncertain conditions, events are the potential states of nature and therefore decision
making involves considering their
( )
i
x p
probabilities meaning a unit partition. The amount
of average information a decision maker receives is the well-balanced average of information
amounts that each nature state associates with
( )
i
x p
probabilities and it bears the name of
informational entropy which is a concept defined by Shannon, involving probabilities both in
the stage of information spring seen as a random process, and in the stage of gathering the
results of transformations upon information.
Let
( )
m i
i
i
x p
x
x
, 1 =
=
,
1
1
=
=
m
i
i
p
be a discrete random variable with
i
x
values. A Shannon mere entropy associated with x
random variable or probabilistic repartition
( )
m
p p p P ,..., ,
2 1
=
[189] is the expression:
( ) ( ) ( ) ( )

= =
= =
m
i
i i i
m
i
i
x p x p x h x p H
1 1
ln
,
1
1
=
=
m
i
i
p
.
Defining entropy according to the amount of information, to the information based on
probabilities and taking account of the fact that probabilities classical theory is one of the
methods to approach decision making in uncertain conditions make entropy an operational
instrument for decision making when uncertainty is present.
Decisional subjectivity corresponds to uncertainty when either the chances of nature
states occurrence cannot be objectively assessed partial uncertainty, or there are no data on
nature states pure uncertainty. The preferences associated with each decision maker
intervene in both situations.
There are two main categories of subjective influences upon individual decision
making:
The influences exerted by other players of decision making;
Subjective probabilities.
According to Knight [6], the first category includes involvement as a measure of
existing internal and external concerns, direction which can generate conflicts due to
divergent trends and the way to exert authority.
Among the elements in the process of subjective estimation of decisional probabilities,
one should mention the decreasing balance of remote events in a geometrical progression, the
selective perception of reality, the varying degree of informations representativeness, the
scope of decision making reasonableness concept. Decisional reasonableness is regarded in
three ways: logically subject to the principles of decisional identity, excluded third party
and sufficient reasoning - , informationally a decision may seem irrational if its assessor
does not have the additional information that a decision maker has and the regulatory and
social way the rules of economic behaviour are regarded as restrictions by economic
decision making.
Several specifications have been made regarding significant parties, making
generalization come true [3] in terms of probabilities subjective approach:
Decision makers estimate that an event which has not occurred within a longer period
of time has higher occurrence probability in the future;
Decion makers overestimate the probabilities of favourable events and underestimate
the probabilities of unfavourable ones;
Decision makers tend to overestimate the occurrence of low probability events and
underestimate the occurrence of events having high emergence probability.
2
If nature is one of the participants, decision making can enter the realm of uncertainty
when there are no data about the probabilities to achieve nature states.
Decisional matters in uncertain conditions can be settled by several criteria:
1. The pessimistic criterion (the rule of Abraham Wald 1950)
It starts from the idea that the best variant is the one supposing maximum advantages when
optimal conditions are most unfavourable. Thus, considering the decisional matrix such as:
j i
C V
1
C

2
C
.
n
C
1
V
2
V
-
-
-
-
-
n
V
11
R

12
R
R1n
21
R

22
R
.
n
R
2
- - -
- - -
- - -
- - -
- - -
1 m
R

2 m
R

mn
R

where: i
V
decisional variant;
i
C
natures objective state;
ij
R
decisional consequence related to variant i and objective state j.
The strategy chosen corresponds to value
( )
ij
j i
opt
R V min max =
or, in other words, the possible minimum efficiency maximizes. Some authors [48] also
identify a choice for exceedingly prudent managers:
=
ij
j i
R v min min
. It is thought that such
prudence can be associated to small companies whose survival depends on the size of losses.
2. The optimistic criterion aims at choosing the optimal variant when optimal
conditions are most favourable.
( )
ij
j i
opt
R V max max =
3. The criterion of average optimism (the rule of Leonid Hurwicz 1951)
associates each strategy with a pair of complementary probabilities ( ) 1
2 1
= + p p so that
1
p

should describe the most advantageous situation and
2
p
the least advantageous one.
1
p
coefficient is also called players optimism. Applying the criterion supposes several iterations:
adopting optimism coefficient:
1 0
1
< < p
setting up i
H
elements according to the formula:
( )
i i i
a p A p H
1 1
1 + =
where:
i
A
the element of maximum utility;

i
a
the element of minimum utility on each line;
choosing the best variant which corresponds to the variant having the
highest
i
H
:
i
i
opt
H V max =
It is important to notice that if extreme values are given to
1
p
optimism coefficient, one
reaches the solutions given by the pessimistic ( ) 0
1
= p or optimistic criterion ( ) 1
1
= p :
3
i i i i
A a A H = + = 0 1
ij
j i
i opt
R A V max max max = =
i i i i
a a A H = + = 1 0
ij
j i
i opt
R a V min max max = =
The result of this criterion depends on the value of optimism coefficient which is
closely related to decision makers behaviour. By comparing
i
H
values, the optimism
coeficient can be set up which involves the fact that a variant becomes more preferred than
another. It is interesting that if a strategy corresponds to more than two decisional
consequences leaving the most advantageous and disadvantageous ones aside, the others
receive zero obtaining probability. According to Hurwiczs criterion, a decision maker
behaves as if there were only two potential extreme manifestations.
4. The proportionality criterion stated by Bayes Laplace in 1825 starts from the
idea that each state of objective conditions has the same occurrence probability and the best
variant is the one for which the mathematical average of results corresponding to the considered
state is most favourable.
=
=
n
j
ij opt
R
n
V
1
1
max
5. The criterion to minimize regrets stated by Leonard F. Savage 1951. A
strategy must be therefore chosen after assessing the difference between the best results
value corresponding to nature state and the other results value according to which the best
variant is the one involving the least regret.
This criterions functioning involves:
setting the regrets matrices where every element is obtained by
subtracting the maximum element in the column from its original value
(the regrets matrix is obtained according to the dimensional matrix).
ij
j
ij ij
R R r max =
setting the maximum values of regrets obtained and, among them, the
minimum value in each variant.
( )
ij
j i
opt
r V max min =
.
This criterion applies to certain investment projects during a longer period of time.
Numerical application exemplifying the five decisional criteria:
A large-size commercial company manufacturing basic food products, non-food products and
related services wants to market its goods following the alternatives below:
direct sales in its own stores;
sales by means of intermediaries;
sales on foreign markets.
Taking account of the domestic and foreign markets conjecture, the following profit
growth rates are estimated by product categories and sale methods.
Nature states
Variant
Own stores Sales by
intermediaries
Sales on foreign
markets
Food products 10 6 - 3
Non-food products 15 - 9 2
Services 18 4 2
4
1. The pessimistic criterion:
max (-3, -9, -5) = -3
best variant selling food products on foreign markets.
2. The optimistic criterion:
max{10, 15, 18} = 18
best variant selling services in own stores.
3. The criterion of average optimism:
a)
1
p
= 0,5
b) ( ) ( ) [ ] 5 , 3 5 , 1 5 3 5 , 0 5 , 0 10
1
= = + = H
c) ( ) ( ) [ ] 3 5 , 4 5 , 7 9 5 , 0 5 , 0 15
2
= = + = H
d)
( ) ( ) [ ] 5 , 6 5 , 2 9 5 5 , 0 5 , 0 18
3
= = + = H
{ } 5 , 6 5 , 6 ; 3 ; 5 , 3 max = =
opt
V
3
V V
opt
=
4. The proportionality criterion:
=
ij n
a
n
S
1
( ) 33 , 4 3 6 10
3
1
= + =
n
S
( ) 66 , 2 2 9 15
3
1
= + =
n
S
( ) 66 , 5 2 4 18
3
1
= + + =
n
S
{ } 66 , 5 66 , 5 ; 66 , 2 ; 33 , 4 max = =
opt
V
3
V V
opt
=
5. The criterion to minimize regrets:
( )
ij ij ij
a a R =max
=
7 2 0
0 15 3
5 0 8
ij
R
( ) 7 7 ; 15 ; 8 min max min = = =
ij opt
R V
3
V V
opt
=
References
Andronic B.-C. (2000) Company Performance, Polirom Publishing House, Iai.
Belu N. and Co. (2002) Management. Applications, Case Studies and Practical Exercises,
Cooke S., Slack N. (1991) Making Management Decisions, Prentice Hall International,
U.K.,
5
Coea M., Nastovici L. (1987) Risk Assessment. Analysis Methods and Techniques at
Micro- and Macro-Economic Level, Lux Libris, Braov.
Gil Aluja J. Towards a New Concept of Economic Research, Fuzzy Economic Review,
no. 10/1985, Spain.
Knight F.H. (1985) Risk, Uncertainty and Profit, University of Chicago Press, Chicago.
Raiu-Suciu C. (1995) How to Model and Simulate Economic Processes, Didactic and
Pedagogical Publishing House, Bucharest.
Raiu-Suciu C. (1993) Economic Modelling, Sylvi Publishing House, Bucharest.
Varian R. Hal (1996) Intermediate Microeconomics. A Modern Approach, Fourth Edition,
W.W. Norton, New York.
6
Evaluarea unei afaceri in franciza
Parpandel, Denisa Elena, Belu, Nicoleta, Albici, Mihaela,
Tenovici, Cristina and Rizea, Ionela Carmen
Constantin Brancoveanu University, Pitesti, Romania
26. October 2009
1
Evaluation of a franchise business
Parpandel Denisa Elena, Faculty of Management Marketing in Economic Business, Rm.
Valcea, Constantin Brancoveanu University, Pitesti, Romania
Belu Nicoleta, Faculty of Management Marketing in Economic Business, Rm. Valcea,
Albici Mihaela, Faculty of Management Marketing in Economic Business, Rm. Valcea,
enovici Cristina Otilia, Faculty of Management Marketing in Economic Business, Rm.
Valcea, Constantin Brancoveanu University, Pitesti, Romania
Rizea Ionela Carmen, Faculty of Management Marketing in Economic Business, Rm. Valcea,
Abstract
The contents of this paper I will try to address all those interested in studying the
system of franchising, both theoreticians and practitioners in this field to contribute to the
progress of this system in our country.
Franchising is a reality in motion which will write more, being on time to find a
theoretical foundation able to provide solutions for all aspects and economic instruments
involved a commercial phenomenon.
Therefore, franchising can and should be successful adventure for both franchisees
and franchise, for those who are guided by ethics and passion, vision and innovation, and for
those who want to develop franchises or franchise network .
The aim is to highlight research opportunities to improve the system of franchising as
a strategy for penetrating foreign markets in Romania and not only because the franchise is
the fastest and safest way to becoming a business owner, and its success depends on what you
do owner - franchisee, i.e. not repeat the mistakes inherent in any beginning business and risk
losing everything at each "turning point" of the road. Typically, franchisees receive
information and knowledge vital to business success in exchange for various fees they pay to
those who purchased the business, that the franchisor.
The success of franchises is most dependent on one man: the franchisee, and to be
successful is not enough that it will have the necessary knowledge to purchase a license and
to build a franchise unit, to arrange and start businesses in within this unit. Franchisee must
be dedicated to his work, it must have the desire and willingness to work hard and ability to
remain motivated, ability to do business.
JEL classification: D40, D80, D81.
Keywords: franchising, evaluation, business, strategy
"Small business is the main catalyst of growth. These small businesses contribute
largely to the achievement of fundamental objectives of any national economy-Peter
Drucker.
Franchising a business means the territorial expansion of a business by selling the
recipe for success. In general, any business can franchise, except the illicit nature or state
monopoly. Usually, franchising is done from a pilot unit, which the operation has shown the
viability of these recipes. Basically, the pilot unit, the franchisor has tested and perfected his
idea of success, took time to find solutions to problems arising.
Thus, the operational manual and the transfer of know how he will provide franchisees
an easy way and tested to run that business. [1]
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Successful operation of the pilot unit is essential to prepare the package of franchise
(franchise package). Experience gained from opening and operating the pilot unit is the
foundation on which the structure elements franchise package.
It is considered that the success rate of franchises is 95%, but the causes that may lead
to increasing or decreasing the percentage depends on factors such as the franchisor's ability
to assist and support its franchisees, further communication between them, respect the
franchisees of the rules established by the franchiser, timely payment of monetary obligations
(duty fees, advertising, invoices to suppliers, etc.), due diligence in selecting franchisees (is
that each franchisor to prepare a questionnaire for potential eligibility of Candidates for
franchisee) etc..
On extending the franchise system, this could be achieved either by points or circular.
Extending the points means that the franchisor cedes franchises in geographic areas, randomly
and the circular is achieved through the sale of franchises mainly adjacent areas in which it is
based franchisor (master franchisee). For example, if the franchisor is based in Bucharest, to
extend the ring will be sold in areas such as Ilfov, Prahova, Dambovita, Arges, etc...
Expanding the franchise but also entails some risks. First, franchise partner are likely
to use the experience and know-how obtained during the franchise to build a competing
company. Some contracts stipulate to avoid this situation a non-competition clause. [2]
In terms of the franchisee, franchising disadvantages such as taxes and reduced
opportunity to change during the performance of specific business franchise, franchise
contract so inflexible. Also franchisee is not able to implement their ideas; only to the extent
they are consistent with those of the franchisor.
Business success formula patented and tested by the franchisor, promoted by the
franchise network, experience and know-how, are usually a guarantee of positive
performance, they are sent to each member of a franchise network.
Succession franchisee in such type of business emerges as an opportunity for the
sector the small and medium enterprises, especially in the current generated by economic and
financial crisis.
Although a large percentage of franchise is a successful franchisee should be aware
that there are risks, particularly emerging markets, as is that of Romania. In addition, to have
these qualities, means to operate a business under one brand, under certain conditions
imposed by the franchisor, under the auspices and rules imposed by the franchise contract.
Finally, the franchise means a total commitment to franchisee: he must understand that it is
not enough to satisfy the conditions dictated by the franchisor, but should "put the bone to
work", i.e. not spare any effort to work in this system!
Franchising is a form of trade with the dynamic developments in the world, through
which the experience and know-how network overlap with the spirit and desire to succeed the
franchisee.
Decisions in Franchising is based on thorough information on the operator itself
(franchised or Franchisee) and business in the territory. This information can be obtained both
from traditional sources (press, radio, TV) and the specific business in the field. Regarding the
latter, is, first, the material published in various magazines and those offered by franchising
associations and chambers of commerce of different countries, as well as the direct bearers of
information: franchisors and franchisees? Lately the Internet offers a number of websites
about franchising system and takes it all over the world, including directly contacting
franchisors and prospective franchisees.
The main areas which are subject to estimate franchise are:
I. The product or service
Examine, first, picture and novelty products on the market to determine if it was
already accepted by consumers. Otherwise, the Franchisee's can receive an untested product
on the market, i.e. the chance of success unclear, or one who is mature stage (decline) of its
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life cycle and the negative prospects for the future. Very useful to be successful and analyze
the product / service in other markets, particularly those with similar conditions.
This will allow evaluation Franchisee's chances of occupying a market share sufficient
to achieve break-even and profit. Particular attention is paid to the prospects of profitability
(over years 3-5-7-10). Demand seasonality study will complement the overall picture and
enable the analysis of financial position and cash flows during periods of maximum and
minimum demand. Consideration of issues of special or unique characteristics allow
Franchisee's franchise to determine if it has indeed something that can not be achieved
without help franchised in your own business. Same will be done and offer a comparative
analysis of competitors.
II. Territory and location of premises
Exclusivity in a given territory is a more important franchise. And, since this territory
is vast, the period of exclusivity - and more opportunities to its infringement by competitors -
smaller, the franchise value will be higher.
Franchisees, but I can not guarantee the Franchisee's lack of competition in general.
First, because that territory Franchisee can operate and other franchised offering products /
services similar. Secondly, no one can guarantee the exclusion of cases addressing customers
by Franchisee of the neighboring territories (especially those that are border territories). It is
therefore in the interest of Franchisee's thorough study that will enable the territory.
Simultaneously and should give appropriate attention franchised territory for the selection
they offer great advantages as Franchisee's (in the number of potential customers, their
purchasing capacity, specific cultural, national, religious, etc.)..
The actual location of the premises is another important moment, given the fact that
the central places of cities with significant flows of shoppers and cars (and parking for them)
business unit recorded sales much higher. Thus, McDonald's Corporation selects the best
possible places for the location of its units, on the understanding that higher costs will recover
fully because of higher sales.
Ownership of buildings is another important factor. If the owner is Franchisee's, then
he will become more independent in making decisions on further business, shifting to other
areas, or the sale of the building (winning picture better because of the potential and local). In
turn, franchisees, the owner has the option to terminate the contract without losing a good
local. In case of renting space, the benefits are not as pronounced, however, who rents the
owner (franchised or Franchisee's) has more levers of influence and maneuvers. [3]
III. Franchise Package
This includes all relations between franchisees and Franchisee. Content specified in
the Manual of Operations and franchising contracts.
Payments are an essential part of the franchise package. Establishing their strategies
may differ in different franchised. Thus, higher initial franchising fees and royalties are quite
dangerous low, with the risk "financial pyramids". Royalties can be an indicator of reduced
commercial additives high in products or equipment supplied. Low initial fee also can
sometimes obscure the commercial additions and high royalties. Some franchised establish a
minimum royalty, to be paid regardless of sales made. In this case it would be necessary to its
economic argument for Franchisee's no loss record. [4]
Payments for advertising distributed normally between franchisees and the Franchisee,
the problem consists in proportion, to be determined. For it to be fair, it will examine such
issues as: the subject of advertising (in general or franchise Franchisee's offer of territory) and
the territory of the message broadcast (local, regional, national).
Another area, which is the question of who pays what "is that of training. Usually,
the core areas of training are: methods of operation, financial control, service equipment,
hiring staff, legislative aspects. In addition, be provided and a series of regular training
courses, including those related to solving practical problems faced by the firm (management,
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marketing, law, technical, etc.).. Analysis of these courses need (classic or "at work") will be
the light of the report charges - result.
Evaluation franchisee
The analysis is aimed at selecting franchisees, franchisees work with who has a better
chance of success:
I. The experience, reputation, and future plans
Good franchisees carefully select its Franchisee, completing a comprehensive
questionnaire is one of the initial procedures of cooperation. In turn, the Franchisee's will
prepare also a number of questions to make sure that the choice made successful.
It is important that franchisees in the past to be closed all the shortcomings of the
business, so 2-3 years experience in the field is mandatory.
Staff franchisees in the financial-credit institutions are an important indicator of the
quality of its business practices and an advantage in obtaining loans. The successes achieved
in the past (profits, sales, etc...) Plans for the future you should also be quite moderate, as
grandiose projects require modification of the system of administration, together with errors
and issues any radical action (they necessarily affect Franchisee).
Documentation of franchisees on the basis of independent information sources will
complement the general picture with a number of very valuable information. Study staff
franchisees, including work experience of those who occupy key posts, working hours, the
mode of employment (basic or total), organization and productivity, managers of sincerity in
the number of cases of failure Marketing and corrections made, will allow Franchisee's to
make the right decision in the case when there are so many alternatives.
II. Financial situation
The purpose of financial analysis will be to determine the current status of franchisees,
on the one hand, and evaluating the attractiveness of franchising opportunities on the other. 7
main areas of analysis and financial control are presented in the following table and
calculation methods as were made in accordance with National Accounting Standards.
Indicators of financial assessment of franchised
Table no.1
Indicators The method of calculation
Profitability
Financial return Net profit / capital used x100%
Gross trading margin Gross Profit / Sales x100
Operational marketing margin Operating profit / Sales x100
Net trading margin Net Profit / Sales x100
Solvency
Gearing Report Borrowed capital / capital employed x100
The ability to cover interest Operating profit / Interest payable x100
Liquidity
Absolute liquidity Cash / Current liabilities
Term liquidity Current assets - Inventories / Current liabilities
Total Liquidity Current assets / Current liabilities
Control of claims
Receivables collection period
commercial
Commercial Claims x days in period / Turnover
Stocks control
The period of rotation of stocks Stocks of goods and materials x days in period /
Turnover
Control liability
The average lending Short-term debt x days in period / Turnover
Cash Flow Control
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Monthly forecasts and the actual situation /
Weekly / daily
Source: Created by author based on information gathered during research
Franchisee's assessment will be guided to establish the area's potential Franchisee
selected and include two main issues: (1) potential for development and (2) entrepreneurial
characteristics. [5]
Development potential, iincludes analysis of current situation and prospects for
future development of the following areas:
Franchisee experience undertaking given market (production, marketing)
Management experience of leading companies like
Specialists needed and opportunities of employees with expected salary
Capital needed for business and sources for obtaining it.
Entrepreneurial characteristics. Given the fact that the Franchisee is a compromise
of your contractor and employee, the main features required from it are: the orientation
towards sales, potential energy, persistence and diligence, determination and self-esteem,
desire to comply with standardized procedures, low predisposition to risk.
Franchisee's general motto can be defined as: "Having your own business but do not be
alone. Franchisee's compliance realizes its objectives strictly franchising system. The head
company - Franchisee must be able to build relationships with people to communicate
effectively with customers, representatives of the franchisees, suppliers and their staff. It must
be an honest person and franchisees share the desire to constantly improve the system. Any
new information on it must be quickly studied and tested in practice.
Taking into account that the coordination of business will require a long time
(sometimes 15-16 hours a day) is very good for working to bring satisfaction and have no
burden. This will happen when the business will bring not only revenue but will represent an
inner aspiration manager, relate his moral values / social and goals in life. The simple desire
to earn more money is insufficient for success. Joining a franchise business system can be a
challenge for anyone who wants to open a business. The advantages of conducting business
under existing and recognized names are obvious.
Franchising is a lifestyle, a way of doing business, provides opportunities for success
that are apparently rare in other types of businesses, is a fast growing method of business.
That does not mean that there is no need of analysis, work and continuous effort.
Before becoming a franchisee, it developed an action plan. This action plan will lead
to understanding and start work.
Three steps to become a franchisee
Table no. 2
Steps forward Description of steps
Step 1.
Franchisor can provide a significant
amount of information. This will be
accompanied by a simple checkout process
and a program of business development and
potential success.
Most franchisors will offer the entire
form of business or training to have all the
capabilities needed to become a successful
franchisee. Should be analyzed under the
franchisor offer initial training and support
what the business over there.
Have studied marketing programs,
accounting programs, financial programs,
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quality programs, services and training
programs to be offered continuously. It will
be better if it can investigate and analyze
some franchisors before starting negotiations
with a particular franchise.
Step 2. It must be as much information about
the franchisor why he chose franchising,
which is his long-term commitment to the
system, will act as a dictator, parent or
partner? One of the basic questions to be
answered is whether it is possible to have a
partner on the franchisor?
Step 3. It is also important to understand the
steps necessary to start business. What
services are provided by the franchisor to
launch business and preparation before
opening, the choice of location, construction,
design and layout, training manager,
employees, inventory selection, furniture,
accounting systems, computing, marketing
programs and advertising to open? It is also
important for the franchisee to determine the
period of time will change from signing a
franchise contract to open the unit.
Also, the potential franchisee should
try to find out what current business
developments are expected in the next three
to five years or ten years. Will be developed
new products or services to franchisees? How
are products and / or services introduced or
provided to franchisees? It is imperative that
all franchisees to support new products and /
or services? How should a franchise work?
Source: Made by author by the IMO Group online courses, business consultancy franchise.
The franchise is one of the most powerful business relationships today. Many honors
and respects its franchisors and franchisees in return, franchisees working very well and
supports the franchise. Many franchise system provides franchisees assistance in determining
the best methods to improve products and services within the system.
Whatever time is chosen to franchise before the final decision, assess the following
three factors which success depends on the option of entering a franchise business:
1. The right people appreciate if you are interested to become a franchisee.
2. It establishes the type of franchise that they would fit.
3. Calculate the cost franchise.
1. Choosing the right person to become a franchisee?
It is necessary to start a self-assessment, i.e. assess whether a candidate is the right
person to become a franchisee. To start a business as a franchisee is required to make an
honest and comprehensive self-assessment. The role of such evaluations is to help them find
the profile of a person to start the long journey in a relationship so special.
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The qualities required of a franchisee can be summed up as follows:
A good franchisee should be able to run a business to be maintained throughout
her identity is essential. You can enter a business that can last 20 years. During this time,
will be essentially the same. If it appears that the potential candidate is a person who always
wants change, then the candidate will be best for the franchise channel.
Franchisee must be able to accept views different from their own. The views of
each franchisee in the operation are very important business to increase efficiency and quality
franchise network. Moreover, a franchisee must be able to hear the views of the franchisor.
And to accept them!
Franchisee must be an honest man and be able to play the game made by
franchisor. Franchisor must be sure that each franchisee will apply exactly the methods and
procedures of the system he created. If the potential candidate is the kind of person who
"knows better" how you did have to give up to become a franchisee. Also, if you prefer to
innovate instead of running, it is preferable to open a business that is totally independent.
Franchisee must have confidence in the franchisor. It is based on the premise that
the business interests of the franchisor to go increasingly better. A higher turnover franchisee
franchisor means higher fees. Therefore, you must have confidence in the solutions and
support that the franchisor provides.
Franchisee must have communication skills. First, there must be good
communication with the franchisor. A franchisee in consultation with the franchisor will
always be a successful businessman. Second, be a good communicator in relations with all
other persons in contact with: employees, specialists, other franchisees, customers.
Even if the potential candidate has experience in business and in particular where first
before such a decision, you should find one that is prepared or rather, according to franchise.
Successful franchisees have a strong vision and desire to be winners. Have both their
vision and the opportunities that are found in a unit franchise. Their vision includes a self-
evaluation but also assessment of current business opportunities. The vision includes a desire
to build and willingness to work for success.
Regarding the choice of franchise that would fit the potential franchisee, it can choose
from a wide variety of franchises, which were presented in the previous subsection, for that
which identifies best.
Starting a business in the franchise involves serious financial costs, including costs of
opening a franchise fee, operating costs. The potential franchisee must pay attention to its
potential financial and analyze it in depth, because the cost of a franchise not only reduce
network fee, but require payment of fees to the franchisor, and initiation costs associated with
developing business (purchase location, planning future franchise units, Advertising, etc..).
The franchise requires an analysis, but control of costs. These can be grouped
according to classical theory of costs, fixed costs and variable costs.
The category of fixed costs included the costs which are usually permanent and largely
independent of the volume of outputs (turnover), variable costs are those expenses which, by
their nature, changes in the volume and proportion to the number of economic achievements
business obtained in the reference period.
Achieve optimum results in any economic activity, of whatever nature is made
possible by lower costs in all spheres of activity, thus significantly increasing the role of
modern theoretical concepts related to planning, cost calculation and monitoring as tools of
modern management.
In their attempt to conduct business in a franchise, franchisees receive from the
franchisor, the franchise package and manual on planning, calculation and control costs,
independent legal and financial, but under full control of the franchisor, the terms stipulated in
the franchise contract.
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Characterized by modern and efficient franchise system is intended to be an excellent
model on the world market on the use of practical methods for streamlining and reducing
costs in all sectors. Worldwide, the most used methods and ways of planning, analysis,
tracking and controlling costs relate to:
Optimizing costs - is done through the existing human and material resources, thereby
achieving the maximum expected profit;
Promoting the principle of saving in costs - is projected results using a number of
costs as low volume.
Like any economic activity, the franchise has a cost that it bears franchisee to
franchisor cover so that its activity is profitable. The most important duty to be paid is the
franchisor franchisee network fee or franchise fee. This fee is paid once and is intended to
cover the sales department of the franchisor with the selection and franchisee recruitment and
to provide support until the opening location. Also, there are settled and part of the costs of
promoting location specific to the region where the range.
There are franchisors, especially those operating in the distribution, which charge no
entry fee to the network. For example, the manufacturer donut "Yam", does not charge
entrance fee on the network, considering this as an element of policy a new market
penetration, but the franchise tax may also have modest value of 500 Euros, for example
"Perfect Estate Agency or 2,000 Euros for" Creative Agency Multimedia & Advertisers",
"Galleria ". In general, franchise fees vary depending on the scope of work, as the distribution
that is between zero (if the franchise retail) and over 200,000 Euros for international brands
that have notoriety and prestige on the market and can not allow certain discounts. In respect
of the services, fee starts at 500 Euros (the service) and exceed 2.000.000euro if hotel chains.
Most of these charges, approximately 80% assumed levels between 5000 and 10,000
Euros. Also, the franchise fee varies depending on the type of franchise, or if a franchisee is
Master Franchise (Sub-franchise-franchise involves two levels: sub-sub-franchisors and
franchisees who have the same powers as the franchisors, respectively, franchisees
themselves, the difference is that they focus their work on a specific geographical area, well
defined and much smaller) or an Area Developer (franchisee receives from top right to open a
certain number of units, which will lead single and has no right to sell licenses to others that
they should be able to open units in the franchise, franchise tax is higher in this case).
The most expensive franchises are: KFC (Food) - 300.000/1.000.000 euro, Pizza Hut (food) -
300.000/1.000.000 Euros, McDonald's (food) - 550.000/850.000 euro Sabin (Jewelry) -
547,000 Euros, Bally (clothing and accessories) - 500,000 Euros, Esprit (clothing and
accessories) - 500,000 Euros, etc..
By contrast, under the cheapest franchises include: Rodipet (specialized trade) - 0
Euros, Trident Dental (medical service) - 500 Euro, American Hot Dog (Nutrition) -
800/4.750 euro Inmedio / Relay (specialized trade) - 5,000 / 10,000 Euros, etc...
Those wishing to purchase a franchise are selecting only the level and size of the
network entry fee and ignore the existence of other costs such as fees and they vary between
0-5percent for distribution and for the services are between 5-20%. Of note, the fee (royalties)
is an ongoing fee that a franchisee pays the franchisor, weekly, monthly or annually and the
latter is for profit and also cover expenses related franchisor continuous and unconditional
support given to franchisees and the related design new products and to streamline the system.
In addition to these elements own franchise, in some cases those who choose this way of
doing business and have to pay an advertising fee, which varies between 0-3% for distribution
and services is between 0-6% .
Typically, the estimated costs and actual costs are recorded significant differences, so
it is important in determining the financial needs not to underestimate the amount will be
needed to get started.
Franchisee will need to know very well the financial potential available and always
keep in mind the following steps: self-awareness, knowledge, evaluation, hope, work, success
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and do not forget that franchising can and should be adventure success for both franchisees
and franchise, for those who are guided by ethics and passion, vision and innovation, and for
those who want to franchise or develop a franchise network.
The year 2009 will be extremely troubled at world level, according to a survey
published by World Economic Forum (WEF) in April 2009, that launches a warning on
a series of states promoting some short term investment policies, due to panic,
disregarding their consequences.
The analysis shows an eloquent picture: volatile markets, lack of cash, unemployment
growth, all these against the lowest levels ever registered by indicators regarding the trust of
consumers and enterprises. This situation could cause a series of state to promote long term
dangerous investment policies.
The massive expenses estimated by governments to help the financial institutions
threaten the already precarious budgetary situation of some countries, such as the United
States, the Great Britain, France, Italy, Spain and Austria.
It is dangerous () not to rectify the problems from the bottom and to spread the
seeds of some new problems whose impact will not be immediate but will be terribly felt
later, warns the survey.
The economic analysts fear a more powerful slowdown than the one estimated in
Chinas case (a 6% increase or even lower), a country facing an export decrease and strongly
exposed to a depreciation of the dollar. A painful landing in Chinas case could affect even
more the world economic crisis.
Only a concerted global action could limit the damages, the current financial crisis
showing a lack of coordination of the decision makers at world level.
The year 2009 offers the opportunity of a consolidation of the world governing and
of the creation of the political will in order to restore the financial stability.
According to estimates, the increase of GDP in the European Union should
diminish by approximately 1.8% in 2009 before slightly redressing in 2010 by 0.5%.
This is the result of the impact of the financial crisis intensified on the real
economy, i.e. the crisis related world recession displayed by the considerable reduction of
world trade exchanges and of manufacturing production and, in some countries, by the
corrections from the real estate market. The consumption and the investments from the public
sector will offer a way out. The attenuation of the inflationary pressures also contributed to
the private consumption increase. The discretionary fiscal measures announced since August
2008 will limit the slowdown of the GDP increase by approximately percentage points this
year. The amplitude of the economic recession is estimated to have a significant impact on the
work force rate and on public finances.
The financial market stabilization measures, the lighter monetary policies and the
economic redressing plans will allow the economy to stop deteriorating and to create
conditions for a progressive prelaunch in the latter part of the year. The top priority is to
really apply such measures: improve the credit flows at reasonable prices and rapidly
implement the fiscal stimulation packages in order to encourage investments and private
consumption. In order to enhance the degree of trust, it is also essential that the member
states explicitly engage themselves to reverse the tendency of deteriorating the public
finances as soon as a normal economic situation is reached again, such as to ensure the
medium and long term viability of public finances.
According to intermediary estimates, the economic growth had decreased in 2008
by approximately 1% both in EU and in the Euro area, comparing to the threshold a little
below 3% in 2007. In 2009, the real GDP would suddenly decrease by approximately 1.8% in
EU and by 1.9% in the Euro area, and then would increase by approximately % in 2010.
According to estimates, the economic activity at world level considerably decreased
during the last trimester of 2008. The downturns reflected by recent surveys, also concerning,
among others, the numbers of orders, show that this situation could be maintained on short
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term. The economic recession is expected to expand a lot with negative consequences
affecting more and more the emerging market economies. For 2009, the world growth of
GDP would slow down by reaching 0.5% (compared to 3.3% in 2008 and extraordinary 5%
average for 2004-2007).
Starting with the latter half of 2009, the world growth would gradually accentuate,
but in a moderate rhythm, along with the improvement of the financial market and with the
occurrence of the effects of macroeconomic policy flexibility (especially in USA). Generally,
the world GDP growth would reach approximately 2% in 2010.
During the third trimester of 2008, GDP decreases by 0.2% both in EU and in the
Euro area which means that the Euro area met its first technical recession, as the GDP had
decreased for two consecutive trimesters. Because of the continuous slowdown ascertained by
the surveys made in different sectors and countries and of the considerable deterioration of
other main indicators during the fourth trimester, the GDP is estimated to keep decreasing
during the first semester of this year. The slowdown would grow in many countries due to the
financial crisis, the world cycle and, in some member states, to the collapse of the real estate
market. The decrease of both the private and the net external demand would significantly
restrain the GDP growth which would only benefit from the public consumption and
investments.
The private investments especially, which played an important part in the
economic activity rehabilitation, are now facing a sudden slowdown as a result of a significant
decrease of the ability usage rate, of the deterioration of the economic perspectives and of
tightening of financing conditions.
In 2008, the situation on the work force market started to worsen in most of the
member states. Reacting with a certain inequality to the evolutions of the GDP growth level,
the increase of work force employment rate would be negative this year, the work force
employment rate in the EU decreasing by 3 million jobs. Therefore, the unemployment
rate would increase up to 8% in EU (and 9% in the Euro area) in 2009, and then
would increase in 2010, too.
The deterioration of the economic perspectives would have an impact on public
finances which would also suffer due to reversing the tendency, at the level of additional
incomes compared to previous years, of a growth structure based less on taxes, in general, as
well as due to the effects of the major discretionary measures adopted or announced by the
member states (representing approximately 1% of the EUs GDP for 2009 at the moment of
concluding these estimates).
Therefore, the global deficit would increase this year in the EU by more than its
double, reaching 4% in 2009 (the ratio being approximately 1% compared to 4% in
the Euro area).
The inflationary pressures attenuate rapidly. The sudden mark-up of basic products,
which led the inflation to a record level during the summer of 2008, was stopped at the same
time with the rapid degradation of the perspectives regarding the growth at EU and world
level and with the deterioration of the work force markets. These elements constitute the
necessary background for a readjustment made up of lower numbers in the estimates
regarding inflation, compared to the autumn estimates. The inflation of consumption prices
would thus decrease from 3.7% in 2008 in the EU (3.3% in the Euro area) to 1.2%
(1.0% in the Euro area) in 2009 and to less than 2% in 2010 in both areas.
The current estimates are surrounded by great uncertainties, the world economy
facing the most serious crisis since the Second World War. The risks threatening the growth
perspectives are balanced. On the one hand, there is he impact of the financial crisis
(including the real estate sector) and the amplitude of the negative reaction loop between
the financial sector and the real sector of the economy. On the other hand, the growth could be
more powerful than estimated if, for example, the fiscal packages re-establish the trust of
investors and of consumers more rapidly than estimated. Also, the risks regarding the
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perspectives on inflation seem to be balanced, according to the evolutions of basic products
prices and to the deterioration of the economic perspectives at world level.
The emerging markets will be the first to register a recovery from the current
world economic crisis, but only if they do not run out of capital and access to the outlet
markets.
China, India, South-Eastern Asia and Eastern Europe constitute the regions
which, according to most international companies, have the biggest growth
opportunities, showed an Ernst & Young report at world level.
While most of the developed markets were perceived as stagnant and at low ebb, the
companies still notice important opportunities on the emerging markets. China (59%), India
(45%), South-Eastern Asia (26%) and Eastern Europe (31%) were the regions which,
according to most international companies, would have the biggest growth opportunities.
The American companies tended to favour South-Eastern Asia compared to India, and
the European companies tended the opposite, shows the Ernst & Young survey.
8% of the companies estimate a significant growth on the emerging markets in the
near future, most of them (57%) foresee a continuous growth, but in a less alert rhythm than
the one in the last two years, while 25% estimate a growth significant decrease.
Noticing the movement of the economic power from the developed economies
towards the emerging ones, from west to east and from north to south, some of the Central-
European and South-Eastern countries showed a growth potential and made their presence felt
in the international business environment. Regardless of the sizes of the crisis, the companies
will consider the opportunities offered by a greater exposure to these markets.
In times of financial crisis, few are businesses that operate and make a profit owners.
If the textile industry is not likely to revive in the near future, construction amid sluggish
growth both euro and a lack of orders, the only business that seems to go on income in this
period is one that is based on a franchise.
Although 2009 is seen as one that will be bleak for business worldwide,
disappointments investors in their real estate and stock market losses can be alleviated by
investing in franchise like "Fornetti" or "donut Enraged.
Business under franchise will miss this year of "Typhoon" fianaciar International 2009
promises to be a difficult year, which will stand who will force financial and franchise will
remain in the top with a turnover growth of 15-20 %.
Franchising can and should be successful adventure for both franchisees and
franchise, for those who are led by ethics and passion, vision and innovation, and for those
who want to develop franchises or franchise network.
Bibliography
Romanian Association of Franchise, http://www.francizor.ro.
Zahorsky D. (2009) Franchise opportunity of a lifetime?, Journal Small Business Information,
2009, http://sbinformation.about.com/od/franchise/a/opportunity.htm.
Business Consulting Institute (2008) Franchising: business and technical opportunities for
entrepreneurs", Chisinau.
Patulea V.(2001), A comparative study regarding franchising, Journal Right, no.3.
Kalika M. (1999), La decision dachat dune franchise, Crepa Publishing House, Paris.
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Ovidius University Annals

ECONOMIC SCIENCES SERIE

Volume XI, Issue 2

2011

iii
EDITORIAL BOARD

EDITOR in CHIEF:
Professor, PhD. Tiberius Dnu Epure, Dean, Faculty of Economic
Sciences, Ovidius University of Constanta, Romania

EXECUTIVE EDITOR in CHIEF:
Professor, PhD. Elena Cerasela Sptariu, Scientific Secretary, Faculty
of Economic Sciences, Ovidius University of Constanta, Romania

MEMBERS:

Professor, PhD. Paolo Andrei, Universit degli Studi di Parma, Italy;
Professor, PhD. Stefano Azzali, Universit degli Studi di Parma, Italy;
Professor, PhD. Grigore Belostecinic, Rector, ASEM Chiinu, Republic
of Moldova;
Professor, PhD. Maurice Chenevoy, Directeur de l Institute
Universitaire Profesionalise, Universite DAuvergne, Clermont 1,
Clermont Ferrand, France;
Professor, PhD. Jacky Mathonnat, Vice Recteur de LUniversite
DAuvergne, Clermont 1, Clermont Ferrand, France;
Professor, PhD. Ionel Bostan, Faculty of Economic Sciences and Public
Administration, Stefan cel Mare University of Suceava, Romania;
Professor, PhD. Viorel Cornescu, University of Bucharest, Romania;
Professor, PhD. Victor Ploae, Prorector, Ovidius University of
Constanta, Romania;
Associate Professor, PhD. Costel Nistor, Dean, Faculty of Economic
Sciences, Dunrea de J os University of Galati, Romania

iv
SCIENTIFIC COMMITTEE:

Professor, PhD. Ion Botescu, Pro-dean, Faculty of Economic Sciences,
Ovidius University of Constanta, Romania;
Professor, PhD. Elena Condrea, Faculty of Economic Sciences,
Associate Professor, PhD. Sorinel Cosma, Faculty of Economic Sciences,
Associate Professor, PhD. Ramona Gruescu, Faculty of Economics and
Business Administration, University of Craiova, Romania;
Associate Professor, PhD. Marian Ionel, Faculty of Economic Sciences,
Associate Professor, PhD. Simona Utureanu, Faculty of Economic
Sciences, Ovidius University of Constanta, Romania;
Lecturer, PhD. Student Victor Jeflea, Faculty of Economic Sciences,
Ovidius University of Constanta, Romania.

EDITORIAL SECRETARIES (Secretary Editor, Translator, Technical Editor):
Lecturer, PhD. Cristina Duhnea, Faculty of Economic Sciences,
Lecturer, PhD. Ctlin Ploae, Faculty of Economic Sciences, Ovidius
University of Constanta, Romania;
Lecturer, PhD. Student Ionu Antohi, Faculty of Economic Sciences,
Teaching Assistant, PhD. Gabriela Gheorghiu, Faculty of Economic
Teaching Assistant, PhD. Student Dorinela Cuu, Faculty of Economic
Teaching Assistant, PhD. Student Silvia Ghi-Mitrescu, Faculty of
Economic Sciences, Ovidius University of Constanta, Romania.

xiii
Crt.
No.
Authors
Name and Surname
(alphabetical order)
Paper Title Page
141.
Lupac Adrian,
Lupac Ioana,
Zamfir Cristina Gabriela
Actual Application of the Intelligent Systems and
Their Implications in Financial-Accounting Field
728
142.
Lupu Dan,
Petrior Bogdan
Post-December Developments in
Public Expenditure for Education
734
143.
Lu Dina Maria,
Miculescu Marius
People Management Efficiency.
New Challenges in the Current Economic Context
738
144. Manea Ludmila Daniela
The Current Situation regarding the
Use of Labor in Romania
743
145. Mardiros Daniela-Neonila
The Capital, Personal, Current and Total
Expenditures of the Main Authorizing Officers of
the State Budget - Component of the Public Sector's
Effort in the Emerging Economy of Romania
748
146.
Marin Aurelia Camelia,
Sima Isabella Cristiana
Albici Mihaela
The Role of Financial Instruments for
Regional Development in the Context of the
Current Economic Crisis
754
147.
Mrunelu Liliana,
Mrunelu Vladimir
Process Communication a Model For
Communicating in a Challenging World
759
148.
Micu Adrian,
Micu Angela-Eliza
Coordinates of Romanian Natural Gas Market 763
149.
Micu Angela-Eliza,
Susanu Irina,
Cristache Nicoleta
Bucovina
A Romanian Brand Taking Shape
770
150.
Miculescu Marius-Nicolae,
Miculescu Corina
The Income Statement: The Image of Financial
Performance of a Public Health Entity
778
151.
Mihalache D. Arsenie-
Samoil
Cloud Accounting 782
152.
Mihalache D. Arsenie-
Samoil
Outsourcing Company Accounting 788
153. Mihalcea Lucean
Consideration Concerning Country Rating
in Romania
794
154.
Mihilescu Mariana,
Culi Gica Gherghina
Turkey and the Lessons of 2001 and 2009 Crisis 799
155.
Militaru Cezar,
Pavel Adina
Good Practices for Quality Assurance in
Romanian Higher Education
803
156.
Mirea Marioara,
Aivaz Kamer Ainur
The Analysis and Assessment
of the Credit Risk
809
157. Mititelu Ctlina
Regulations regarding the Organisation and the
Governance of the Accounting by the Legal Persons
Without Patrimonial Purposes
815
The Role of Financial Instruments for Regional Development in the
Context of the Current Economic Crisis

Marin Aurelia Camelia
Sima Isabella Cristiana
Albici Mihaela
Constantin Brncoveanu University, Piteti
cameliamarin81@yahoo.com
i_onescu@yahoo.com
mturmacu@yahoo.com

Abstract

During this period marked by the effects of
the current economic crisis, the structural
funds play most important role in regional
development. Each country of the Union,
especially those in development they wish to
reach the level of the developed world, so you
must access the funds in order to reduce
economic disparities between them.

Key words: European Union, regional policy,
cohesion policy, structural funds, convergence
J.E.L. classification: F, F1, F15

1. Introduction

Regional and cohesion policy was designed
as a "counterbalance to the European
economic social project to create free
market"(6). However, with time, European
cohesion policy began to be developed at
European level, and the major economic and
social disparities that existed within the Union
could be reduced only by the application of
specific instruments, called redistributive
structural and cohesion funds. So, the
economic and social cohesion of the EU is
achieved in particular through the regional
development policy supported by a set of
financial instruments, of which the most
important are the structural funds and the
Cohesion Fund.
Through the structural funds, the financial
instruments of regional and cohesion policy,
the EU works for "the Elimination of
economic and social disparities between
Member States" (8), in order to achieve
economic and social cohesion. Thus,
subsequent reforms of cohesion policy were
closely linked to the efficient management of
the structural funds, concentrating much of its
expenditure in less-favored regions of the
Union, "solidarity more developed States
arguing in favor of LDCs" (4).
The idea of creating a policy to reduce and
eliminate the disparities between regions, has
its origins in the Treaty of Rome (1957),
where it is explicitly transposed that one of
the objectives of the community is to reduce
social and economic differences between
regions (11). However, the structural funds
have appeared for the first time in the 1970s,
after the first expansion and had suffered an
economic crisis. At first, these funds were
provided to Member States for infrastructure
development and the achievement of
economic growth to be close to that of
European standards, but, since 1985, these
funds were justified in terms of "economic
and social cohesion", which was the
Elimination of regional disparities (1).
In 1988, the Brussels European Council,
following the initiative of J acques Delors,
then President of the European Commission,
has adopted the doubling of financial
resources for the structural funds over the next
few years (12). This first great reform, which
coincides with the signing of the single
European Act, practically revolutionized the
procedures concerning allocation and
implementation of the structural funds, just to
make it easier target for economic and social
cohesion of the Member States (3). A new
reform of the structural funds was negotiated
with the signing of the Treaty of Maastricht
(1993). An important moment is the adoption
in 1997 of Agenda 2000, whose strategic
directions were reiterated during the European
Ovidius University Annals, Economic Sciences Series
Volume XI, Issue 2 /2011
754
Council in Berlin in 1999. The main objective
of Agenda 2000 was to increase the
effectiveness of the structural funds,
increasing the budget allocated to this
expenditure. According to author Steven
McGiffen, another result of Agenda 2000 was
the merge of the objectives of the structural
funds, from seven to three. The first goal, on
convergence, promoting the development of
disadvantaged regions, through the granting
of financial resources for investment in
infrastructure and business.
The second objective, the regional
competitiveness and employment, focusing on
areas such as, employment, modernizing
policies and systems of education, training
and employment of labor. With the final
objective, the European territorial
cooperation, supporting the economic and
social conversion of areas experiencing
difficulties in border areas at EU level (7).
These objectives are reflected in the
programming period 2007-2013.

2. The structural funds in Romania

At first there are the following structures of
the structural funds. The first fund created is
the European Social Fund (ESF) established
by the Treaty of Rome, whose mission was
"to promote throughout the community
employment facilities and the geographical
and occupational mobility of workers" (13).
Currently, this Fund is intended for social
policy, including measures concerning
employment and unemployment (14). In 1962
it was decided the creation of the common
agricultural policy, which led to the
establishment of the Fund, the European
agricultural guidance and guarantee section
(EAGGF) in 1962, being divided into two
sections, the guarantee and guidance. The
main objective of the instrument for structural
is to finance the common agricultural policy,
by supporting rural development and
modernization of agriculture (15). The third
structural type Fund is the European Regional
Development Fund (ERDF) founded in 1975.
This is the substance that interests me most, as
the research in question. Among its
objectives include investments in various
areas such as infrastructure, health, small and
medium-sized enterprises, local development,
health, social conversion (5).
The last structural fund created is the
financial instrument for fisheries guidance
(FIFG), in 1993, aimed at increasing the
competitiveness of the fisheries sector (16).
A date with the latest reform of the
structural funds, since 2006, has been
adopting a new regulation for the operation of
the structural instruments (17), which resulted
in the simplification of the financial
instruments of regional policy and cohesion.
Thus, under the umbrella of the structural
instruments, the structural funds are made up
of the ERDF, renamed after the take-over of
agriculture policy, the European Fund for
agriculture and rural development (EAFRD)
and the ESF and the Cohesion Fund. EAGGF
and FIFG have been removed from the
structural funds, being subordinated to the
common agricultural policy. This merging of
the structural funds was mentioned as early as
2003 in Sapir Report, which, inter alias, stated
that a national approach is preferable to one
regional structural funding, is used to
determine eligibility (9).
As a result, the cohesion policy reforms
have imposed geographical and economic
criteria relating to the management of the
structural funds. The largest financial
allocation was made in the regions and the
least developed countries and financial and
human resources shortage, arguing, more
developed States, solidarity in favor of LDCs,
with the aim of creating a Union uniform of
socially and economically.
Over the years, the arrangements for
implementing the structural funds have
become increasingly more integrated and
sophisticated, but also decentralized. Author
David Allen recorded the existence of four
principles upon which the system of
implementation of those funds. A first
principle refers to the concentration of
measures around priority objectives. The
second principle concerning the programming
highlights the fact that the objectives will be
pursued within the framework of a
multiannual programming system and
multiregional. Partnership, representing the
third principle, implies a close cooperation
between the Commission and the competent
authorities at national, regional or local level
in each Member State.
And the last principle, additionally, where
contributions granted through these funds
must not replace other public expenditure but
755
may be supplemented through co-financing
from the national budget.
Analyzing these principles, we can deduce
that these funds are not manageable,
referencing and intersection operations on
many levels. On the one hand this is
emphasized by the institutional framework at
Community level, where the European
Commission, the Council and the Committee
of the regions are those which control
management/implementation of the structural
funds (2). On the other hand the Community
legislative framework and plays an important
role in this respect, because it is a pretty vast,
if it is to keep in mind the number of
regulations and guidance documents that
govern the policy of the structural funds.
Apart from a part of the Community
regulations and documents, which are
unchanged when applied at national level, and
the rest of the system of implementation of
the structural funds that conforms to the legal
and institutional features of each Member
State. For these reasons, there are numerous
differences of approach to the mode of
implementation of the structural instruments
at Member State level; hence the uptake rates
vary significantly from country to country.
Regional Operational Program 2007-2013
is a program that implements important
elements of the national strategy for regional
development of the NDP, contributing,
alongside the other sectorial programs, to
achieve the general objective of the strategy
of National-Regional disparities reduction, i.e.
between the regions of Romania.
As I said the main objective of the
Regional Operational Program is to support
the regions lagging behind in terms of
development, and within the regions
somewhat more prosperous, more
underdeveloped areas through harnessing
their specific resources, underused so far, in
order to speed up economic growth of these
areas.
Main route identified to achieve this aim is
the differentiated allocation of funds by
region, depending on the degree of
development of the region in general,
inversely proportional to the size of GDP/per
capita, so that the less developed Regions to
benefit proportionally, and the largest
financial allocation. These funds will be used
to finance projects with significant impact on
regional development and local rehabilitation
and modernization of transport infrastructure,
educational, social, health and public safety,
improving the business environment through
the development of business support
structures (industrial parks, technology,
logistics, business, etc.) and supporting the
initiatives of private entrepreneurs, potential
tourist and cultural tourism infrastructure by
supporting the development and
entrepreneurial initiatives in this area
supporting the development of urban centers,
with the potential for economic growth, to
create conditions to act as motors of regional
development and local.
Calls for proposals will be launched on a
regular basis, in each of the key areas of
intervention. When a call for proposals was
launched, receive funding only projects in that
key area of intervention.
The economy of a country, region or group
of countries, and that of the whole world,
develops cyclically. This means that in certain
periods of time, a country, (a group of
countries, etc.) is characterized by a growing
economy, followed by a limitation of the
extension, then a decrease and a halt to it (10).
Period that characterized much of the
European countries at the present time.
The main areas that may be affected by
regional policies are enterprise development,
labor market, attracting investment, transfer of
technology, the development of SMEs,
improving infrastructure, the quality of the
environment, rural development, health,
education, education, culture.
Rural development occupies a distinct
place within the framework of regional
policies and shall cover the following aspects:
the removal or reduction of poverty in rural
areas, balancing opportunities of economic
and social conditions of the urban and rural
local initiatives, stimulation, preservation of
cultural heritage and spiritual.
It should be stressed as particularly
important the accessing of these structural
funds in achieving economic convergence
necessary for the transition to monetary
Union, consisting of mixing of the main
characteristics of the economies of
participating countries: inflation rate (a high
degree of price stability levels), the nominal
long-term interest rates, changes in exchange
rates, budget deficit, government debt level,
but also the level of wages, unemployment,
income per capita.
756
In literature, on the basis of the Treaty of
Maastricht were refined three separate but
complementary convergences: convergence of
nominal; legal convergence; real convergence.
The nominal convergence criteria laid down
in the Maastricht Treaty (article 104, 109j), as
in Protocol No 6 on the convergence criteria
annexed to the Treaty are as follows:
price stability, which will fully
respect from a rate of inflation observed over
a period of one year before the examination
for the transition to stage three, the inflation
rate not exceeding by more than 1.5% average
of the three Member States with the lowest
inflation;
interest rates in the long term, which
shall not exceed by more than 2% average
nominal long-term interest of the three
Member States with the lowest interest rate;
the ability to sustain public finances:
the government deficit must not exceed 3% of
gross domestic product (GDP) at market
prices; public debt must not exceed 60% of
GDP, "less where this ratio is reduced
sufficiently and approaching the reference
value at a pace appropriate";
stability of exchange rates, i.e. the
observance of the normal fluctuation margins
provided for by the exchange mechanism of
the European monetary system for at least two
years preceding the examination, on its own
initiative, without devaluation of the currency
exchange rate in relation to their own
currency of another Member State.
By legal convergence means the
harmonization of national legislation and
regulations of the central banks of member
countries of the EU, so as to make it
compatible with the European system of
central banks (ESCB). In a general sense, this
convergence includes aspects such as the
independence of national central banks and
the integration of these banks into the ESCB.
Real convergence refers to a level standard
of living, equalization of standards of living in
member countries, and the pursuit of so-called
economic and social cohesion at Union
level. Variables that measure real convergence
are income per capita, the level of wages,
unemployment, government expenditure, etc.
In order to achieve an equalizer in these areas
it takes more time than the minimum for the
variables, but these have been finally
beneficial affects real variables.

3. Conclusion

As a result, regional development policy
includes all the measures planned and
promoted by the local and central public
administration in partnership with various
actors (private, public, volunteers), in order to
ensure a dynamic and sustainable economic
growth, by maximizing the potential of
regional and local levels, in order to improve
living conditions.

4. References

[1] David ALLEN, Cohesion and structural
funds. Multiple pressures towards reform,
Hellen Wallace and William Wallace, The
political process in the European Union, 4th
Edition, Editura Arc, 2004, pp.204
[2] J ohn BACHTLER, Ivan TUROK (editors),
The Coherence of EU Regional Policy:
Contrasting Perspectives on the Structural
Funds, Routledge, London, 1999, pp.14-26.
[3] David BAILEY, Lisa De PROPRIS, The
1988 reform of the European Strctural funds:
entitlement or empowerment?, Journal of
European Public Policy, Iunie, 2002, pp.
408-428.
[4] Alina BOUROU, "The structural funds.
Problems, solutions and insights for Romania
", in J . CERKEZ, evaluation of programmes
and public policies-Theories, methods and
practices, Polirom, Iai, 2009, pp. 180.
[5] Andrew EVANS, The EU Structural Funds,
Oxford University Press, New York, 1999,
p.10.
[6] Liesbet HOOGHE, Introduction:
Reconciling EU-Wide Policy and National
Diversity, n Liesbet HOOGHE i Gary
MARKS, Cohesion Policy and European
Integration: Building Multi-level
Governance, Oxford University Press,
Oxford, 1996, p.5.
[7] Steven P. MCGIFFEN, "EU-critical Guide,
new and updated edition, Editura Regia
Autonom Monitorul Oficial ", Bucureti,
2007, p. 151.
[8] Mari-Carmen PENALVER, The impact of
Structural Funds Policy on European
Regions growth. A theoretical and empirical
approach, The European Journal of
Comparative Economics, Vol. 4, No. 2, pp.
179-208.
[9] Andr SAPIR, et. Al., "An Agenda for a
growing Europe: making the EU economic
system deliver ', J uly 2003, available at
http://www.euractiv.com/ndbtext/innovation/
sapirreport.pdf, last accessed J une 13, 2011.
757
[10] Isabella-Cristiana SIMA, Camelia-Aurelia
MARIN, The Socio-Economical Effects of
World Financial Crisis on Eurozone, The
Knowledge Based Organization, Land Forces
Academy Publishing House, pp. 341-344,
26-28 Noiembrie 2009, Sibiu, ISSN 1843
6722.
[11] Treaty establishing European Economic
Community, Consolidated version 1992,
Title XVII, Article 158, Official J ournal C
224 of 31 August 1992.
[12]http://www.europarl.europa.eu/summits/brusse
ls4/default_en.htm,
[13] The European Economic Community Treaty,
1957 Version, Chapter 2, Article 123,
Official J ournal, p. 66.

[14] Council Regulation (EC) No 1260/1999 of 21
J une 1999 laying down general provisions on
the Structural funds-Official J ournal L 161,
26.6.1999, Article 8.
[15] Council regulation (EC) No 1258/1999, of
17th May 1999 on the financing of the
common agricultural policy, Official J ournal
L 160, 26.6.1999/103.
[16] Council Regulation (EC) No 1263/1999 of 21
J une 1999 on the Financial Instrument for
Fisheries Guidance, Official J ournal L 161,
26.6.1999/54.
[17] Council Regulation (EC) no 1083/2006 of 11
J uly 2006 laying down general provisions on
the European Regional Development Fund,
the European Social Fund and the Cohesion
Fund, Official J ournal L 210, 31.07.2006.

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Vol. 19 No. 2 2009

Scientific Studies
and
Research
Series Mathematics and Informatics
Vasile Alecsandri University of Bacu
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Vasile Alecsandri University of Bacau
Faculty of Sciences
Scientic Studies and Research
Series Mathematics and Informatics
Vol. 19 (2009), No. 2, 7 - 20
SMOOTH DEPENDENCE ON RIEMANNIAN METRIC
OF EIGENVALUES OF HODGE-DE RHAM
OPERATORS
MIHAELA ALBICI
Abstract. Let M be an oriented, closed, smooth (= C
) manifold
of dimension n 2, A
k
(M) the space of smooth dierential k-forms
on M, and M(M) the space of all Riemannian metrics on M endowed
with the canonical structure of smooth Frechet manifold (for details,
see M. Golubitsky and V.G. Guillemin [8], pp.74-78). Using an idea
of J.Wenzelburger [10], [11], we prove that the eigenvalues of the
Hodge de-Rham operator
(p)
: A
p
(M) A
p
(M) depend smoothly
(= C
) on Riemannian metric g M(M) for each k 0, . . . , n if

on the space M(M) of all Riemannian metrics on such manifold is
considered the canonical structure of Frechet smooth manifold. In
Corollary 14 it is shown that operators
(k)
g
: A
k
(M) A
k1
(M) and
(k)
g
: H
2
A
k
(M) H
0
A
k
(M) [see Denition 1 (vi) and (vii)] depend
smoothly by g M(M) for each k 0, . . . , n. Minimax principle
(see Theorem 2.2 of M. Craioveanu, M. Puta, Th.M. Rassias [5], p.
286) and Theorem 6 imply the smoothly dependence on Riemannian
metric of eigenvalues of Hodge-de Rham operators and of restrictions
of these operators on spaces of dierential exact forms, respectively
coexact forms (see Corollary 15).
Keywords and phrases: Hodge-de Rham operator, eigenvalues,

Hodge-de Rham decomposition.
(2000)Mathematics Subject Classication: 58J10, 58J50, 58A14
7
8 MIHAELA ALBICI
Finally, another interesting consequence of Theorem 11 is presented
in Corollary 16, namely that the same assumptions as those stated
above M, Hodge-de Rham decomposition
H
0
A
k
(M) = d
(k1)
_
H
1
A
k1
(M)
_
(k+1)
g
_
H
1
A
k+1
(M)
_
ker
_
(k)
g
_
smoothly depends on g M(M) for each k 0, . . . , n, the meaning
of the Remark 12.
1. Introduction
Let M be a smooth dierential n-dimensional manifold and
A(M) =
n
p=0
A
p
(M) the exterior algebra of smooth dierential forms
on M.
Denition 1. Let M be a manifold with boundary. For assertions
(ii), (iii), (vi) and (vii) we assume in addition that M is equipped
with a Riemannian metric g.
(i) the outer product (or -product) of dierential forms is dened
by
: A
k
(M) A
l
(M) A
k+l
(M) ,
( ) (X
1
, . . . , X
k+l
) =
S(k,k+l)
(sgn)
_
X
(1)
, . . . , X
(k)
_

_
X
(k+1)
, . . . , X
(k+l)
_
,
where X
1
, . . . , X
k+l
are arbitrary vector elds on M.
(ii) Let (E
1
, . . . , E
n
) be a local g-orthonormal frame on U M. It
denes a product on A
k
(M), dened locally by
( [ )
k
: A
k
(M) A
k
(M) C
(M) ,
([)
k
(U)
=
S(k,n)
_
E
(1)
, . . . , E
(k)
_

_
E
(1)
, . . . , E
(k)
_
.
(iii) The Hodge star operator S
(k)
: A
k
(M) A
nk
(M) is dened
by equality
S
(k)
= ([)
k
(M)
, A
k
(M) .
Here A
n
(M) is the Riemannian volume form on M.
SMOOTH DEPENDENCE ON RIEMANNIAN METRIC 9
(iv) The inner product (or contraction) with a vector eld Y
(TM) is dened by
i (Y ) : A
k
(M) A
k1
(M)
(i (Y ) ) (X
1
, . . . , X
k1
) = (Y, X
1
, . . . , X
k1
) , X
1
, . . . , X
k1
(TM) .
(v) The exterior dierential d : A
k
(M) A
k+1
(M), sometimes
denoted d
(k)
, is dened (for k < n) by
d (X
0
, X
1
, . . . , X
k
) =
0jk
(1)
j
D
_
_
X
0
, . . . ,

X
j
, . . . , X
k
__
(X
j
)
+
0i<jk
(1)
i+j
_
[X
i
, X
j
] , X
0
, . . . ,

X
i
, . . . ,

X
j
, . . . , X
k
_
.
Here X
0
, . . . , X
k
are arbitrary vector elds on M, and the sym-
bol

X
j
expresses that argument X
j
is missing. For A
n
(M),
by denition d = 0.
(vi) The codierential operator is dened as the application :
A
k
(M) A
k1
(M), sometimes noted
(k)
,
= (1)
nk+n+1
S
(nk1)
d
_
S
(k)
_
, A
k
(M) .
(vii) The Hodge-de Rham operator is dened as the application
(k)
: A
k
(M) A
k
(M),
(k)
= (d +d) , A
k
(M) .
From Denition 1. it follows that:
S
(0)
(1) = v
g
, S
(n)
(v
g
) = 1 (1)
where v
g
denotes the canonical volume form of (M, g), 1 is the real
constant function on M having value 1 and
S
(np)
S
(p)
() = (1)
p(np)
for any A
p
(M) . (2)
Remark 2. Note that
(0)
is just the Laplace-Beltrami operator :
C
(M) C
(M).
Proposition 3. The operator
(p)
, for each 0 p n, has the
following properties:
(i)
(p)
is formally self adjoint;
(ii)
(p)
is formally positive, i.e.
(p)
,
_
0 for any
A
p
(M);
(iii)
(p)
= 0 if and only if d
(p)
= 0 and
(p)
= 0;
10 MIHAELA ALBICI
(iv)
(np)
S
(p)
= S
(p)
(p)
.
Proof. (i)
(p)
,
_
=
d
(p1)

(p)
+
(p+1)
d
(p)
,
_
=
=
(p)
,
(p)
_
+
d
(p)
, d
(p)
_
=
=
, d
(p1)

(p)
_
+
,
(p+1)
d
(p)
_
=
,
(p)
_
for each , A
p
(M).
(ii)
(p)
,
_
=
d
(p)
, d
(p)
_
+
(p)
,
(p)
_
=
_
_
d
(p)
_
_
2
+
_
_
(p)
_
_
2
0 for each A
p
(M).
(iii) If
(p)
= 0, the equality
(p)
,
_
=
d
(p)
, d
(p)
_
+
(p)
,
(p)
_
implies that
d
(p)
, d
(p)
_
+
(p)
,
(p)
_
= 0, or
equivalently d
(p)
= 0 and
(p)
= 0. Conversely, if d
(p)
= 0
and
(p)
= 0, then by the denition of
(p)
,
(p)
= 0.
(iv) We shall consider two cases:
Case 1: n is even. Then we can write
(np)
=
_
d
(np1)
S
(p+1)
d
(p)
S
(np)
+ S
(p)
d
(p1)
S
(np+1)
d
(np)
_
and therefore using the relation (2),
S
(p)

(p)
=
_
S
(p)
d
(p+1)
S
(np+1)
d
(np)
S
(p)
+ S
(p)
S
(np)
d
(np1)
S
(p+1)
d
(p)
_
=
_
(np+1)
d
(np+1)
S
(p)
+ (1)
2p(np)
(1)
(np1)n+1
d
(np1)

(np)
S
(p)
_
=
(np)
S
(p)
.
Case 2: n is odd. Then
(np)
S
(p)
= d
(np1)

(np)
S
(p)
+
(np+1)
d
(np)
S
(p)
and therefore using the Denition 1 and relation (2),
(np)
S
(p)
= (1)
np
d
(np1)
S
(p+1)
d
(p)
+ (1)
np+1
S
(p)
d
(p+1)
S
(np+1)
d
(np)
S
(p)
= (1)
np
(1)
2p
2
+p(np)+1
S
(p)

(p+1)
d
(p)
+ (1)
np+1
(1)
p
S
(p)
d
(p+1)

(p)
=
= S
(np)
(np+1)
d
(np)
+d
(np+1)

(np)
_
= S
(p)

(p)
.
as desired. Q.E.D.
Remark 4. The normalization of -product is chosen using the con-

vention used by Abraham, Marsden and Ratiu [1].
Proposition 5. (i) The outer dierential operator and codier-
ential operator are nilpotents, ie
d (d) = 0 and () = 0, A
k
(M) ; (3)
(ii) The Hodge star operator is idempotent, ie
S
(nk)
_
S
(k)
_
= (1)
k(nk)
, A
k
(M) ; (4)
(iii) The operators d and are in Hodge sense, adjoint each other,
ie
S
(k1)
= (1)
k
dS
(k)
, and S
(k+1)
d = (1)
k+1
S
(k)
, A
k
(M) ;
(5)
(iv) If (E
1
, . . . , E
n
) is a local g-orthonormal frame on U M and
S (k, n) the Hodge star operator is calculated as
_
S
(k)
_ _
E
(k+1)
, . . . , E
(n)
_
= (sgn)
_
E
(1)
, . . . , E
(k)
_
, A
k
(M) .
(6)
Property (iv) can be deduced from the denition of Hodge star
operator noting that
S(k,n)
_
E
(1)
, . . . , E
(k)
_

_
E
(1)
, . . . , E
(k)
_
=
_
S
(k)
_
(E
1
, . . . , E
n
)
=
S(k,n)
(sgn)
_
E
(1)
, . . . , E
(k)
_
_
S
(k)
_ _
E
(k+1)
, . . . , E
(n)
_
.
12 MIHAELA ALBICI
Since A
k
(M) it is arbitrary follows that (6) is true for any
S (k, n).
The following theorem gives a precise characterization of eigenval-
ues,
k,p
(M, g), k N, which not involves derivatives of Riemannian
metric g.
Theorem 6. (Dodziuk [7]) Let g M(M) and p 1, . . . , n xed.
Let
0 <
1,p
(M, g)
2,p
(M, g) . . .
be the eigenvalues of the restriction
(p)
g|
d
(p1)
(A
p1
(M))
: d
(p1)
_
A
p1
(M)
_
d
(p1)
_
A
p1
(M)
_
of
(p)
g
to the real vector space of exact dierential p-forms
d
(p1)
(A
p1
(M)), counted with their multiplicity. Then
k,p
= inf
V
k
sup
_
_
_
_
_
d
(p1)
_
_
2
g
||
2
g
d
(p1)
V
k
0
_
_
_
(7)
where V
k
through the family of all k-dimensional real vector subspace
of it.
Proof. Let us note rst that taking supremum in (7) can be done in two
stages. For each exact dierential p-form let choose A
p1
(M) 0
to maximize quotient
_
_
d
(p1)
_
_
g
||
g
. Let choose A
p1
(M) 0 ar-
bitrarily, with Hodge-de Rham decomposition
= H
(p1)
() +d
(p2)
1
+
(p)
g

2
,
1
A
p2
(M) ,
2
A
p
(M) ,
where H
(p1)
denotes the harmonic projector, and be
0
:=
(p)
g

2

(p)
g
(A
p
(M)). Therefore,
inf
V
k
sup
_
_
_
_
_
d
(p1)
_
_
2
g
||
2
g
d
(p1)
V
k
0
_
_
_
= inf
V
k
sup
_
_
_
_
_
d
(p1)
_
_
2
g
|
0
|
2
g
d
(p1)
V
k
0
_
_
_
= inf
W
k
sup
__
_
d
(p1)
0
_
_
g
|
0
|
g
d
(p1)
W
k
0
_
(8)
where W
k
through the set of all k-dimensional linear subspace of
(p)
g
A
p
(M).
Because
(p)
g

0
=
_
(p1)
g

(p)
g
_
(
2
) = 0
and
d
(p1)
= d
(p1)
_
H
(p1)
() +d
(p2)
1
+
(p)
g

2
_
= d
(p1)
0
,
it follows that
_
_
d
(p1)
_
_
2
g
=
_
_
d
(p1)
0
_
_
2
g
=
_
_
d
(p1)
0
_
_
2
g
+
_
_
(p1)
g

0
_
_
2
g
.
Therefore, the right side of (8) gives the mini-max characterization of
the k eigenvalues
k,p1
(M, g) of the restriction of
(p1)
g
to the vector
space of dierential coexact (p 1)-forms, which coinciding with the
k eigenvalue
k,p
(M, g) of the restriction of
(p)
g
to the p-forms exact
dierential space. Q.E.D.
Let H be a real Hilbert space with the inner product , )
0
: HH
R and | |
0
the induced norm. Let ((H) be the family of all closed
vector subspaces of H.
If E, F ((H) are xed, let L(E, F) be the real vector space of
all the bounded linear operators from E into F. With respect to the
canonical norm of a bounded linear operator from the Hilbert space E
into the Hilbert space F, still denoted with | |
0
, L(E, F) is a Banach
space. For each E ((H) xed, let
(
E
:= F ((H)[ H = E F
be the set of all closed complements of E in H and let us notice that
E
(= the orthogonal complement of E in H with respect to the inner

product , )
0
) (
E
. Let
T(H, E) := L(H) := L(H, H)[ = and Im() = E
be the space of all continuous projections of H onto E ((H) endowed
with the relative topology induced by the canonical topology on L(H).
Lemma 7. (see [11]). If the subspace E ((H) is xed, then the map
Ker : T(H, E) (
E
, Ker(),
is a bijection.
14 MIHAELA ALBICI
For F
0
, F (
E
, let
0
, T(H, E) so that Ker(
0
) = F
0
and
Ker() = F (see Lemma 7). If the closed vector subspace F
0
of H
is xed, the map
F
0
,E
: (
E
L(F
0
, E), which associates to each
vector subspace F (
E
the map from F
0
into E having as graph
the subspace F of H = F
0
E, is a bijection. Moreover, the set of all
charts of the type ((
E
,
F
0
,E
, L(F
0
, E))[ F
0
, E ((H), H = F
0
E is
a smooth atlas for ((H). Endowed with the Banach smooth manifold
structure dened by this atlas, ((H) is called the Grassmann manifold
associated to the Hilbert space H (see N. Bourbaki [3], p. 38). In
addition, one can show that the topological space ((H) is metrisable.
Lemma 8. Let E ((H) be xed and (
E
with the C
-manifold struc-
ture induced by the one previously dened on ((H). Then there is a
unique C
-manifold structure on T(H, E), whose subjacent topology

coincides with the one induced on T(H, E) by the real Banach space
structure of L(H), so that the bijection
Ker : T(H, E) (
E
, Ker(),
(see Lemma 7) is a C
-dieomorphism.
For the proof, see E.Binz, J.
Sniatycki and H.Fischer [2].

Let us denote by L
2
sim
(H; R) the real vector space of all symmetric
and continuous R-bilinear forms : HH R. With respect to the
supremum norm
|| := sup
[(u, v)[
|u|
0
|v|
0
[ u, v H 0,
L
2
sim
(H; R) is a real Banach space. Let M(H) L
2
sim
(H; R) be the set
of all inner products on H which are continuous with respect to the
topology induced by g
0
:= , )
0
on H and let us notice that M(H) is a
non-empty open subset [since g
0
M(H)] of L
2
sim
(H; R).
Lemma 9. (see [11]). Let H be a real Hilbert space with the inner
product g
0
. Then, for each g M(H), the topologies induced on H by
g and g
0
, respectively, coincide. In particular, H is a complete metric
space with respect to each inner product g M(H).
If the subspace E ((H) is xed, then one agrees to denote the
subspace F (
E
which is orthogonal on E with respect to the inner
product g M(H) with F
g
and also to call F
g
the g-orthogonal com-
plement of E in H: H = F
g
E and g(u, v) = 0 for any u F
g
and
any v E.
Denition 10. If the subspace E ((H) and the inner product g
M(H) are xed, then the orthogonal projection T(H, E) of H =
F
g
E onto E, denoted with
g
, i.e. Ker(
g
) = F
g
(see Lemma 7), is
called the g-orthogonal projection of H onto E.
Using the Lemmas 8 and 9 it follows the next theorem.
Theorem 11. Let H be a real Hilbert space, E ((H) a xed subspace
and F
g
the g-orthogonal complement of E in H, where g M(H).
Then the g-orthogonal projection
g
of H onto E depends smoothly
on the inner product g M(H), that is the map M(H) g
g

T(H, E) L(H) is of class C
(meaning Frechet dierentiability).

Proof. Lemma 9 shows that all the topologies induced on H by inner
products g M(H) coincide. Let g
0
M(H) xed. As we have
already shown during the demonstration of Lemma 9, for each g
M(H) there is an unique R-linear autoadjunct operator so that
g (u, v) = g
0
(u, A
g
0
g
(v)) (9)
for any u, v H. Moreover, A
g
0
g
: H H is a omeomorsm for each
g M(H). Therefore A
g
0
g
(E) is a closed vector subspace of H and -
on the basis of (9) - applications
F
g
0
[A
g
0
g
[
F
g
: F
g
F
g
0
and
A
g
0
g
(E)
[A
g
0
g
[
E
: E A
g
0
g
(E) (10)
are R-linear isomorphisms and homeomorphisms. If
g
0
T(H, E)
notes the g
0
-orthogonal projection of H on E (see Denition 10), so
that Ker (
g
0
) = F
g
0
, then
B
g
:= A
1
g
0
g

g
0
A
g
0
g
T (H, A
g
0
g
(E)) L(H)
and Ker (B
g
) = F
g
. Since applications
M(H) g A
g
0
g
L(H) and M(H) g A
1
g
0
g
L(H)
are of class C
(in the Frechet sense) [M(H) ,= is an open sub-

set of Banach space L
2
sim
(H; R) and L(H) is a Banach space] and
the composition of C
-applications between Banach spaces is all the

C
-class (see for example M. Craioveanu, T.S. Ratiu [6]) results that
the application M(H) g B
g
L(H) is the C
-class. Because
applications (10) are R-linear isomorphisms and homeomorphisms,
F
g
G
E
G
A
1
g
0
g
(E)
for any g M(H). On the other hand, in the
basis of Lemma 8, the application
T
_
H, A
1
g
0
g
(E)
_

Ker
Ker () G
A
1
g
0
g
(E)
16 MIHAELA ALBICI
is C
-difeomorsm for any g M(H). Since Ker (B

g
) = F
g
=
Ker (
g
) for any g M(H), the application
M(H) g
g
T (H, E) L(H)
is C
- class. Q.E.D.
Remark 12. Since the map M(H) g
g
T(H, E) L(H)
is smooth (see Theorem 11), in this case one may also say that the
orthogonal decomposition H = F
g
E depends smoothly on g M(H).
Let M be again an oriented, closed n-dimensional (n 2), C
-
manifold, A
k
(M) the space of smooth dierential k-forms on M, k
0, 1, . . . , n, and M(M) the set of all smooth Riemannian metrics
on M, endowed with the smooth Frechet manifold structure. Using
Rieszs representation theorem, for any g
o
, g M(M), it follows that
there is a smooth automorphism of vector bundles
g
o
g
: TM TM
such that
g(X, Y ) = g
o
(
g
o
g
X,
g
o
g
Y ), (11)
for any X, Y X(M). The automorphism
g
o
g
is uniquely determined
modulo an isometry of (M, g
o
) and the maps
M(M) g
g
o
g
L(L
2
(A
k
(M))), M(M) g (
g
o
g
)
1
L(L
2
(A
k
(M))),
induced by
g
o
g
, are smooth for any k 0, 1, . . . , n (for further
details, see E.Binz, J.
Sniatycki and H.Fischer [2]).

Lemma 13. Let g
o
, g M(M) be arbitrary, but xed, Riemannian
metrics and S
(k)
g
o
(respectively S
(k)
g
) : A
k
(M) A
nk
(M) the star
Hodge operator associated to g
o
(respectively g), k 0, 1, . . . , n.
Under the previous assumptions, the following equality
g
o
g
S
(k)
g
o
= S
(k)
g

g
o
g
: L
2
(A
k
(M)) L
2
(A
nk
(M))
is valid for any k 0, 1, . . . , n. In particular, the map
M(M) g S
(k)
g
L(L
2
(A
k
(M)), L
2
(A
nk
(M))),
is smooth for any k 0, 1, . . . , n.
Proof. If (E
1
, . . . , E
n
) is a local g-orthonormal arbitrary frame on M,
then - on the basis of (11) -
g
0
g
E
1
, . . . ,
g
0
g
E
n
is a local g
0
-
orthonormal frame on M. In the basis of Proposition 5 (iv) true and
for Riemannian manifold without boundary, result that
__
g
0
g
S
(k)
g
0
_
()
_ _
E
(k+1)
, . . . , E
(n)
_
=
_
g
0
g
_
S
(k)
g
0
()
__ _
E
(k+1)
, . . . , E
(n)
_
=
_
S
(k)
g
0
()
_ _
g
0
g
E
(k+1)
, . . . .,
g
0
g
E
(n)
_
= sgn ()
_
g
0
g
E
(1)
, . . . ,
g
0
g
E
(k)
_
= sgn ()
_
g
0
g
()
_ _
E
(1)
, . . . , E
(k)
_
=
_
S
(k)
g
_
g
0
g
()
__ _
E
(k+1)
, . . . , E
(n)
_
for any A
k
(M) and every S(k, n) note the set of all per-
mutations of the set 1, . . . , n so that (1) < . . . < (k) and
(1) < . . . < (k). Therefore, in the basis of the considerations set
out preceding this lemma, the application
M(M) g S
(k)
g
=
g
0
g
S
(k)
g
0

_
g
0
g
_
1
L
_
A
k
(M) , A
nk
(M)
_
is smooth for all k 0, . . . , n. Q.E.D.
The Hodge star operator S

(k)
g
o
(respectively S
(k)
g
) associated to the
Riemannian metric g
o
(respectively g) M(M) induces the inner
product , )
g
o
(respectively , )
g
) on the Hilbert space L
2
(A
k
(M)) =
H
0
(A
k
(M)), hence:
1
,
2
)
g
o
:=
_
M
1
S
(k)
g
o
(
2
) = (1)
k(nk)
_
M
1
S
(k)
g
(S
(nk)
g
S
(k)
g
o
)(
2
)
=:
1
, A
(k)
gg
o
(
2
))
g
(12)
for any
1
,
2
A
k
(M), where
A
(k)
gg
o
: A
k
(M) A
k
(M), A
(k)
gg
o
:= (1)
k(nk)
S
(nk)
g
S
(k)
g
o
, (13)
k 0, 1, . . . , n.
A
(k)
gg
o
is a continuous and formally self-adjoint (symmetric) R-linear
operator, which can be extended to the Hilbert space L
2
(A
k
(M)) =:
H
0
(A
k
(M)). Therefore, (12) shows that all Riemannian metrics g
M(M) induce the same topology on L
2
(A
k
(M)) =: H
0
(A
k
(M)), for
each k 0, 1, . . . , n. The same property is also true for the Sobolev
spaces H
1
(A
k
(M)) and H
2
(A
k
(M)) for each k 0, 1, . . . , n.
18 MIHAELA ALBICI
Lemma 13 and the denitions of the codierential
(k)
g
: A
k
(M)
A
k1
(M) and of the Hodge-de Rham operator
(k)
g
: H
2
(A
k
(M))
H
0
(A
k
(M)) therefore lead to the following results.
Corollary 14. Let M be a closed, n-dimensional smooth manifold and
H
s
(A
k
(M)) the Sobolev space of class H
s
, s 0, 1, 2, associated to
the pre-Hilbertian vector space A
k
(M), k 0, 1, . . . , n. Then, the
next two statements are true:
(i) The map
M(M) g
(k)
g
L(H
1
(A
k
(M)), H
0
(A
k
(M)))
is smooth for each k 0, 1, . . . , n, i.e. the codierential
(k)
g
smoothly depends on g M(M) for each k 0, 1, . . . , n;
(ii) The map
M(M) g
(k)
g
:= d
(k1)
(k)
g
+
(k+1)
g
d
(k)
L(H
2
(A
k
(M)), H
0
(A
k
(M)))
is smooth for each k 0, 1, . . . , n, that is the Hodge-de Rham oper-
ator
(k)
g
smoothly depends on g M(M) for each k 0, 1, . . . , n.
Let us also remark that still Lemma 13 shows that the map
M(M) g A
(k)
gg
o
L(H
0
(A
k
(M))),
where A
(k)
gg
o
is the R-linear operator dened by the equality (13),
smoothly depends on g M(M), for each k 0, 1, . . . , n so
that Corollary 14 (i), the minimax principle (see Theorem 2.2 of
M.Craioveanu, M.Puta, Th.M.Rassias [5], p.286) and Theorem 6 im-
ply the following result regarding the smooth dependence on the Rie-
mannian metric of the eigenvalues of Hodge-de Rham operators and of
the eigenvalues of their restrictions to the spaces of exact and co-exact,
smooth dierential forms on M respectively.
Corollary 15. If M is a closed, n-dimensional smooth manifold,
j,k
(M, ),
j,k
(M, ),
j,k
(M, ) : M(M) R, are the real functions given by
the eigenvalues of Hodge-de Rham operator
(k)
and the eigenvalues
of the restriction of
(k)
to the space of exact (resp. co-exact) smooth
dierential k-forms on M, j N and k 0, 1, . . . , n, then those
functions are smooth with respect to the canonical Frechet manifold
structure considered on M(M).
Finally, in this context, we mention another interesting consequence
of Theorem 11.
Corollary 16. Under the same assumptions as those stated in corol-
lary 15, the Hodge-de Rham decomposition
H
0
A
k
(M) = d
(k1)
_
H
1
A
k1
(M)
_
(k+1)
g
_
H
1
A
k+1
(M)
_
ker
_
(k)
g
_
(see Theorem 1.3.4 [9]) smoothly depends of g M(M) for each k
0, . . . , n, the meaning of the Remark 12.
Proof. In fact, to note that Hilbert space E := d
(k1)
_
H
1
A
k1
(M)
_
does not depend on the choice of Riemannian metric on M, so our
assertion is an immediate consequence of Theorem 11, where we con-
sidered
F
g
:=
(k+1)
g
_
H
1
A
k+1
(M)
_
ker
_
(k)
g
_
.
Q.E.D.
Remark 17. The Frechet manifold topology of M(M)is just the
C
-topology on M(M), so that Corollary 15 includes in particu-

lar the continuity property of the real functions
j,k
(M, ),
j,k
(M, ),
j,k
(M, ) : M(M) R with respect to this topology for each j N and
k 0, 1, . . . , n (see M.Craioveanu and M.Puta [4], M.Craioveanu,
M.Puta and Th.M.Rassias [5]).
References
[1] Abraham, R., Marsden, J.E. and Ratiu, T., Manifolds, Tensors Analysis,
and Applications. 2 Edition, Applied Mathematical Sciences 75, Springer
Verlag, New York, 1988.
[2] Binz,E.,

Sniatycki,J. and Fischer,H., Geometry of Classical Fields, Math-
ematical Studies 154, North Holland Publishing, Amsterdam, 1988.
[3] Bourbaki,N., Varietes dierentielles et analytiques, Fascicule de
resultats, Paragraphes 1 `a 7, Hermann, Paris, 1967.
[4] Craioveanu, M. and Puta, M., On the continuous dependence on the
Riemannian metric of the eigenvalues of the Hodge-de Rham-
Laplace operators, Proc. of the 24th National Conference of Geometry and
Topology, Timisoara, July 5-9, 1994, Editura Mirton Timisoara (1996),pp.
85-95.
[5] Craioveanu,M., Puta,M. and Rassias,Th.M., Old and New Aspects in
Spectral Geometry, Springer-Verlag, Mathematics and Its Applications,
Vol.534, Berlin, Heidelberg, New-York, 2001.
20 MIHAELA ALBICI
[6] Craioveanu,M. and Rat iu,T.S., Elements of local analysis, (Romanian),
Vol.II, Monograi Matematice Nr.7, Tipograa Universitat ii din Timisoara,
1976.
[7] Dodziuk,J., Eigenvalues of the Laplacian on forms,
Proc.Amer.Math.Soc., 85, (3)(1982), 437-443.
[8] Golubitsky,M. and Guillemin,V.G., Stable Mappings and Their Singu-
larities, GTM, Vol.14, Springer-Verlag, New-York, Heidelberg, Berlin, 1973.
[9] Turmacu,M., A study of some problems regarding the spectrums
of Hodge-de Rham operators associated to a closed Riemannian
manifold , (Romanian), PhD Thesis, Universitatea de Vest din Timisoara,
Romania 2007.
[10] Wenzelburger,J., Die Hodge-Zerlegung in der Kontinuumstheorie von
Defekten, Dissertation, Universitat Mannheim, 1984.
[11] Wenzelburger,J., On the smooth deformation of Hilbert space de-
compositions, Appendix in Schwarz,G., Hodge Decomposition-A Method for
Solving Boundary Value Problems, Springer-Verlag, Berlin, Heidelberg, New-
York, 1995.
Constantin Brancoveanu University of Ramnicu Valcea, Romania
mturmacu@yahoo.com

OVIDIUS UNIVERSITY ANNALS

ECONOMIC SCIENCES SERIES

Volume X, Issue 1

2010
xv
44. Moise-iei Adina Human Development and Romanias Position in the World 727
45.
Moise-iei Adina,
Bc Eleonora
Economic Behavior According to the Principles of Sustainable
Development
731
46.
Morariu Alunica,
Ionel Marian,
Mihailescu Emil Raul
Legal Regime Applicable to Local Budgets Execution 734
47. Murarau Bogdan Recent Macroeconomic Developments in the New Member States 740
48.
Oprea Cristina,
Zaharia Marian,
Enachescu Daniela
Aspects of Using Data Mining Techniques in the Study of Student
Performance
746
49. Paiusan Robert
G. Mladenatz and his Writings: the International Echo of a
Romanian Co-operative Theorist
751
50. Panea Ionu
The Improvement of the Performance of the Public Administration
in Romania
755
51.
Paunescu Loredana-
Maria
Data Warehouse and Business Intelligence Components 758
52.
Perifan Mihai,
Caraman Tania,
Teliceanu Claudiu
Some References Regarding the Public Function Development
Stage in Romania
763
53. Podac Raluca Advantages and Disadvantages of Globalization 768
54.
Popa Cristina,
Maricescu Liliana
Denisa
Environmental ethics 772
55.
Popescu-Bodorin
Nicolaie
Automatic Detection of Common Long-Term Monetary Policies on
Global Exchange Market Using Gabor Analytic Phase Binary
Encoder
776
56. Popovici Veronica
Bioeconomics the Essence of Nicholas GeorgescuRoegens
Legacy
780
57.
Raiu Monica Paula,
Oprescu Alina,
Botea Lucian
Innovation as a Competitive Weapon in the Uncertain Service
Economy
787
58.
Radut Carmen,
Albici Mihaela,
Tenovici Cristina Otilia
The Firewall and Security of Information Systems 793
59.
Roca Doina,
Bnic Logica,
Srbu Mirela
An Overview of Systems Development 796
60.
Stanciu Victoria,
Eden Ali,
Ivancenco Veronica
Constanta
Managing Operational Risk 802
61.
Stanciu Victoria,
Bran Florin Paul
Managing IT Risks 807
62.
Stancu Ana-Maria
Ramona
Data and Information Exchange via the Internet 813
63.
Stancu Ana-Maria
Ramona
Support Provided by SQL Server for XML Language 816
64.
Stoenescu Cimpoeru
Smaranda
A Risk Correlation Model for an European Emerging Country and
its Integration in a Global Macroeconometric Model
819
65.
Szentesi Silviu Gabriel,
Crian Simona,
Franescu Marius
Dynamic Model for Evaluation the Economical-Ecological
Equilibrium for an Investment Project
825
Volume X, 2010

793
The Firewall and Security of Information Systems

Rdu Carmen
Albici Mihaela
Tenovici Cristina Otilia
Constantin Brancoveanu University of Pitesti
c_radut@yahoo.com
mturmacu@yahoo.com
cris2001vl@yahoo.com

Abstract

Information security is a broader concept
which refers to ensuring the integrity,
confidentiality and availability of
information. The dynamics of information
technology to induce new risks to which
organizations must implement new measures
of control. Technological development has
been accompanied by security solutions,
equipment manufacturers and applications
including technical methods of protection
performance. However, while in information
technology change is exponential, the human
component remains unchanged. Information
security can not be achieved solely by
technical measures, is primarily a human
problem. Most security incidents are caused
by inadequate management and
organization, rather than because of
deficiencies in security mechanisms. This
paper presents the use of firewall security
systems.

Key words: security,information,
technology,developement;

JEL Classification: Q32;

1. Introduction

Dependence on increasingly large
information systems increase the
vulnerabilities typology which organizations
must face. Moreover, the issue of protection
should consider private networks often
interconnect with public services. If this
issue add to the problem of information
sharing is shaping a rather complicated
picture in which the implementation of
effective controls is a difficult task for the
specialist IT & C.
Many of the systems on the market were
designed as structured methodology but did not
have as primary objective and ensure a degree of
security because at that time technology was not
nearly as developed nor as accessible to
beginners. With the proliferation of the Internet
but as important means of modern
communication mechanisms need proactive
security became a certainty. In practice note that
many institutions turn to external technical
solutions to solve their security problems without
seeking to identify specific needs and
requirements. Identification of internal controls
to ensure an appropriate degree of security of an
institutions information assets requires a
thorough planning and precise identification of
the objectives of this institution.
Financial institutions, industry, defense,
aerospace, information technology industry,
electronics industry sectors with the greatest risk
in terms of information security. Also in this
category of risk within government institutions,
which is why the adoption of an organizational
culture based on ISO / IEC 17799 is key.
t is important that each organization could to
identify their security requirements. To do this it
must appeal to three main sources:
risk analysis;
existing legislation;
standards and procedures.
Using an appropriate methodology to analyze
the risks the organization can identify its own
requirements relating to security. Such a process
generally involves four main steps:
Identification of assets to be protected;
identifying risks / threats specific to each
asset;
Risk ranking;
identify checks that are removed / reduced
the risks.
In this respect, ISO / IEC 17799 offers a
number of security objectives and controls from
which professionals can select those that match
Volume X, 2010

794
the operating business. Furthermore this
standard should not be considered a panacea
of information security as long as it only
provides advice to those responsible for
implementing and managing a security
system within an organization. A control
mechanism should not cost more than good
organization to be protected.
The security of a company shall be
subject to the constituent elements, namely:
making software security structure, defining
security policies, standards, rules and
procedures. Without stringent policies,
security programs will be close without
support, inefficient and will not align
strategy and organization objectives.
Policies, standards, rules and procedures are
the foundation of the organizations security
program. Effective, clear out, will serve the
process of auditing and potential litigation.
Combining elements specified, an entity
may implement specific controls, processes,
awareness programs and more, just to bring
a touch of tranquility.

2. Use firewalls on intranets

A firewall is a hardware or a permanent
filter that monitors and data transmissions
made between your PC and Internet or local
network, to implement a filtering policy.
This policy could mean:
protect network resources from other
users of other similar networks - the Internet.
Control resources they will access local
users.
A firewall, working closely with a routing
program, examines each data packet network
(either the local or the view) that will pass
through the gateway server to determine if it
is sent on to destination. A firewall also
includes or works with a proxy server which
calls the package on behalf of workstation
users. The most common protective cases
these programs are installed on computers
that meet only that function and are installed
in the routers.
Firewall solutions fall into two broad
categories: first is the professional hardware
and software solutions dedicated to
protecting all the traffic between an
enterprise network and the Internet, and the
second category is the personal firewalls on
personal computers dedicated to traffic
monitoring.
Although not a very proper distinction,
firewalls can be divided into two main
categories according to the mode of
implementation: dedicated device running the
filtering software is dedicated to this operation
and is virtually inserted into the network (usually
even after the router). It has the advantage of
increased security. combined with other
networking facilities.
For example, the router can serve as a firewall,
and for small networks the same computer can
play at the same time the role of firewall, router,
file / print server, etc.
The walls of protection plays a significant role
in security management of an intranet. A shield is
a device or application that controls the
communication between the internal network and
an external network such as the Internet. A shield
(Figure 1) serves several purposes:
acting as input filter for Internet traffic to the
servers of the organization, preventing
unauthorized reaching package of Web servers
and applications;
provide connections to the Internet via proxy
maintaining internal user authentication;
traffic logs, providing audit support,
reporting, as for planning.

Figure 1. Location Firewall.

Firewalls do not work without risk. They are
generally difficult penetrated, but it has been
exceeded, the internal network is open to
intruders. In addition, a firewall can not resolve
internal network compromise. Approximately
70% of security breaches occur within the
company, that are created by people across the
wall of protection. An example may be using a
modem and a dial-up connections.
In practice the following risks were observed
on firewalls:
ports - filter rules are based on source and
destination ports. A machine that uses TCP / IP
has 65,535 virtual ports, some of which are used
by certain services;
routing - this option allows users to define
how IP routing package.
Volume X, 2010

795
SOCK - is a library of application
proxies used to allow certain services to be
used to keep intruders out;
Scanning direct PRC port-mapping is
a service that allows users to identify ports
that reside on remote procedure calls ;
scan hidden - not an intruder tries to
establish a connection but use package at an
interface. These packages give us different
answers, depending on the quality of the port
(open or not).
connectionless protocols - firewalls
have difficulty in detecting packages used in
services that do not require establishing a
connection, and UDP, for intranets is
necessary to have a intrusion detection
system in order to protect the network
perimeter attacks.
Intrusion detection systems can be
installed as probes or agents. Probes are
more efficient in terms of intrusion detection
because it minimizes the impact on existing
systems by passive hearing and reporting to
the central console, without interruption.
Intrusion detection services running on a
network device following functions:
inspect string of data that passes
through the network, identifying signatures
of unauthorized activities and working
procedures of defense;
generates alarms when detecting events,
notifying appropriate personnel security;
activates an automatic response to
certain problems.
In addition to intrusion detection can be
considered a proxy for TCP aggregator that
will improve security by restricting firewall
ports exposed.
Tunneling and encryption are used to
create point-to-point networks generally
being used protocols and Layer 2 Tunneling
Protocol (L2TP), Point-to-Point Tunneling
Protocol (PPTP), IPSec and encryption standards
such as DES, MD5, Triple DES, etc..
Mobile code such as Java and ActiveX
program creates a growing threat. Applications to
inspect the content must:
provide control over Java mobile code,
ActiveX or another;
prevent attacks by mobile code;
enable the safe navigation using both Java
and ActiveX features.

3. Conclusions

Finally, security management is a necessity in
the increasingly high, both in intranet network
type and other types of networks together,
because the multitude of network access points.
At the same time need new tools and techniques
and a combination thereof to provide maximum
safety possible.

4. References

[1]. Anderson R. Security Engineering : A Guide to
Building Dependable Distributed System s, NY 2001;
[2]. Andress, M. Surviving Security: How to
Integrate People, Process and Technology, SAMS,
Indianapolis, 2002, pp. 59-63.
[3]. Davis D. " The Problems Catch Up With The
Solution", in Card Technology, April 2003;
[4]. Denning D.E. Information Warfare and
Security, Addison-Wesley, Reading, Massachusetts,
1999;
[5]. King, C.M., Dalton, C.E., Os Managlu, T.E.
Security Arhitecture: Design, Deployment&
Operations, Osborne/McGraw-Hill, New York, 2001,
pp.18-26
[6]. Krutz R.L, Vines R.D. The CISSP Prep Guide
Mastering the Ten Domains of Computer Security,
Wiley & Sons, Inc. New York, 2001;
[7]. Schwartan W. Information Warfare, 2nd Edition
, Thu nder' s Mouth Press, New York, 1996;

STRATEGII MANAGERIALE

MANAGERIAL STRATEGIES

Revist editat de
Universitatea Constantin Brncoveanu
Piteti

Anul III, nr. 3 (9) / 2010

Editura
Independena Economic
Colegiul de redacie:

Preedinte: Prof. univ. dr. Alexandru Puiu
Vicepreedinte: Prof. univ. dr. Ion Scurtu

Redactor-ef: Lect. univ. dr. Cristinel Munteanu
Redactor-ef adjunct: Lect. univ. dr. Cristina erbnic

Membri: Prof. univ. dr. Marius Gust
Prof. univ. dr. Ovidiu Puiu
Prof. univ. dr. Dumitru Ciucur
Prof. univ. dr. Iuliana Ciochin
Conf. univ. dr. Mihaela Asandei
Conf. univ. dr. Silvia Dugan
Conf. univ. dr. Elena Enache
Conf. univ. dr. Nicolae Grdinaru
Conf. univ. dr. Radu Prvu
Conf. univ. dr. Dorian Rais
Procesare computerizat: Conf. univ. dr. Cristian Morozan

Autorii i asum deplina responsabilitate
n ceea ce privete materialele publicate.

Editura Independena Economic, 2010
Piteti, Calea Bascovului nr. 2A
Tel./Fax: 0248/21.64.27

Editur acreditat de ctre C.N.C.S.I.S.

Niciun material nu poate fi reprodus fr
permisiunea scris a Editurii.

ISSN 1844 668X
3
CUPRINS / CONTENTS

ELABORAREA STRATEGIEI DE MARKETING LA S.C. BLACK SEA
SUPPLIERS S.R.L. / THE ELABORATION OF THE MARKET STRATEGY
AT SC BLACK SEA SUPPLIERS SRL .........................................................................5
Conf. univ. dr. Mihaela Asandei, Daniel-Petru Ghencea

POLITICA PROMOIONAL A GRUPULUI MOBEXPERT /
PROMOTIONAL POLITICS AT THE MOBEXPERT GROUP...............................14
Lect. univ. dr. Andreea-Daniela Gangone, Alina-Ionela Perniu

EVALUAREA PERFORMANELOR IMM-URILOR DIN RM.VLCEA
FOLOSIND MODELUL DE REGRESIE MULTIPL / PERFORMANCE
ASSESSMENT OF THE IMMS FROM RMNICU VLCEA BY USING
THE MULTIPLE REGRESSION MODEL.................................................................23
Asist. univ. drd. Carmen Rizea

STRATEGIA DE AFACERI A COMPANIILOR MULTINAIONALE
REPREZENTATIVE PENTRU SERVICIILE DE ALIMENTAIE -
COMPANIA MCDONALDS / THE BUSINESS STRATEGY OF
MULTINATIONAL COMPANIES REPRESENTATIVE FOR FOOD
SERVICES THE MCDONALDS COMPANY ........................................................30
Conf. univ. dr. Oana-Luminia Voicu

ROLUL PROFESIEI CONTABILE N PROCESUL DE RAPORTARE
FINANCIAR GLOBAL / THE ROLE OF THE ACCOUNTANT
IN THE PROCESS OF THE FINANCIAL GLOBAL RELATION...........................34
Lect. univ. dr. Mihaela Cosmina Petre

IMPORTANA MODELRII MATEMATICE N ACTIVITATEA ECONOMIC /
THE IMPORTANCE OF MATHS MODELING IN ECONOMY.................................. 38

IMPORTANA CONTROLULUI DE CONSTITUIONALITATE
N STATUL DE DREPT / THE IMPORTANCE OF CONSTITUTIONALITY
CONTROL IN THE RULE OF LAW..........................................................................42
Conf. univ. dr. Nicolae Grdinaru

ANALIZA RAPORTULUI TIMP LIBER TIMP DE MUNC AL UNEI
PERSOANE OCUPATE / THE ANALYSIS OF THE RELATIONSHIP
SPARE TIME WORKING TIME OF A BUSY PERSON........................................48
Asist. univ. drd. Mdlina Blnescu

COEREN I COEZIUNE N TEXTUL ANUNULUI DE MIC PUBLICITATE /
COHERENCE AND COHESION IN THE TEXT OF SUBSIDIARIES......................... 53
Lect. univ. dr. Ramona Gabriela Eana

A STUDY OF VERTEX COVER ALGEBRAS OF UNMIXED BIPARTITE GRAPHS.. 58
Asist. univ. dr. Cristian-Adrian Ion

CRONICA EVENIMENTELOR
UNIVERSITATEA CONSTANTIN BRNCOVEANU - DE DOUZECI DE ANI
N SLUJBA NVMNTULUI I A CERCETRII / CONSTANTIN
BRNCOVEANU UNIVERSITY - FOR TWENTY YEARS IN THE SERVICE
OF THE TEACHING SYSTEM AND OF RESEARCH.............................................61
38
Importana modelrii matematice n activitatea economic

Universitatea Constantin Brncoveanu Piteti
Facultatea de Management Marketing n Afaceri Economice Rm. Vlcea

Abstract:
Mathematical modelling is used by managers as an alternative version of the experiments used by
exact sciences. An experiment in its strictest meaning that is the physical modelling of variable values is
not possible in economic issues. Modelling actually means building certain variable fidelity-level
representations of the real economic world or of one of its constitutive parts.

Key words: Mathematical modeling, exact sciences, economic process, variable values.

n prezent, trim o etap n care alturi de procedeele tradiionale, bazate pe intuiie i
experien, i fac apariia o serie de procedee tiinifice moderne de luare a deciziilor.
Procedeele tiinifice se caracterizeaz prin fundamentare teoretic, bazat n general pe
modele matematice, cu pstrarea unei orientri generale, practice i realiste.
Modelarea matematic este folosit de manager ca o alternativ la experimentul
utilizat de tiinele exacte. Experimentul n sensul strict al cuvntului adic modificarea
fizic a valorilor variabilelor nu este posibil atunci cnd este vorba de probleme
economice. De exemplu, o companie nu-i poate permite riscul unui faliment de dragul
unui experiment.
Aceste realiti au condus la o adevrat revoluie informaional-decizional n
domeniul organizrii i conducerii, perioad n care s-au conturat ca discipline privind
conducerea:
Cercetarea operaional se caracterizeaz prin procesul de elaborare a unor
modele economico-matematice ce conduc la decizii optime sau aproape optime;
Cibernetica se ocup de conducerea i reglarea sistemelor complexe;
Informatica prelucrarea datelor cu ajutorul echipamentelor electronice;
Psihosociologia organizrii ia decizii n legtur cu funcionarea eficient a unui
anumit organism economic;
Teoria general a sistemelor propune o perspectiv sintetizatoare a ideilor privind
diversele orientri n tiinele organizrii i conducerii.
Modelarea matematic are legturi strnse cu toate domeniile amintite mai sus i
ofer economitilor o serie de modele i tehnici necesare aciunilor manageriale la nivel
microeconomic.
Modelarea const n fapt din construirea unor reprezentri cu un grad de fidelitate
variabil ale lumii economice reale sau ale unei pri componente a acesteia. Raiunea de a
apela la reprezentri a fost:
nelegerea fenomenului sau a segmentului de realitate abordat;
Cunoaterea amnunit i apoi n profunzime (analiza) ca un scop n sine;
Aciunea asupra fenomenului analizat.
Ultimele dou motive au imprimat modelrii caracterul de metod de cunoatere
tiinific.
Conceptul de model este relativ nou
1
n comparaie cu metoda modelrii, care a
aprut odat cu preocuparea oamenilor pentru cunoaterea tiinific. Termenul a fost
folosit mai nti de matematicieni, apoi a fost preluat de la acetia de ctre tehnicieni, i
apoi de ctre analitii de sistem, pentru a fi utilizat n procesele din economie.

1
Utilizat pentru prima dat de matematicianul Beltrami n 1868, n construirea unui model euclidian al
geometriei.
39
Modelul poate fi definit ca o reprezentare abstract i simplificat a unui process
economic.
1
Se poate spune c modelul este o reprezentare izomorf a realitii
2
, care ofer
o imagine intuitiv, dar riguroas, n sensul structurii logice a fenomenului studiat, i
permite descoperirea unor legturi i legiti greu de stabilit pe alte ci.
Reprezentrile sub forma modelelor au rolul de a reda explicit percepiile implicite
ale oamenilor asupra legitilor care guverneaz fenomenele de cele mai multe ori
ambigue, vagi, contradictorii, spontane, lipsite de coeren logic i chiar incontiente
3
cu
care acetia se confrunt, avnd scopul de a permite departajri calitative, dar mai ales de
comunicare ctre alte persoane implicate n mod particular n actul de decizie.
Noiunile de baz ale modelrii sunt variabilele endogene, care descriu partea de
realitate supus modelrii i exogene, care descriu restul realitii i relaiile dintre ele.
Relaiile dintre variabile sunt circumscrise tipului de limbaj folosit.
Limbajul cel mai des utilizat este, fr ndoial, limbajul matematic. Expresia
suprem a conexiunii cu alte tiine sau domenii care genereaz o serie de variabile nscute
din impactul asupra economicului o reprezint formalizarea matematic. Relaiile
matematice nglobeaz ntr-o form sintetic att elemente de analiz static, ct i pe cele
de analiz dinamic. Teoremele sau rezultatele obinute pe calea demonstraiei matematice
nu ies din sfera de interes a cercettorului, ci se constituie n leme pentru obinerea unor
rezultate i mai complexe. Raionamentul matematic este imun la influenele mediului
nconjurtor. Trebuie s subliniem ns faptul c pentru o folosire corect a limbajului
matematic, el este doar un instrument, iar formalizarea matematic nu este un scop de sine
stttor.
Modelul este viabil i reprezint corect un anumit fenomen economic numai dac
nglobeaz analiza structurii i proprietilor, precum i elementele de specificare ale
acestuia. Modelul este tiinific n msura n care este fundamentat pe teoria economic,
care definete categoriile conceptuale i legile obiective ale realitii economice.
Etapele procesului de modelare sunt asemntoare cu etapele procesului de decizie,
deoarece ultimele descriu un model general al teoriei deciziei
4
:
Delimitarea prii de realitate supus modelrii i cunoaterea tiinific a acesteia,
centrat pe scop;
Construcia modelului economico-matematic, cu ajutorul a dou instrumente: cel
statistic i tiina comportamentului;
Experimentarea modelului;
Implementarea modelului i actualizarea soluiei.
Principalele criterii pe baza crora este fcut gruparea modelelor economico-
matematice sunt urmtoarele
5
:
1. n funcie de sfera de reflectare a problematicii economice:
Modele macroeconomice modele de ansamblu ale economiei;
Modele mezoeconomice la nivel regional, territorial;
Modele microeconomice la nivel de ntreprindere, uniti, trust, companie,
combinat.
2. n funcie de domeniul de provenien i concepie:
Modele cibernetico-economice relaii I/O cu evidenierea fenomenelor de reglare;
Modele econometrice elementele numerice sunt determinate statistic;

1
Camelia Raiu-Suciu, Modelarea&simularea proceselor economice, Ed. Economic, 2003, p. 26.
2
Stoica, Marcel; Ioni, Ion; Botezatu, Mihai, Modelarea&simularea proceselor economice, Ed. Economic,
1997, p. 11.
3
Bogdan-Constantin Andronic, Performana firmei, Ed. Polirom, 2000, p. 206.
4
Ibidem, p. 207.
5
Camelia Raiu-Suciu, op. cit., p. 27.
40
Modele ale cercetrii operaionale permit obinerea unei soluii optime sau
apropiate de optim pentru un fenomen studiat;
Modele din teoria deciziei cu luarea n considerare a mai multor criterii, factori de
risc, incertitudine;
Modele de simulare ncearc s stabileasc modul de funcionare al unui
organism macro- sau microeconomic prin acordarea unor combinaii de valori
ntmpltoare variabilelor independente care descriu procesele;
Modele specifice de marketing.
3. n funcie de caracterul variabilelor:
Modele deterministe;
Modele stochastice/probabilistice;
4. n funcie de factorul timp:
Modele statice;
Modele dinamice.
5. n funcie de orizontul de timp considerat:
Modele discrete;
Modele continue.
6. n funcie de structura proceselor reflectate:
Modele cu profil tehnologic;
Modele informaional-decizionale;
Modele ale relaiilor umane;
Modele informatice.
n cadrul fiecrei grupe, modelele pot fi descriptive realizeaz o cunoatere direct
a ntreprinderii sau normative permit obinerea unui comportament viitor, dorit de ctre
factorii de decizie.
Soluia modelului, obinut cu ajutorul unui algoritm, este analizat i n final, dac
este convenabil din punct de vedere tehnico-economic, cu ajutorul ei se fundamenteaz
decizia economic.
Drumul parcurs de la apariia primelor lucrri de modelare pn n prezent dovedete
preocuparea permanent a specialitilor n sensul gsirii unor metode, ci accesibile, ct
mai apropiate de realitatea economic, cu scopul mbuntirii proceselor decizionale n
ntreprinderi.
Ca teorie general a programrii i controlului proiectelor, metoda analizei drumului
critic conine capitole consecrate cerinelor modelrii activitilor unui proiect: parametrul
fundamental supus analizei timp, cost, resurse; natura datelor de intrare; aspecte cu
privire la structura sau mrimea proiectelor, variante de succesiune a activitilor. Aceast
metod are largi aplicaii n domeniul construciilor, transporturilor, evideniind locul de
fundamentare a deciziei n ansamblul complex al procesului decizional.
Sunt numeroase cazurile cnd optimizarea activitii economice s-a dovedit
insuficient pe baza unui singur criteriu de optim, n special n industrie. Astfel, la
programarea produciei se pot urmri simultan maximizarea cifrei de afaceri, a venitului
net, a valorii adugate, a ncrcrii capacitii de producie i minimizarea consumurilor
materiale, a timpilor de ntrerupere etc. Urmrind exclusiv unul dintre aceste criterii, se
poate afecta realizarea celorlalte. Pentru corectarea acestei situaii, s-a impus aplicarea
multicriterialitii, fiind asigurat astfel cel mai bun compromise ntre criteriile urmrite.
Informaii deosebit de importante pentru fundamentarea repartizrii i folosirii
optime a resurselor le ofer modelul dual al programrii liniare, prin care se pot stabili
locurile nguste ntr-un flux de fabricaie, precum i preurile de eficien ale resurselor
alocate, respectiv contribuia lor la realizarea criteriului de optimizat.
41
Trebuie remarcat i i utilizarea tot mai larg a programrii dinamice metod de
referin pentru teoria i practica modelrii matematice n majoritatea domeniilor de
activitate specific modelrii proceselor i fenomenelor economice care au, n general, o
evoluie dinamic.
Acestea sunt doar cteva exemple de metode i procedee de lucru folosite n
modelarea matematic. Nevoia permanent de a gsi cele mai bune soluii n conducerea,
organizarea i desfurarea activitilor economice la nivelul firmelor a fcut necesar
mbuntirea permanent a proceselor decizionale, de unde i preocuparea oamenilor de
tiin de a elabora i perfeciona cile i metodele de nregistrare a realitii. n ultimii
ani, progresul tehnic a nceput s fie resimit i la nivelul ntreprinderilor n ceea ce
privete aplicarea unor modele economico-matematice.
n prezent, sunt preocupri din partea specialitilor pe linia perfecionrii mijloacelor
conceptuale, n sensul formulrii unor modele elastice, flexibile, pentru a putea surprinde
n toat complexitatea lor procesele de organizare i conducere din ntreprinderi.
Pe plan internaional se lucreaz la realizarea unor sisteme de conducere ierarhizate
ce funcioneaz n timp real i care sunt distribuite n toate compartimentele ntreprinderii.
Obiectivul global al sistemului este obinerea unei producii optime cantitativ i calitativ,
att din punct de vedere tehnic, ct i economic, n condiiile existenei unor restricii
temporale de lung sau scurt durat i a unor perturbaii permanente din partea mediului.

Bibliografie:
1. Andronic, Bogdan-Constantin, Performana firmei, Ed. Polirom, Iai, 2000;
2. Raiu-Suciu, Camelia, Modelarea & simularea proceselor economice (ediia a III-a), Ed.
Economic, Bucureti, 2003;
3. Raiu-Suciu, Camelia, Modelarea economic, Ed. Sylvi, Bucureti, 1993;
4. Stoica, Marcel; Ioni, Ion; Botezatu, Mihai, Modelarea & simularea proceselor
economice, Ed. Economic, Bucureti, 1997.
EURODYNAMISM VS. EUROSCLEROSIS IN THE MONETARY
POLICIES OF THE MEMBER STATES OF THE EUROPEAN
COMMUNITY
Teaching Assistant Phd.Student Isabella Sima
Phd Lecturer Mihaela Albici
University Constantin Brncoveanu Piteti
Faculty of Management Marketing Economic Affairs Rm. Vlcea
Phd. Student Economist Elena Nisipeanu
Ministry of External Affairs Bucharest

Abstract
Since the beginning of the creation of the European Union, was often the question that was the reason
frankly that led to its emergence. Many specialists have been trying to learn this by analyzing the periods
which have succeeded in her appearance. Currently, the European Union is no longer a mere economic
Union; she reached the degree of integration of economic and Monetary Union by the adoption of the single
currency, the Euro. In the present work we have tried to show you how this monetary Union has evolved in
general and how they evolved monetary policies of the Member States in particular. Highlight the fact that in
the history of European Monetary Union, there were periods of euro dynamism and euro sclerosis periods,
and the fact that they are not going to stop here, but they will continue to achieve enduring monetary
absolute.

Keywords: European Union, European Monetary Union, Euro, euro dynamism, euro sclerosis

History of European States after the second world war is divided into three major
periods, which have put its mark on the policies of these States and their monetary policies
by default.
Global monetary relations have strongly influenced European governments left in
pursuit of attaining regional monetary integration. Economic policy shocks from outside
the region and their effects on economic conditions in Europe and on intraeuropene
economic relations, have provided powerful incentives for European countries to stabilise
currencies and to harmonize macroeconomic policies.
When, over the decades, members of the community were split or insecure on
stabilising exchange rates, monetary instability, and the rate of Exchange at the global
level has helped to pass over and reluctance to follow the path towards monetary
integration.
The monetary conflict with United States of America has provided a strong impetus
for monetary integration. American monetary policy alternated between periods of neglect
and activism throughout the post-war period. American dollar negligence on the periodic
and the balance of payments has pushed the burden to stabilize the exchange rate and
financial payments to other Governments, particularly European ones. The worse was
when American politics for Europe lies in its active phase, with officials often by
exploiting American dominance or at least to the United States via "gun buck". American
officials, by floating the dollar, had elaborated a strategy for conscientious change
macroeconomic policies of European Governments, as well as national banks. The
Governments of the Member States of the European Community were crucial in such
moments, encouraged by the policies of negligence or aggression on the rate of exchange
of the Americans, to seek shelter in regional monetary arrangements.
Thus, in the following, we will briefly review these three periods, together with the
prevailing characteristics of each.
A first period, the period between the years 1945 and 1973, is known in the
literature as the "thirty years ' glorioi", in which Europe has experienced an unprecedented
evolution in terms of cohesion, growth and stability. While social and macroeconomic
1

stability are basic conditions for ensuring economic growth, it is also essential to support
monetary policy. Thus, the economic and social conditions obtained were outstanding:
- the pace of GDP growth at EU level was 4.6% (3.8% of GDP/place);
- standard life quickly grew from a level of GDP/EU, in 1950-40% from the level
recorded in the USA to over 70% in 1973;
- inflation (as measured by the price deflator for private consumption and the
unemployment rate remained low at 4% and 2% respectively;
- the share of government expenditure in GDP was relatively modest in 1970,
about 36%.
This period was marked by the collapse of the Bretton Woods system, the shock
caused the american President Nixon when he announced inconvertibilitatea the dollar and
by efforts to restore the old order monetary made by the Smithsonian Arrangement.
In these circumstances, The Werner Plan of the European Community was doomed
to failure because its construction was in a way related to the Bretton Woods regime. But
Werner Report established the discussions on Monetary Union for the next 25 years.
Approval in three stages and many of the principles set out in the report will be referred to
in the Werner Report Delors, 19 years later. Speaking in terms closer, Werner has
established a concrete agenda on cooperation relating to exchange rate. As a result of the
first stage, the report recommended that the European Community should adopt a common
policy towards the dollar and common positions in relation to international organisations
such as the IMF. The report also suggested that from an experimental European Central
banks should ngusteze the fluctuation of currencies against each other, one more than the
permitted fluctuation bands against the dollar. As the Bretton Woods regime was losing
ground, Europe began to implement portions of the Werner Plan.
In the late 1960s and early 1970s, Germany has experienced several crises of
capital inflow and complained more and more "imported inflation." In May 1971, a wave
of speculation that the European currencies to float against the dollar, together with
relatively stable cross-rates.
The six members of the European Community were far from United when it comes
to a floating village. Although he was in favour of Germany, other European countries
were afraid of losing competitiveness by allowing their currencies to float upward, with the
German mark, against the dollar. Although he was attracted by the possibility of using the
European solidarity to force the United States to support the development, France opposed
the common leaching and proposed instead a more extensive control over the trust capital.
Italy joined in countering against Moldovan. Belgium have also tended to join France. In a
final german and Danish Government decided to float the currency, while other members
have reintroduced capital control.
In the absence of American monetary cooperation and successful reform of the
International Monetary System, European Governments have resolved to achieve
cooperation at the regional level without having to take into account the formidable
challenges posed by differences in their own economies. Successful cooperation of
intereuropene exchange rates at the beginning and middle of the 1970s was limited by the
stabilization of the German mark and currencies of Germany's smaller neighbors. When
American economic policies have become a source of monetary instability for Europe,
Germany and France have renewed their cooperation in the field of the exchange rate.
The second interval, between 1974 and 1985, plastic is known as "eurosclerosis",
where:
- the annual growth of the GDP of the EU hardly reaches 2% and GDP/capita,
1.7%;
2

- as a result, the process of convergence of incomes between the EU and the US
has not only been stopped, even somewhat reversed;
- average inflation climbed to 11 percent, and the unemployment rate has
increased from less than 3% in 1974, from 10% in 1985;
- the share of government expenditure in GDP grew rapidly after 1973, reaching
46% and 49% in 1980 to 1985 an increase of 13 percent compared with the
1970s.
So, in 1978, while the dollar fell to record levels in the face of the German mark,
Schmidt and then French President Valery Giscard D ' Estaign have launched negotiations
for the creation of the European monetary system (EMS). Schmidt was explicit in his
quest to find a European area of monetary stability wider appreciation for the pressure on
the currency concetrat before on the German mark, the so-called "control of the dollar
could be spread.
After bilateral consultations, Schmidt and Giscard have started negotiations on the
fundamental elements of the scenes of the new system, in which participated also and
British Government officials. Because the serpent was unsuccessful-the French franc
entered twice-Schmidt and Giscard have decided to create a whole new system. Their plan
was approved in the Council of Bremen in July 1978.
Although Schmidt and Giscard have not been able to persuade British Prime
Minister, James Callaghan, to participate in this system, Belgium, Luxembourg, the
Netherlands, Denmark and Italy joined Germany and France in the new regime.
ESM encountered important turbulence in his early years of existence. The second
oil shock two-digit inflation in some countries, a severe recession and changes in both the
german Government and the French have strenuously priorities rather than to harmonise
national monetary policies during the first phase, the participating Governments agreed on
frequent realignments within the system.
Under the leadership of President Mitterrand, the socialist government Fraois
administered a strong fiscal stimulus in the French economy, 1981 and 1982. This choice
of reducing unemployment in front of reducing inflation was diametrically opposite to the
elections in many countries, especially in the United States. Friction has placed a
downward pressure on the French franc.
Mitterrand proposed a decoupling of European interest rates. German officials have
rejected the idea, knowing that control of capital will be required and suspecting that
Germany will have to finance the deficits.
The French franc devalued twice already in the EMS since the socialist government
came to power and intensified speculation against the currency. Mitterrand and his
Government were faced with a choice between continuing with the expansionist keynesian
program have been hired in 1981 and leaving the ERM or remaining within the ERM after
depreciation and restrictive policies can be implemented to control inflation.
Macroeconomic conflict over the ocean and the use of the dollar as a weapon has
requested another quantified consolidation of ESM and the beginning of the third stage of
its development.
In the period 1986-2010, Europe has made some progress:
- inflation has been reduced to the levels preceding the year 1973, hovering in the
year 2009 at the threshold of 1%;
- the unemployment rate remained high, in 2009 at the 8.9% from 7% in 2008
and 7.1% in 2007;
- growth was modest until 2010 at 1.2% to GDP and 0.7% for GDP/capita.
Reduced pace of growth and the high rate of unemployment was reflected in
increased demand for social protection and in a continued deterioration in the public
3

finances. In 1993, total government spending at EU level have reached the highest level of
51 per cent of GDP. In 2000, the EU seems to be successful fiscal consolidation,
government expenditure fall 46% of GDP, in 2002, however, they were again 48% of
GDP, so that in 2009 they account for 50% of GDP.
As in the 1980s, causes of the "negative spiral" of low growth and high rates of
public expenditure can be grouped into two categories:
- on the one hand, the shocks generated by long-term developments recorded in the
population plan, infomaiei, technology and globalization;
- on the other hand, the difficulty of the reform of the european social model so that
it can be combined with the rapid growth of social protection support.
With these rhythms, GDP per capita in the EU has remained at the level of 70% of
that achieved in the United States (which means that the process of convergence of GDP
per caita, particularly of those "30 years of glory", remained only of the past).
The weakness of the dollar forced the emergence of a European analysis of the
financial mechanisms of the ESM. By taking the differential pressure on European
currencies, like in the episode of the years 1977-1978, the depreciation of the dollar has
forced a general realignment in January 1987 at ERM.
Exchange rate instability has also undermined the purpose of the single European
Act, which had been successfully negotiated and which is in the process of ratification, to
complete the internal market by 1992. Under these circumstances, the European
Governments and central banks have been released in the renegotiation of the rules and the
terms of participation in the ERM.
German officials were therefore more inclined to reach an accommodation with
France than the financial arrangements of the ESM. Understanding with the European
partners was exposed during the Basel agreement of September 1987-Nybourg. The Basel-
Nybourg did not meet fully the French Government. Finance Minister Edouard Balladur,
French said that the appreciation of the European currencies was "fundamentally against
the interest of Europe and of its constituent economies" and concluded that "the fast track
to building European money is the only possible solution." The proposal has been
supported with much enthusiasm and by italian Finance Minister, Giuliano Amato. Rather
than reject Balladur's proposal, German officials have responded with a counter-proposals
constructive. Foreign Minister, Hans-Dietrich Genscher has proposed the creation of a
European Central Bank and currency areas, subject to strict conditions and creeeze a
procedure by which to achieve these goals.
The European Council has commissioned a report on the economic and Monetary
Union (EMU) which is written by a Committee of experts chaired by Jacques Delors. The
study, baptized "Delors Report", presented in detail a plan in three stages of EMU,
reminiscent of Werner Plan, in the framework of the european Summit in Madrid in June
1989.
Single European Act, expanding the perspective of a single market and German
proposals for liberalisation of capital within the comunitii, but especially France and Italy,
have provided an important impetus to initiatives relating to Economic and Monetary
Union in the first half of 1988. The Delors report was written in a period of temporary
peace in transatlantic relations, monetary.
There is no doubt that this conflict was the global monetary avantgarde strategies in
terms of European monetary integration.
The disintegration of the Soviet Union and the unification of Germany played a key
role in intergovernmental policies during negotiations held around the Maastricht
agreement. European Governments have sought to tie the unification of Germany in the
West and Germany sought to demonstrate engagement towards Western Europe. The
4

European Union and monetary integration have become the main means of achieving this.
German unification had a double impact over monetary integration: while it was created a
"window of opportunity" by securing formal arrangements, economic consequences of
unification has made even more difficult the task of the European Governments to
harmonize economic policies until the required degree of stabilisation of exchange rates.
Thus, although the vast changes in the political structure of the international system have
affected the monetary integration, they have reduced both directions over the medium
term. Transatlantic relations on the monetary problems continued to nvrjbeasc and more
European Governments against each other.
Although the Maastricht Treaty came into force in November 1993, the prospects
for EMU were shaded from the currency crisis succedarea 1992-1993 which culminated
with the widening of lanes proposed by ERM 15%.
Thus, European Governments were now engaged in a profound process of test of
compliance with the convergence criteria needed to warm the EMU, as outside the scope
of the Treaty. The European Monetary Institute was established and located in the financial
centre of Frankfurt, Germany, with the purpose to prepare the transition to the end of the
third stage of Monetary Union. History of European monetary integration demonstrates
that, although it would be appropriate to call the belligerent American policies in this
regard, however strong American pressure reinforced involvement of Europeans in
fulfilment of EMU project.

References:
Miron D. Economia Uniunii Europene, Ed. Luceafrul, Bucureti, 2000
Silasi G. Integrarea monetar european ntre teorie i politic, Ed. Orizonturi
Universitare, Timioara, 1998
Stiglitz J. E. Mecanismele globalizrii, Ed. Polirom, Bucureti 2008
Suta N. - Integrarea economic european, Ed. Economic, Bucureti, 1999
Vaubel R. Monetary integration theory, n vol. Surveys in economics,
International Economics, Longman, London & New York, 1988
*** - www.eu4journalists.eu/index.php/dossiers/
*** - www.eucenter.org
*** - www.euractiv.com
*** - www.europa.eu.int
*** - www.exegens.com

5

The impact of European economic integration on local development of Vlcea County

Ph.D. Student Isabella - Cristiana Sima, Ph.D. Student Camelia - Aurelia Marin, Ph.D.
Professor Alina Voicule and Ph.D. Professor Mihaela Albici

University Constantin Brncoveanu, Piteti, Romnia, i_onescu@yahoo.com

Abstract: Europe, a continent in constant motion, is always in front of all new and new
challenges. European Union, this form of regional economic integration and has had a major
impact on its member states and beyond. Romania's entry into the European integrationist
organization was a challenge for both our country and for the European Union. Analytical
approach in this paper aims to highlight on the one hand the impact on our country of the
European Union, on the other hand, how the accession of Romania and has poured effects on
local development of Valcea County.

Keywords: economic integration, European Union, local development, effects,
econometric analysis

1. Introduction
In the theory of economic
integration have developed in recent
decades, while integrating the development
phenomenon in Western Europe and
influenced by the different mathematical
models designed to quantify the impact of
economic integration on economic entities
participating in an integrated area.
Using specific parameters, they aim
to reflect how the economic integration in
various forms and degrees, ranging from
free trade areas and customs union
formation and reaching the single market
and monetary integration, put their mark on
the scale of production, employment of
labor, the change in income and living
standards, ultimately the pace and intensity
of economic growth.
The literature presents a number of
theories and models of economic
development, a phenomenon generated by
the complexity of the problems of
underdevelopment, and the efforts of many
countries to overcome this situation, the
trends of economic and political
emancipation of the industrialized countries
and the bottlenecks that can occur in the
development of industrialized countries in
question.
Economic development requires regional or
local economic capacity and responding to
changing economic, technological, social,
etc..
In this respect, some theories focus
on internal factors (endogenous) and others
emphasize the importance of external
factors (exogenous). In this situation, there
should be an analysis of the two forms of
development. Exogenous development
strategies and policies aimed, in particular
employment problems and the support of
new business, while incorporating
endogenous development in the broadest
sense, factors that may contribute to local
economic development: material resources,
including those offered by the environment,
public utilities, etc. ..
2. Quantitative analysis on the
impact of European economic
integration
The simple econometric models are
1
set up in order to estimate the effects of
trade liberalization on partner countries,
based on five factors: GDP per capita in
both countries, the population of the
countries involved and the distance between
them. Some models, such as developed by
E. Helpman and P. Krugman, taking into
account the degree of liberalization or
protection.
But, to be presented such a model is
necessary to highlight various factors
involved in the complex process of
integration. They can be grouped in a first
phase into two broad categories:
a) According to the three levels are:
- Factors determining the Member;
- Determinants internationally;
- Factors determining the
supranational level.
b) Depending on their nature they
are:
- Economic;
- The social nature;
- Political.
To show how important these
factors were and are for European
integration, and how interconnected are we
chose to study an econometric model based
on the degree of correlation between the
evolution of employment in the EU and
developments inflows EU direct investment
and GDP per capita (calculated at
purchasing power parity), taking into
account the fact that the Union has been in
constant expansion. In an attempt to make
the results of this analysis is as relevant
time period is chosen between 2000 and
2009, the European Union as being found
in three forms: EU15, EU25 and EU27.
The method used in this process is
multifactorial regression. Thus, structural
econometric model form used is as follows:
OFMUE=
0
+
1
*DIUE +
2
*PIBUE +
t
, where:
- OFMUE is labor employment
(employment) in the European Union;
- DIUE is direct investment inflows
into EU countries from the extra-EU
- PIBUE is GDP per capita in the
European Union.
The data used in this analysis were
collected from the Eurostat website.
Table 1
Annual values of factors

Year
OFMUE
(thousand pers.)
DIUE
(million )
PIBUE
( / pax.)
2000 209874 188450 19100
2001 211860 145867 19800
2002 212635 126567 20500
2003 213379 125323 20800
2004 214812 58373 21700
2005 216843 129375 22500
2006 220390 229000 23700
2007 224357 411400 25000
2008 226448 198700 25100
2009 222305 221700 23600
Source: Table compiled by author based on data collected from the Eurostat website and the
sites and http
http://epp.eurostat.ec.europa.eu/portal/page/portal/balance_of_payments/data/main_tables :
/ / epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-10-029/EN/KS-SF-10-029-EN.PDF
Data from 2000 are for the EU-15, 2001-2006 and 2007-2009 for the EU-25 EU-27
For 2009 data are available for the first quarter

To show that this model is valid and
to generate conclusive results have
conducted a series of statistical tests. Thus,
a first validation of the model is that the
2
number of observations to be larger than the
parameters. In this case, there are a number
of 2 parameters and 10 observations, so we
choose the model is valid.
Entering values estimated using the
method of least squares in the model, we
have the following equation:
^ ^ ^ ^
OFMUE =
0
+
1
*DIUE +
2
*PIBUE
= 159831,7 +
0,003*DIUE + 2,566*PIBUE
(4366,96) (0,218)
(0,0049)
In this model there is a strong
information held by two factors. To
measure the intensity of the relationship
between variables we used multiple
correlation coefficient R:
R = R
2
= R
squared
= 0,970630 =
0,9852
From this we can deduce the
following things:
- R shows a strong connection
between endogenous variable, employment
in the EU work with FOTA (OFMUE) and
explanatory variables: the level of EU direct
investment (DIUE) and GDP per capita
(PIBUE);
- Because Rsquared is 0.970630
(very large), this shows us that the
information is explained at a rate of 98.52%
by selected factors.
Beta coefficients significantly
different from zero, which is a good sign
for test heteroscedasticitate and
employment between the EU and direct
investment, gross domestic product that is a
positive proportional relationship. Thus, we
see that if the EU direct investment inflows
increased by 1 million, the employment
of the workforce increase of 0.003 times.
Accordingly, if GDP per capita in the EU
increase by 1 / person. When the
employment of the workforce will increase
by 2566 times.
To test whether the model errors are
homoscedasticitate the White test envelope.
In this case, its value being 8.75> 2 value
for table (95%, 2), 1.96, one can say that if
this model there heteroscedasticitate errors,
so they are homoscedastice.
To determine whether the three
variables is linear or nonlinear dependence
is drawn diagram "cloud point".
It is noted that a higher value direct
investment inflows to achieve greater
employment work, although this increase is
not very spectacular. From the second
graph shows that an increase in GDP per
capita in the EU will lead to greater
employment of labor, and this increase is
quite linear and significant.
To test the validity of estimate
coefficients using t-Student test. According
to this test result that:
- The coefficient of DIUE t
calc
.<t
tab.

resulting in the value of this coefficient
does not differ significantly from 0;
- The coefficient of PIBUE we t
calc.

> t
tab.
resulting in the value of this
coefficient varies smnificativ 0.
To check for autocorrelation errors
Breusch-Godfrey test can be applied. For
this take a number of laguri equal to 2.
After analyzing the results we see
that the value of statistics F-statistic =
0.636358 autocorrelation shows a certain
bias, indeed, quite small.
By checking the normality
assumption we obtain the following data:
H0: Skewness = 0, Kurtosis = 3,
resulting in the asymmetry = 0, flattening =
3, so the distribution is normal
H1: distribution is not normal.
In this analysis we have p-value =
0.623122, so the error we make by rejecting
the null hypothesis is high, so that we can
not reject. Therefore, we accept the
hypothesis that the residues (errors) are
normally distributed.
From this analysis to study the link
between social integration factor and two
economic factors in this process, that
process of European integration is not only
important from the perspective of
traditional models of economic growth, but
also in terms of increasing the role of
human capital, social. Although the link
between employment in the EU
3
employment and direct investment inflows,
namely GDP per capita is very strong that
there is not neglected. Thus, the greater the
inflow of direct investment in the EU, the
more chances of creating new jobs, thus
increasing the number of employees. This
investment comes mainly from the
multinationals, which by their activity
beyond national borders, which required
creating a suitable space. This complements
the fact that The European Union has
incorporated a number of countries, the
stronger she gets her credibility on the
international scene and the economic
increase (proved by the fact that currently
stand in the integration process has EU
major world trading power).
3. Vlcea County econometric testing
development on simultaneous equations
models
Economic development requires
regional or local economic capacity and
responding to changing economic,
technological, social, etc..
An econometric model through
which explain the behavior of a single
endogenous variable depending on one or
more explanatory variables is insufficient to
analyze the economic development of a
county. Thus, a method used in this respect
is the simultaneous equations models
(SEM).
The proposed model includes
statistical variables which have
interdependence.
The proposed model and its
parameters are also found, also called
regression coefficients, real and unknown
quantities that appear in the model with
variables in different expressions.
Parameter estimation process and subject to
statistical testing.
The model seeks to quantify the
influence of the main indicators for
determining the economic, social,
demographic and spatial-urban, in the
Valcea county, and conditioning at this
level of variables related to: business
development (total number of companies ),
gross domestic product (demographics,
population density, life expectancy), social
comfort (the amount of heat distributed in
the municipality, the number of existing
homes), etc..
The structure includes nine
variables, 6 of which are exogenous, and 3
are endogenous. All variables are calculated
in the Valcea county. The symbols used and
their significance are presented in Table 2.
Table 2
Symbols used in the model variables and their meanings
Simbol Semnificaia Natura variabilei
AGEN_ECON Total number of companies Exogenous variables
APA Total amount of water distributed
(thousand m
3
)
Exogenous variables
a
1,
a
2,
a
3,
a
4,,
a
n
Coefficient determined econometric
DENSITATE Population density (inhabitants per km2) Endogenous variable
EN_TERM The amount of heat distributed (Gcal) Exogenous variables
GAZE The volume of natural gas distributed
(thousand m
3
)
Exogenous variables
LOCUINE Number of existing housing Endogenous variable
PIB_LOC GDP per capita Endogenous variable
OMERI The total number of unemployed Exogenous variables
VEN_PROP Revenues of local budget Exogenous variables
The model consists of a block of
three equations, all behavior, and
emphasize the provision of utilities,
housing issues in relation to the number of
businesses, the unemployed and the local
GDP.
Equations that make up this block
has the following form:
LOCUINTE = a11 + a12*AG_ECON +
a13*PIB_LOC + a14*SOMERI
DENSITATE = a21 + a22*EN_TERM +
a23*GAZE + a24*APA
4
PIB_LOC = a31 + a32*LOCUINTE +
a33*VEN_PROP
The model is solved by the method
of least squares in two stages. According to
the method chosen in the first stage (stage)
is the method of ordinary least squares
(classical) equations for each model, thus
obtaining the estimated parameters vectors
a1, a2, a3, ..., ag. Estimators thus obtained
are introduced into the equations to obtain
values lower area adjusted for each of the
endogenous variables from changes in the
exogenous variables.
In the second stage, are replaced by
statistical values of model variables such as
endogenous, with values adjusted
independent of disturbances in the first
phase and the method of least squares to
estimate parameters of each equation.
Solving the model was possible
using the software package EViews. The
values of coefficients of model equations,
based on statistical data Valcea county, in
the period 2005 - 2009, together with
significance tests are presented in the
following table.
System: UNTITLED
Estimation Method: Two-Stage Least Squares
Date: 04/10/11 Time: 12:37
Sample: 1 5
Included observations: 5
Total system (balanced) observations 15
Coefficient Std. Error t-Statistic Prob.
C(1) 165852.4 8763.734 18.92486 0.0000
C(2) 0.029774 0.618055 0.048173 0.9639
C(3) 0.372615 0.580646 0.641725 0.5560
C(4) 0.077226 0.038179 2.022749 0.1131
C(5) 120.1546 344.2145 0.349069 0.7446
C(6) -0.000363 0.001913 -0.189861 0.8587
C(7) 0.000266 0.001595 0.167039 0.8754
C(8) 0.000195 0.002995 0.064979 0.9513
C(9) -271999.4 21439.92 -12.68659 0.0002
C(10) 1.637057 0.126743 12.91640 0.0002
C(11) 5.570134 0.868640 6.412474 0.0030
Determinant residual covariance 0.000000
Equation: LOCUINTE=C(1)+C(2)*AG_ECON+C(3)*PIB_LOC+C(4)
*SOMERI
Instruments: AG_ECON VEN_PROP SOMERI C
Observations: 5
R-squared 0.996563 Mean dependent var 172713.0
Adjusted R-squared 0.986253 S.D. dependent var 1379.345
S.E. of regression 161.7265 Sum squared resid 26155.45
Durbin-Watson stat 3.607265
Equation: DENSITATE=C(5) +C(6)*EN_TERM+C(7)*GAZE+C(8)*APA
Observations: 5
Adjusted R-squared -2.687225 S.D. dependent var 1.920937
Equation: PIB_LOC=C(9)+C(10)*LOCUINTE+C(11)*VEN_PROP
Observations: 5
Adjusted R-squared 0.996836 S.D. dependent var 3256.010
5
The model used manage to make an
eloquent picture of developments and
correlations important factors in local
development of Valcea county.
Testing parameters was carried out
in stages, and finally validate the model
they built.
However, the results are consistent
with economic theory and practice area
specific analysis. The estimators obtained
by replacing the coefficients with
parameters converges after several
iterations and has the following form:
LOCUINE=170015.3-
0.264576*AG_ECON+0.649410*PIB_LOC+0.
090729*SOMERI
DENSITATE = 42.76957 + 6.68E-
05*EN_TERM 9.26E-05*GAZE +
0.000846*APA
PIB_LOC = -268526.7 +
1.616527*LOCUINTE +
5.689826*VEN_PROP
Regarding the relationship between
variables to the model, we find that their
specification is supported both by
theoretical arguments and practical
arguments. The benefit estimates are based
primarily on the fact that they allow the
evaluation of influences and their intensity.
It is noted that the estimation
method used, that the method of least
squares, minimizing the sum of the squares
makes a deviation for each series
separately.
By analysis using econometric tools
to a number of local statistical indicators, it
can cause some or univocal correlation and
mutual determinations between variables.
The model presented uses a series of
variables that reveal a pattern of local
development, but it can also be used to
forecast economic-social phenomena of the
territorial-administrative units. However, to
highlight this model can be completed with
a series of equations definition and balance
sheet.
For a better relevance of the data
obtained requires a broader base of
statistics, a measure that could be
implemented in a near future.
Data from this analysis could be of
real help local authorities to improve
existing development strategies in the
county.
4. Conclusions
The main conclusions stemming
from the application of models are: the
level of development partners is closer, the
more intense commercial relations that
develop cross-sector, while countries with
different development levels will record an
increase in flows bilateral and multilateral
interindustry, increased trade flows within
the area will be greater the more developed
economies in the past parts trade, so they
know each other markets, while the cost of
transport is an important part, so average
total cost and hence the selling price,
geographical proximity will be a
contributing factor in the trade area.
Since our country is a member of
the European Union, attracting European
funds should be our number one priority,
especially in a region as Valcea County.
Thus, we started from a general case
that we have established the benefits of
belonging to the European Union, and
finally to a particular case, that of a county
in Romania.
It is noted that in general and to
particular cases, geographical proximity
between countries and between counties of
a country that could be beneficial, provided
that the system of government be fair and
transparent one.

6
References
[1] Balassa B., Towards a Theory of Economic Integration, Homewood Ilinois, Irwin, 1961
[2] Dumitru I., Adoptarea mai rapid a euro de ctre Romnia - de la dorin la putin, la
http://mpra.ub.uni-muenchen.de/18612/1/MPRA_paper_18612.pdf, 2009
[3] Matei L., Dezvoltare economic local, Editura Economic, Bucureti, 2005
[4] Matei L., Managementul dezvoltrii locale, Editura Economic, Bucureti, 1999
[5] Matei L., Managementul public, ediia a doua, Editura Economic, Bucureti, 2006
[6] Miron D., Economia Uniunii europene, Ed. Luceafrul, Bucureti, 2002
[7] Anuarul Statistic al judeului Vlcea 2010
[8] http://ec.europa.eu/index_en.htm
[9] www.insse.ro/cms/files/eurostat/adse/microdata.htm
[10] http://www.inforegio.ro/user/File/PND_2007_2013.pdf
[11] http://por.adroltenia.ro/index.php
[12] http://www.revistacalitateavietii.ro/2008/CV-1-2-2008/03.pdf
[13] https://statistici.insse.ro/shop/index.jsp?page=tempo2&lang=ro&context=25
7
FINANCIAL-ACCOUNTING SYSTEMS INFORMATION: ROLE OF MODERN
INFORMATIC TECHNOILOGIES IN THE FIELD OF FINANCIAL-ACCOUNTING

Ph.D. Candidate Teching Assistant Codreanu Diana-Elena, Ph.D. Associate Professor
Rdu Carmen, Ph.D. Leturer Albici Mihaela, Ph.D. Lecturer Teselios Delia

Constantin Brancoveanu University, Piteti, Romania, codreanudia@yahoo.com,
c_radut@yahoo.com, mturmacu@yahoo.com, delia_teselios@yahoo.com

Abstract: Organisations ability to adapt to the future economys requirements depends on the
development of new management type relying on scientific knowledge and creation values. Thus,
knowledge-based organisations are the collective intelligent players of information society and play a
significant role to set the latter as knowledge society belonging to contemporary actuality.
The purpose of the present paper lies in the fact that due to the progress of information and
telecommunication technology in the current context, the access to data and information is
increasingly easier and therefore there is the urge to know more and more and be able to fully use the
information one has at a certain time.
The financial-accounting system plays an important part in any organisation as it involves the
number of activities ensuring the necessary financial resources to reach organisational targets and
also providing the value inventory of its entire patrimony status. Additionally, it economically reflects
all the other activities taking place in an economic organisation.
Consequently, the aim of this paper is to emphasize the role of and major benefits brought
about by information technology upon an organisations financial-accounting data.

Keywords: informatic/information technology, data, data mining, OLAP,
financial-accounting system

1. Introduction
The present survey aims at focusing both on
the impact and role of information
technology upon data in the financial-
accounting field. The field of financial-
accounting data has a special role in any
economic organisation and requires special
attention as it provides the financial
resources needed to achieve the
organisations goals and also to keep track
of its entire patrimony status value.
Moreover, financial-accounting
performance economically reflects all the
other activities developing within any
economic organisation.
Information technologys insertion into
economic performance, especially the
financial-accounting field, has led to the
belief that organisations have become less
vulnerable and much more easily adapt to
the changes often occurring in the business
environment.
The importance of this survey ensues from
its objectives, namely introducing some
informatic solutions suggested by its
authors with respect to the organisation of
financial-accounting data under the form of
data warehouses and data analysis solutions
such as Data Mining and OLAP (Online
Analytic Processing). In order to achieve
their goals, the authors undertake
investigative research regarding the
theoretical-methodological approaches of
informatic solutions for the field of
financial-accounting data.
2. The field of financial-accounting data
At present, the field of financial-accounting
data includes a number of modern, highly
performing tools which help collect,
process, store and use the respective
financial-accounting data in order to
accomplish complex, high quality analyses
and predictions meant to ensure the good
running of a company. Therefore,
subsequent to the growth of information
technology, organisations must quickly
adapt to the survival in the new global
informational environment and in order to
succeed, they should meet the following
requirements: flexibility, openness,
perceptiveness to integration and
globalisation.
The impact of information technology upon
the data in the financial-accounting field
can be divided into two categories:
The ability to achieve more detailed
analyses, useful in management
performance. That leads to choosing the
best decisions and identifying the most
adequate business opportunities (for
example, by means of the Data Mining
technique).
The timely identification of unfavourable
directions, thus ensuring management
performance with a view to exerting a
better control upon a company.
Thus, the main advantages received as a
result of computer programming in the field
of financial-accounting data are the
following [7]:
- the reduction in the number of errors
made during documents preparation;
- the set-up of high-level processing of
data;
- the increase in datas processing speed;
- the performance of financial diagnoses
automatically and the interpretation of
results;
- the make-up of electronic instrument
panels showing a variety of indicators and
great ability for synthesis and
characterisation.
3. Role of informatic systems during
financial-accounting datas processing
The emergence of computer programming
in the field of financial-accounting data first
brought about the invoicing activity and a
few related operations. In any economic
unit, the activity of data collection and
processing and results obtaining relies on
procedures regulated by the law (such as
the structure and components of account
plans) or by internal conduct (such as
appointing the person and time to launch a
data archiving operation).
The results obtained after the processing of
financial-accounting data can be used by all
management levels in their decision
making, but it should be mentioned that the
same information can be perceived at
different values by different people. Those
who are proficient in accounting pay a more
special attention to financial reports than
those who are not so skilled in the field.
Financial-accounting information must
fulfil the following traits[6]:
Intelligibility means information quality of
being easily understood by users, but on
condition the users have enough knowledge
of accounting, economic affairs, economic
activities.
Relevance - accounting information is
relevant when it essentially influences the
economic decisions of users, making it
possible for the latter to assess past, present
and future events. In order to be pertinent,
accounting information must be received by
users at the right time, neither sooner nor
later, when it is no longer relevant.
Comparability accounting information
must be comparable throughout the time so
that according to older information and
with the help of the new one, economic
patrimonys trends and performance could
be set. Users should make a comparison of
the accounting information comprised in
various financial circumstances in order to
set the organisations direction from the
financial perspective.
Credibility information has credibility
when it does not contain major errors and
helps represent reality in a truthful manner.
Information is credible when it does not
lead to erroneous interpretations.
In an organisation, the role of an informatic
system consists in providing important
information referring to: revenues,
customer monitoring (outstanding issued
invoices), dynamics of money collections
and payments, cost accounting (cost
calculation), spending, actions efficiency
etc. The information supplied can be shown
in various forms, both electronically
(electronic documents, electronic
presentation sheets, electronic notifications
- e-mail, pictures, videos, audios etc.), and
classically (on paper or projector films
etc.). The most important aspect of
information supply is that it should be
timely transmitted, correct to all user
categories of accounting information
(managers, personnel belonging to other
subsystems). If there is a modern informatic
accounting system, it can automatically
receive the data provided by other
subsystems.
A traditional informatic system mainly
envisages the collection, processing and
receipt of financial-accounting outcomes
needed to be disseminated outside a
company, for instance to the Ministry of
Finance, creditors, investors etc. A modern
accounting systems goal is to work on non-
financial information as well as financial
data and information. As a general rule, any
part of an economic entity (Personnel,
Production) has a separate informatic
subsystem and each processes its own data.
However, this method has the disadvantage
of certain troubles such as the duplication
of data on distinct storage spaces, the
separate collection of the same data. At
present, there is increased focus on
integrating their functions within a large
data base or a data warehouse. Such
integration allows managers and to a certain
extent outside parties to get the necessary
information for planning, decision making
and control, either information for
marketing, accounting or other financial
areas of an economic entity. In order to do
that, great software manufacturers have
adapted and developed programmes that
link all the informatic subsystems within a
single application.
Finding integration solutions of
informational sources diffused within an
enterprise to collaborate with the financial-
accounting system has become an urge.
Accountants now have new information
means which help them collect, process,
administer and analyse both concrete
information resulted from certain processes,
and that referring to knowledge,
enterprises intangible assets which are
available due to the following applications:
Intranet, Knowledge Bases, Data Mining,
especially Electronic Data Interchange.
4. Role of modern informatic
technologies in the field of financial-
accounting data
In order to support organisational decision-
making processes, various modern
technologies are used with the role of
helping analyse and interpret financial-
accounting data such as Data Warehouses
(DW), Data Mining (DM), or OLAP
(Online Analytical Processing). These
technologies and applications are part of the
concept named Business Intelligence.

Production
Accounting
Sales
Storage, data
centralisation
Extract,
Transform and
Load (ETL)
Data
Warehouse
Data analysis
technologies
Data Mining
OLAP
Queries
Reports
Figure 1: Business Intelligence in a companys decision-making process

Although informatic technologies have
evolved lately, there is an ongoing issue of
data centralisation because an
organisations decision makers are facing
huge amounts of data (the higher the
business level, the higher the data amount)
and classic methods are becoming less
effective.
Thus, warehouses have emerged which,
according to W.H.Inmon, are a subject-
oriented, integrated, time-variant and non-
volatile collection of data in support of
managements decision-making process [2].
A Data Warehouse is a data base
developed with the purpose to meet the
demands of a business intelligence system.
From the perspective of its structure, a data
warehouse integrates a large number of data
categories coming from manifold external
sources. Data warehouses regularly have
high storage ability of terabyte scale and
store historical data.
A data warehouse provides an integrated,
centralized data source that contains
essential information about the company`s
activity in many existing data sources. [3]
A data warehouse goes beyond traditional
information by focusing on topics of
enterprise performance such as: customers,
sales, profits etc. These topics require
information from diverse sources in order
to supply a complete field image instead of
concentrating upon the processing of daily
operations and transactions in an
organisation, therefore a data warehouse
focuses on modelling and analysing the
data in order to make decisions[1].
Relying on the data integrated in a data
warehouse, complex financial-accounting
analyses can be made so that to find out the
level of an organisations exposure to risk
factors. For instance, banking units have
the chance to more efficiently manage their
loan and debt portfolios; the loan
department shall be concerned with
managing the risk exposure of non-
profitable sectors and industries which is
called risk management.
Moreover, if revenues and costs are shown
in enough details, then the data stored in a
data warehouse can help analyse
profitability per customer, sales agent,
products, time periods, area, or other
dimensions requested by users.
Large volume of data in the data store
requires the use of special tools and data
mining technologies such as multi-
dimensional dynamic analysis, statistical
forecasting methods and mathematical
methods applied to a large volume of data.
Statistical analysis of data and retrieval of
knowledge found in such repositories called
data mining.[4]
As a conclusion, it can be said that data
warehouses provide a specific vision for a
specific topic, avoiding those data which
are useless when supporting decision
making.
After the data have been stored in a data
warehouse, they are subject to analysis and
interpretation by means of modern tools
also known as Data Mining. The main goal
of data mining is not data refinement, but
something more, namely the discovery of
new knowledge on which decision
making could rely and therefore use tools
from the field of statistics, artificial
intelligence techniques, and data base-
related techniques (OLAP queries).
In Shapiros opinion, data mining is the
technique to extract from data some
informational contents unknown until that
time. Other specialists believe that Data
Mining defines exploration and analysis of
large data amounts using automated or
semiautomated means in order to identify
certain significant relations among
them[5].
The main contribution of data mining
within a decision-making process is its
ability to facilitate the analyses of financial-
accounting data. Yet, it is worth
remembering that the success of such a
process also depends on users intuition and
ability to improve the information they
receive from the system and to properly
synthesize the rules of data filtering.
Consequently, the principal objective of
data mining is to discover data associations
or models, correlations or trends, resorting
to statistical and mathematical techniques
and decision makers shall choose the
optimal decision from among the total
information they get.
In order to fulfil this objective, data mining
applications have three function categories:
Functions of data aggregation: these
functions are designed for the primary use
of data mining and involve the
identification of data groups which describe
similar features or components;
Functions of data ranking: these functions
are used to classify data according to their
meaning and importance in relation with a
certain decisional circumstance;
Query functions provide users with the
opportunity to request the supply of certain
outcomes of data processing taking account
of a number of requirements.
Data mining is also used to analyse data in
OLAP-type multidimensional architectures
or to turn data into knowledge within the
applications belonging to KMS scope
(Knowledge Management Systems).
Thus, the data ensued and processed from
various sources are stored in data
warehouses and then, by means of OLAP
and Data Mining technologies, the data are
transformed into information shown to end-
users in the form of reports.
OLAP has quite quickly become the basis
of intelligent solutions and one can
especially mention highly performing
management for the business environment,
planning, resource allocation, budget
allocation, prediction achievement,
financial reports drawing up, data and
reports discoveries from data warehouses.
OLAP is a way to furnish answers to the
complex queries of data bases. It is part of
what is called Business Intelligence along
with ETL (Extract, Transform and Load),
with relational reporting and data mining
[8].
The notion of OLAP emerged in specialized
literature in 1993 thanks to Codd, when the
eighteen function rules typical of such
technology also came into public notice.
From the very beginning, Codd made a
clear distinction between multidimensional
systems technology and transactional
systems technology. As far as the term
definition is concerned, most specialists
believe that Codds denotation is the most
concise, namely a category of software
instruments which allows analysts,
managers and directors to understand the
datas essence by the rapid, consistent and
interactive access to a wide range of
informations potential visions which have
been obtained by transforming primary data
so that to reflect an enterprisess true
dimensions, as they are perceived and
understood by users.
Since OLAP tools work with
multidimensional data models, perform
complex analytical queries on the spot and
have a high processing speed, some
specialists have suggested they should
rather be called FASMI (Fast Analysis of
Shared Multidimensional Information).

5. Conclusions
It can be asserted that nowadays almost all
large organisations have Business
Intelligence-type applications, of which it is
worth keeping in mind the information
organisation in the form of data warehouses
and data processing using Data Mining or
OLAP techniques. Under other
circumstances, some organisations have
developed Groupware platforms which
provide team work as well as the ability to
organise efficient collaborative activities.
The use of informational technologies in
the field of financial-accounting data brings
about a number of advantages to an
organisation, in other words:
the significant increase of employees
productivity;
the improvement of decision making;
the enhancement of performance.
The techniques meant to analyse and
visualise data mainly envisage the control
of certain hypotheses whereas data mining
aims at finding answers to questions such
as: Which are the main causes generating
this phenomenon? or How can certain
outcomes be reached?.
In order to accomplish its goals, Data
Mining technology uses several strategies.
A data mining strategy helps define an
approach solution to set matters right. Any
technique used by data mining resorts to a
strategy.
OLAP warrants users capability to analyse
several dimensions on the spot with the
information needed to make the best
decisions.
A data warehouse stores information with
the purpose to answer questions such as:
Who...? and What...?. OLAP
technology relies on a multidimensional
view to be able to answer questions such as:
Why...? and What if...?.
Accordingly, the conclusion may be that
effectiveness and efficiency in the field of
financial-accounting data have grown
significantly due to the progress of
information technology which is about to
become more and more present once new
technologies have been developed and
applied.

6. References
1. Dinu Airinei, Data Warehouses, Polirom Publishing House, Iasi, 2002
2. Inmon, Harvey, Wiliam, Building the Data Warehouse, John Wiley and Sons, New York,
1996
3. Ion Lungu,Bologa Ana-Maria, Diaconita Vlad, Bara Adela, Botha Iuliana, Information
system integration, ASE Publishing House, Bucuresti, 2007
4. Ion Lungu, Bara Adela, Executive Information Systems, ASE Publishing House,
Bucuresti, 2007
5. Shapiro-Piatetsky Gregoty and Fayyad M. Usama, Advantage in Knowledge Discovery
and Data Mining, Washington, AAI Press, 1996
6. Teaciuc, Mihaiet et al., Accounting Basics, Eurostampa, 2000
7. Vasile Avram, Financial-accounting systems information, Dacia Europa Nova Publishing
House, Lugoju, 2001
8. http://www.marketwach.ro/articol/816/O_abordare_practic_a_bazelor_de_date_OLAPA
practical approach to OLAP databases accessed 10 January 2012 ,

ECONOMETRICS A LABOUR INSTRUMENT IN DECISION SUBSTANTIATION

PhD. Lecturer, Delia Teselios, PhD. Lecturer, Mihaela Albici, PhD. Lecturer, Cristina
enovici, PhD. Lecturer, Diana Codreanu

University Constantin Brncoveanu, Piteti, Romnia, delia_teselios@yahoo.com

Abstract: Due to its wide range of applicability, Econometrics, as a synthesis between Economics,
Mathematics and Statistics, has spectacularly been developed in the last years. This paper aims to
present an econometrical analysis of the replacing decision for the production equipment of link belts
in an ammunition factory, for 14,5x114 mm gauge cartridges used by KPV and KPVT machine guns.
It is analyzed the case which, in time evolution function of the equipment value is linear and
decreasing, and the in time evolution function of the maintenance and repairing costs is linear and
increasing.

Keywords: linear function, empirical points method, decision

1. Introduction
In recent years, it is seen an increase
in use of econometrics methods in fields
such as medicine, biology, demography, the
accounting system, financial system,
military, etc.
The term econometrics was
introduced in 1926 by Ragnar Frisch,
Norwegian economist and statistician, and
also a Nobel Prize winner in 1969 together
with Jan Tinbergen. Although quantitative
study of economic phenomena is much
older, R. Frisch considered that he needed a
new word to describe how to use and
interpret data in economics.
The field changes constantly as new
tools and techniques are added, these days
econometrics being an indispensable tool of
economic theory and practice, representing
the general method for quantitative
investigation of economic phenomena and
processes.
2. Econometrics analysis
This paper aims to present an
econometric discussion on a situation
occurred at decision making level in an
ammunition factory.
Thus, in an ammunition factory was
decided the replacement of the old
production equipment of link belts, for
14.5x114 mm gauge cartridges used by
KPV and KPVT machine guns by a new
equipment, more efficient in terms of
production capacity. The price of the new
equipment is that of 20 mill. Euro. The
problem that arises is to estimate the
optimum time for the replacement of the
new equipment knowing that its nominal
value decreases, while maintenance and
repair costs increase.
After drawing up the technical and
economic documentation resulted the
following data:

Table 1. The evolution in time of the production equipment value
t year of use Value (mill. Euro)
t=1 18
t=2 15
t=3 13
t=4 10
t=5 5

Table 2. The evolution in time of the maintenance and repair costs
t year of use Value (mill. Euro)
t=1 0.6
t=2 1.2
t=3 1.5
t=4 1.8
t=5 2
t=6 2.4

We perform the following notations:
0
P = the purchase price of new
equipment
t
x = the function of time evolution
of the equipment value
t
y = the function of time evolution
of the equipment maintenance and repair
costs
We realize the attached correlograms
to data in Table1, respectively Table 2.

Figure 1: The evolution in time of the production equipment value

Figure 2: The evolution in time of the maintenance and repair costs

From the above charts, we see that time
evolutions for the equipment value and for
the equipment maintenance and repair
costs can be approximated by a straight
line.
Thus, for the time evolution of the
value of production equipment, we use
monotonically decreasing linear function:
t
u t a a
t
x + =
1 0
, n t , 1 = (1)
and for the time evolution of the
equipment maintenance and repair costs
we use monotonically increasing linear
function:
t b
t
y = , n t , 1 = , (2)
where represents the number of years
for the use of the equipment.
n
Therefore, all the expenses
performed (purchase, maintenance, and
repair), can be expressed by a function of
the following form:
t
y t x P P
t
Z + = ) (
0 0
(3)
Denoting by
t
z average annual cost
of operating the new equipment on a
period of years, the optimum time of
replacing the new equipment is determined
by the relationship:
n
t
z
t
min
(4)
where
t
t
y t x P P
t
t
Z
t
z
+
= =
) (
0 0
(5)

Table 3. The analysis of the resale value and that of the equipment devaluation in time
t year of use The equipment resale
value (mill. Euro)
The equipment
devaluation in time
t=0 20 1
t=1 18 0.9
t=2 15 0.75
t=3 13 0.65
t=4 10 0.2
t=5 5 0.25

To calculate
t
z we must determine
and parameters in relationship (1) and
parameter in relationship (2).
0
a
1
a
b
For this, we use the empirical points
method choosing, for determining and
parameters, the A(0;1) and B(4;0.2)
points.
0
a
1
a
Replacing moment t = 0 in (1)
parameter =1
0
a
Replacing moment t = 4 in (1)

1
4
0
2 . 0 a a =

8 . 0
1
4 = a
parameter =0.2
1
a
(6) t
t
x = 2 . 0 1
For determining parameter, with
the help of the empirical points method, we
choose C(5;2) point and replacing in
relationship (2) we obtain = 0.4.
b
b
t
t
y = 4 . 0 (7)
We return to the relationship (5) and
obtain:
4 , 4
4 . 0 ) 2 . 0 1 ( 20 20
=
+
=
t
t t
t
z

mill. Euro/year
Therefore, during the entire period of
the equipment use, the average annual cost
will be that of 4.4 mill. Euro/ year.

Figure 3. The average annual cost
3.Conclusion:
The fact that
t
z function
representing the average annual cost of
operating the new equipment does not
depend on time, leads to the conclusion
that replacing the new equipment could be
done at any time.

References
[1] Andren, T., Econometrics, Ventus Publishing ApS, 2007
[2] Greene, W., H., Econometric Analysis, Prentice Hall, 5
th
edition, 2003
[3] Kevin J Murphy, Econometrics, Encyclopedia of Business, 2
nd
ed., (Dev-Eco), available
from http://www.referenceforbusiness.com
[4] Tanasoiu, O., Iacob, A., I., Econometrie studii de caz, available from
http://www.biblioteca-digitala.ase.ro/biblioteca/model/index2.asp
[5]http://www.nobelprize.org/nobel_prizes/economics/laureates/1969/frisch-autobio.html

19
th
International Economic Conference IECS 2012 Program

19
th
International Economic Conference IECS 2012 - 1 -

19
th
International Economic Conference - IECS 2012

THE PERSISTANCE OF THE GLOBAL ECONOMIC CRISIS:
CAUSES, IMPLICATIONS, SOLUTIONS

SIBIU, ROMANIA
JUNE 15 - 18, 2012

FRIDAY, 15
th
of June

8:30 - 9:30 - Registration of participants at the "Aula Magna", "Lucian
Blaga" University, Sibiu, Lucian Blaga Street, No. 2A

9:30 - 10:30

- Opening remarks - Professor Liviu Mihescu Ph.D., Dean
- Welcoming speech - Professor Ioan Bondrea Ph.D., Rector
of "Lucian Blaga" University.
- Introduction of participants and the program, welcoming
remarks - Professor Dan Popescu Ph.D., H.C., Chairman.
11:00 13:45 - Papers presentation on Parallel Sessions at the Faculty of
Economic Sciences, Sibiu, Calea Dumbrvii, No. 17

14:00 15:00

- Lunch Break. Lunch at the Restaurant of the "Lucian Blaga"
University, Sibiu, B-dul Victoriei, No. 31

15.15 19.30

- Papers presentation on Parallel Ses sions at the Faculty of
Economic Sciences, Sibiu, Calea Dumbrvii, No. 17

After 20:00

- Gala Dinner at the "Dobrun" Restaurant, Sibiu, Dobrun Street,
No. 1
SATURDAY, 16
th
of June

9:00 10:00 - Conclusions, Official Closing Session at the Faculty of
Economic Sciences, Sibiu, Calea Dumbrvii, No. 17, Room
EM 9

After 10:00

- Visiting tour Mrginimea Sibiului. Lunch at Slite
MONDAY, 18
th
of June

9:00 17:00 - The International Session of the Students.

The organizers kindly ask the participants that the time for each paper should not
exceed 8 min.
19
th
International Economic Conference IECS 2012 Program

19
th
International Economic Conference IECS 2012 - 36 -

FRIDAY, JUNE 15, 2012
15:15 17:00 ROOM: E 41
SESSION TRAK PARALLEL SESSION 4.5. BAFSCP
SESSION CHAIR ORTEAN Ramona, SBRCEA Ioana, POPA Daniela

FISCAL POLICYS INFLUENCE ON ECONOMIC GROWTH IN THE EUROPEAN UNION
MIHAIU Diana Marieta, OPREANA Alin
RELEVANCE OF ACCOUNTING INFORMATION FOR THE MARKET VALUE OF A
COMPANY. CASE STUDY ON THE BUCHAREST STOCK EXCHANGE
MILO Marius Cristian, NICU Ioana, MILO Laura Rais
BUSINESS FAILURE PREDICTION FOR ROMANIAN SMEs USING MULTIVARIATE
DISCRIMINANT ANALYSIS
MOSCALU Maricica
THE BUSINESS MODEL AND FINANCIAL ASSETS MEASUREMENT
NICULA Ileana
LOCAL BUDGET CONSOLIDATION AS AN INSTRUMENT OF LOCAL AUTONOMY
EVIDENCE FROM ROMANIA
OPREA Florin, CIGU Elena
MARKET INFORMATIONAL EFFICIENCY TESTS AND ITS CRITICS: THE CASE OF
EMERGENT CAPITAL MARKETS
OPREAN Camelia, BRTIAN Vasile
POST-CRISIS EXCHANGE RATE ARRANGEMENTS IN EUROPE
ORTEAN Ramona, MRGINEAN Silvia
QUALITATIVE ANALYSIS OF THE SIGNIFICANCE OF CREDIT RATING
ORHEIAN Oana Mihaela
ACCOUNTING MODELS SPECIFIC TO THE INDEPENDENT EXPORT OF GOODS WITH
SIGHT COLLECTION
PALIU POPA Lucia
RURAL DEVELOPMENT POLICY IN ROMANIA IN THE CONTEXT OF REFORMING THE
COMMON AGRICULTURAL POLICY AFTER 2013
PUN (ARAMET) Georgeta, PUN (CIOBANU) Mihaela Cristina, CIOBANU Laura
CURRENT ISSUES OF FISCAL CONTROL IN ROMANIA
POP Ioan, MOLNAR Andra, GABAN Lucian
SELECTED ASPECTS OVER A STUDY ON FINANCING ASSETS USING FINANCIAL LEASING
IN SIBIU COUNTY
POPA Daniela, HALMI Mirela
FISCAL AND BUDGET POLICIES MAJOR COMPONENTS OF ECONOMIC AND SOCIAL
POLICY MIX IN ROMANIA AT PRESENT AND IN FUTURE
POPA Ionela, CODREANU Diana, ALBICI Mihaela
CREATIVITY VERSUS ILLEGALITY WHEN OPTIMIZING A COMPANYS FISCAL COST
POPA Mihaela
ACCOUNTANCY INFORMATION SOURCE FOR KNOWING THE ECONOMIC AND
FINANCIAL ACTIVITY
PUICAN Liliana, AVRAM Marioara
CREDIT RISK TRANSFER MECHANISMS IN THE EU BANKING SECTOR
ROMAN Angela, ARGU Alina Camelia
CREDITING THE AGRICULTURE - A PAST AND PRESENT CONCERN OF THE ROMANIAN
BANKING SYSTEM
SBRCEA Ioana Raluca
10

RURAL DEVELOPMENT POLICY IN ROMANIA IN THE CONTEXT OF
REFORMING THE COMMON AGRICULTURAL POLICY AFTER 2013.................... 618
PUN (ARAMET) GEORGETA .................................................................................................................................. 618
PUN (CIOBANU) MIHAELA CRISTINA ........................................................................................................................ 618
CIOBANU LAURA ..................................................................................................................................................... 618
CURRENT ISSUES OF FISCAL CONTROL IN ROMANIA ............................................ 626
POP IOAN ................................................................................................................................................................ 626
MOLNAR ANDRA ..................................................................................................................................................... 626
GABAN LUCIAN ....................................................................................................................................................... 626
SELECTED ASPECTS OVER A STUDY ON FINANCING ASSETS USING FINANCIAL
LEASING IN SIBIU COUNTY ............................................................................................... 632
POPA DANIELA ........................................................................................................................................................ 632
HALMI MIRELA ........................................................................................................................................................ 632
FISCAL AND BUDGET POLICIES MAJOR COMPONENTS OF ECONOMIC AND
SOCIAL POLICY MIX IN ROMANIA AT PRESENT AND IN FUTURE ....................... 643
POPA IONELA .......................................................................................................................................................... 643
CODREANU DIANA .................................................................................................................................................. 643
ALBICI MIHAELA ...................................................................................................................................................... 643
CREATIVITY VERSUS ILLEGALITY WHEN OPTIMIZING A COMPANYS FISCAL
COST .......................................................................................................................................... 648
POPA MIHAELA........................................................................................................................................................ 648
ACCOUNTANCY INFORMATION SOURCE FOR KNOWING THE ECONOMIC
AND FINANCIAL ACTIVITY................................................................................................ 654
PUICAN LILIANA ...................................................................................................................................................... 654
AVRAM MARIOARA .................................................................................................................................................. 654
CREDIT RISK TRANSFER MECHANISMS IN THE EU BANKING SECTOR ............ 661
ROMAN ANGELA ..................................................................................................................................................... 661
ARGU ALINA CAMELIA ............................................................................................................................................. 661
THE MANAGERIAL ACCOUNTING - A WAY OF PERFORMING FINANCIAL
MANAGEMENT IN ROMANIAN SMALL AND MEDIUM-SIZED ENTERPRISES .... 670
SABOU FELICIA ........................................................................................................................................................ 670
FINANCIAL INSTRUMENTS USED TO INCREASE THE ABSORPTION OF EU
FUNDS BEFORE AND AFTER EU ACCESSION, IMPORTANT INFLUENCE ON
ROMANIAN AGRICULTURAL POLICY............................................................................ 675
SASU GEORGIC ....................................................................................................................................................... 675
IONCEF CEZAR-SNDEL ............................................................................................................................................. 675
CHALLENGES OF OPERATING AND COMPLYING WITH THE UCITS IV
DIRECTIVE .............................................................................................................................. 686
SAVA CTLINA ....................................................................................................................................................... 686
RADU IOANA ........................................................................................................................................................... 686
MODELS OF PERSONAL INCOME TAX ........................................................................... 692
SAVA VALENTIN ....................................................................................................................................................... 692
TUREATC MANUELA VIOLETA .................................................................................................................................. 692
CREDITING THE AGRICULTURE - A PAST AND PRESENT CONCERN OF THE
ROMANIAN BANKING SYSTEM ........................................................................................ 698
643

FISCAL AND BUDGET POLICIES MAJOR COMPONENTS OF ECONOMIC AND SOCIAL
POLICY MIX IN ROMANIA AT PRESENT AND IN FUTURE

POPA I onela
Ph. D. Assistant professor, Faculty of Management Marketing in Economic Affairs, Rm. Vlcea / Department of
Economic Sciences, Constantin Brncoveanu University of Piteti, Romania, popaionela80@yahoo.com

CODREANU Diana
Ph. D. Student/ Teaching assistant, Faculty of Management Marketing in Economic Affairs, Rm. Vlcea /
Department of Economic Sciences, Constantin Brncoveanu University of Piteti, Romania,
codreanudia@yahoo.com

ALBI CI Mihaela
Ph. D. Assistant professor, Faculty of Management Marketing in Economic Affairs, Rm. Vlcea / Department of
Economic Sciences, Constantin Brncoveanu University of Piteti, Romania, mturmacu@yahoo.com

Abstract: The main goal of the Governments economic policy is represented by ensuring coherent
macroeconomic stability, by maintaining a conservatory fiscal position and by promoting prudent salary policies in
order to support disinflation and limit foreign imbalances which shall facilitate sustainable economic growth and a
real convergence.
The fiscal and budget policies applied in Romania in the years before the crisis have led to domestic and
foreign imbalances which must be changed during the next period. The sustainable accomplishment of lower budget
deficits involves the significant change of the budget process as well as reforms of revenue and expense policies.

Key words: fiscal policy, budget policy, sustainability

JEL classification: H 30, H 60

1. Introduction
The States intervention in the economy is as old as the actual economic life. If todays economy
were perfect, with perfect competition in all economic operations, if all the effects upon peoples welfare
could be expressed by prices, by markets, and if there were not scale economies or externalities, then the
States existence would be pointless.
Specialized economic and juridical literature shows that State involvement in economic life was
and still is very controversial. Practically, a wide variety of perspectives have been supported and argued
about, starting from the States direct, total intervention in the economy and reaching the complete lack of
intervention. These two perspectives which are actually diametrically opposed have been gradually left
aside because of dogmatic views lacking the reality of economic facts. Economic doctrine has launched
an additional opinion according to which the States role and intervention are continuously decreasing
until they completely disappear. Economic reality proves by the power of facts which cannot be
questioned that the State not only reduces its economic life role and intervention, but also diversifies and
augments its ways of action. This is not true only in developing countries, underdeveloped countries, or
countries in transition towards market economy, but also in the countries whose economies are advanced,
and they are economically developed. The economic policy of capitalist countries has long been discreet,
in order for the State to intervene slowly, gradually, significantly. Fiscal and budget policies are some of
the most important instruments used by the states with the purpose of economic intervention.

2. Fiscal and budget policies in Romania at present
In a broad sense, budget policy comprises the following policies: fiscal policy, allocation policy
(or budget policy in brief) and balance budget policy envisaging the funding of deficits and development
of budget redundancies, and budget policy instruments include: variance of the level and/or structure of
public spending; ways to compensate a budget deficit etc.
As far as fiscal policy is concerned, the main issue for leaders is collecting money resources to
allow them to cover the expenses. In order to increase budget revenues, leaders may achieve this goal in
several ways: raising fees and taxes, issuing bonds, securities or other state documents, or selling assets
(when the State owns various goods, especially real estate).
644

One of the weaknesses of Romanias economic policies over the last years has been in procyclical
fiscal policy. More precisely, Romania has acted contrarily to what economic theory imposes.
Instead of focusing on running budget deficits during the last economic boom years, the
countrys budget has all along been at an important minus level which would have been justified only by
investment expenses in the field of infrastructure, for example. Such correct reasoning would have
allowed a wider budget deficit only at times of crisis, when an economy needs encouragement including
fiscal measures.
Thus, during 2000-2011 the budget deficit within the general enhanced budget has had the
following evolution:

Table 1: Revenues, spending and deficit of general enhanced budget
Years Revenues
(million Lei)
Spending
(million Lei)
Surplus/Deficit
(+/-(million Lei))
2000 25 109.5 28 314.1 -3 204.6
2001 35 174.1 38 932.1 -3 758.0
2002 44 891.1 48 841.3 -3 950.2
2003 56 692.8 61 087.9 -4 395.1
2004 70 826.3 73 733.8 -2 907.5
2005 87 629.4 89 897.8 -2 268.4
2006 106 975.3 112 626.3 -5 651.0
2007 127 108.2 136 556.5 -9 448.3
2008 164 466.8 189 121.7 -24 654.9
2009 156 624.9 193 025.4 -36 400.6
2010 168 598.4 201 903.6 -33 305.2
2011 181 566.9 205403.6 -23.836.7
Source: www.mfinante.ro

It can be noticed that, whereas between 2000 and 2006 the budget deficit growth rate was quite
low, after 2007 it basically boomed: in 2007, the deficit rose by more than 67% as compared to the
previous year and after one more year its increase exceeded 160%. Since 2010, the deficit has had a
descending trend; thus, in 2010 it decreased by 9 percent as compared to the previous year and in 2011 it
dropped by almost 24%. Yet, these values are high in relation to those during 2000-2007.
The explanations for this budget deficits changes can be classified in two categories: on one
hand, in conformity with Romanias EU accession dates, observing all imposed requests led to confining
the deficit within certain limits (interval between 2000-2006); on the other hand, the latter period has
fallen under the world economic crisis which has left its traces upon the progress of macroeconomic
indicators.
Romania officially entered technical recession after its economy went down during two quarters
in a row. In late 2008, the local economy dropped by 3.4% and during the first quarter of 2009 by another
2.6%. Expressed in money, its increase was worth grosso modo 4.14 billion Lei in relation to the end of
2008 and 5.55 billion Lei in relation to the same period of 2008.
The 6.4% decrease in the Romanian economy as compared to the first quarter of 2008 was two
percent higher than the 4.4% European average with a decline record in Latvia whose GDP lost no less
than 28.7% during the period.
This was Romanias first economic decline after many years of growth. After 2003, the first
quarter of every year recorded increases of at least 5% in relation to the same period of the previous year.
The economic growth peaked with the performance recorded during the first quarter of 2008 when
Romanias GDP was 8.2% higher than it had been in the first quarter of 2007. That is why it could be said
that 2009 included a base effect, with reference to a record held during the period after December 1989.
645

The economic crisis Romania has been facing is mainly a domestic crisis generated by the wrong
mix of macroeconomic policies adopted over the last years.
Before setting an anti-crisis plan, one should not only admit it really is a crisis, but also what its
causes are. Its main cause is the excessive consumption based on indebtedness. The population cannot be
blamed but in future they can be better informed and surely more cautious regarding their expectations
from own incomes. In exchange, the government can be criticized for having made a huge strategic
mistake: at times of economic growth, it has used up all this growth and even acquired additional debts.
The world financial crisis has just triggered the domestic economic one because it has affected
funding sources. The people consume on tick and then they borrow more expensively or they do not
borrow at all. This state of affairs is valid for the government, companies and population, too.
A crisis period involves a mentality change in fiscal policy. Fiscal policy is, at least
theoretically, one of the instruments used by the State to support the economy at times of crisis.
If one analyzes the reaction way of fiscal policies in the European Union area, one can notice big
differences in terms of outcomes; they are strongly influenced by the choices made when modelling fiscal
behaviour.
The crisis should obviously bring about a mentality change both in the structure of the state
budget and in the fiscal policies meant to narrow crisis effects. Crisis circumstances are good for deep
reforms, they have a great potential to change mentalities so, theoretically speaking, the Romanian fiscal
policy can be changed, too. (Golinelli, 2009)
In the Romanian economy, the measures taken have often proven unproductive, boomeranglike,
with effects contrary to those expected. Several concrete examples can be enumerated:
1. the measure for labour additional tax in a context where labour had already been excessively
burdened and for some years the authorities had been undergoing a programme to gradually decrease the
harsh fiscal duties for salary labour.
The Romanian fiscality upon labour remains one of the hardest in the EU because of high social
contributions, especially by widening their calculation base, so that employees have been the ones to feel
the effects of state budget-related social contributions rise. Higher social contributions in the context of
crisis economy and market liquidity issues have done nothing but increase the employee-associated costs
of companies and thus the latter have had the ability to hurry their decisions to reorganize/fire their
personnel and/or to apply certain measures typical of underground economy, such as partially stating
salary costs. In the long run, it is the state budget that gets affected by the increase in the budget spending
related to dismissed employees or by the loss of revenues.
2. the tax collection system in Romania relies on mandatory executions, aggressive fiscal
inspections, fiscal record instrument, single account. All these are effective but they cannot accomplish
something to be compared with the positive outcomes that positive incentives might have: tolerant, not
hostile fiscal authorities, as willing to improve taxpayers lives as they are ready to punish criminals.
Under these circumstances, applying a combination between allowances used as rewards for proper fiscal
behaviour and tough penalties used for lack of payment or evasion can prove efficient. The collection
level largely depends on the partnership quality between fiscal authority and taxpayers, transparency and
predictibility in fiscal administration legislation and practices.
It is not the time for a fiscal authority to make economic agents existence even more difficult
since they keep to the rules of the game and have not gone into the underground economy, on the
contrary, it is the time to give them a helping hand.
In terms of the ways to improve the collection system and to attract underground economy
revenues into the system, it can be stated that the fiscal administration policy is the one requesting a
mentality change so as to make the system more transparent and easily changing.
3. In general, the lack of liquidities and fundings during a crisis period is a key-issue and
specialists expect possible additional measures to set things right: delaying the payment of profit tax,
VAT for invoices to be received by taxpayers, granting the chance to entirely deduct provisions for
questionable customers, supporting the transactions generating economy liquidities.

3. Prospects regarding Romanias fiscal and budget policies
The budget structure for 2012 aims at reaching the following essential goals:
ensuring a sustainable target related to budget deficit within 2.3% of GDP (ESA methodology)
which should be below the 3% limit provided by the Maastricht Treaty;
keeping government debt at a sustainable level on long term. It is estimated the government debt
level in 2012 will be 33.9 % of GDP and below 33.5% of GDP during the next three years, thus
646

obeying the provisions of the Maastricht Treaty stipulating the confinement within not more than
60% of GDP;
stability, predictibility and simplification of the fiscal system by keeping the single quota, limiting
the ad-hoc changes made to the fiscal system to ensure its predictible and stable feature, improving
the fiscal systems efficiency, and reducing the number of non-fiscal fees and tariffs;
restructuring the public spending system and effectively controlling it by the improvement and
prioritization of investment expenses, and the allocation of amounts needed in projects funded by
European grants for absorption growth.
The absorption of unreimbursable foreign grants must be one of the priorities held by Romanias
government; this priority should be optimally taken into account as it is a central element of budget
sustainability from the perspective of investment strategies and of these grants being unreimbursable.
Unfortunately, this opportunity has not been used enough until now with the absorption degree of
European grants of almost 6% in late 2011.
continuing the policy to reduce and prevent the occurrence of arrears by improving corporate
governance, improving the concepts and procedures framework, enhancing top down budgeting
approaches, enhancing programme-based budget approaches (programme budgeting).
The long-term sustainability of public finance is evaluated according to determining factors:
evolution of demography, economy and labour market.
From the demographic perspective, Romania will face major problems on long term related to
population aging: ones estimated living duration is growing and tends to reach a level relatively close to
the average one in the European Union, but the birthrate ranks among the lowest in the Union.
The populations accelerated aging process is also the result of the low birthrate. In 2008, the
birthrate was 1.32 children per one woman, much lower than optimal reproduction. According to the
Eurostat prognosis, the year 2060 will mean a rate of 1.52 children/woman, quite close to the Unions
average, but this figure, too is below the level of reproduction needed in the entire prognosis range.
The demographic prognosis made by the Eurostat shows a significant decrease in Romanias
population, by 4.6 million people in 2060 as compared to 2008.
The The population structure by age groups will be much affected: the share of work age population
(group 15-64 years old) will diminish dramatically (15% decrease in the prognosis range). The share of
young population, too tends to lessen because the decrease of the reproduction age female group will
oppose birthrate rising effect, yet the share of population aged over 65 will double in the end of the
period.
Table 2: Romania Long-term demographic indicators
2008 2020 2030 2040 2050 2060
Birthrate 1.32 1.37 1.41 1.44 1.48 1.52
Estimated living duration at birth (years)
Men 69.8 73.0 75.5 77.8 79.9 81.9
Women 76.6 79.3 81.3 83.2 85.0 86.6
Estimated living duration at 65 years of age
Men 13.6 15.2 16.6 17.9 19.2 20.4
Women 16.3 18.0 19.4 20.7 22.0 23.2
Net migration (thousand) -5.6 6.3 -0.8 12.9 12.7 3.9
Population (million) 21.4 20.8 20.0 19.2 18.1 16.9
-at work age (15-64)
% of total 69.9% 67.9% 66.8% 62.6% 57.3% 53.6%
-over 56 years old,
% of total 14.9% 17.4% 20.3% 25.5% 30.9% 35.0%
Source: Eurostat-EUROPOP 2008, DG ECFIN

The speed of the aging process will change the ratio between retirement age population and active
population which will lead to major changes in the age-related structure with negative consequences upon
the labour market.
Labour market evolution
The prognosis of dependence rates shows a significant deterioration: the share of population aged
over 65 in the work age population (15-64) will rise from 21% in 2008 up to 65% in 2060 and the total
dependence rate (population aged under 15 and over 65 as a share in work age population) is likely to
double in the end of the prognosis period.

647

Table 3: Work force and dependence rates
2008 2020 2030 2040 2050 2060
Work force, thousand people 9875 9650 8811 7918 6868 6051
Participation rate (15-64 years old) 63,0% 64,8% 62,4% 60,8% 60,5% 61,3%
- aged 25-54 78,9% 77,1% 75,3% 74,7% 75,2% 75,1%
- aged 55-64 42,4% 47,1% 48,2% 45,6% 44,2% 45,4%
Occupation rate (15-64 years old) 58,7% 61,0% 58,6% 57,2% 56,9% 57,6%
Share of old population 15,1% 17,7% 22,3% 25,3% 26,3% 22,5%
Dependence rate of people over 65 21% 26% 30% 41% 54% 65%
Total dependence rate 43% 47% 50% 60% 75% 87%
Sursa: Eurostat-EUROPOP 2008

Taking account of the long-term demographic hypotheses, birthrate increase is essential to
improve the scenario which, in the current context, foretells a rapid pace of populations aging. Law
396/2006 has been adopted in this respect regarding the supply of financial support when families are set
up, namely granting a 200-Euro financial aid to each family provided both spouses get married for the
first time. Additionally, in order to raise the childbirth rate, Government Emergency Ordinance
no.148/2005 has been amended - regarding the support of families with a view to raising children by
including the option that the monthly financial aid for child raising should be 85% of mothers monthly
average of work incomes over the last twelve months (but not more than 4,000 Lei) or 600 Lei and a 100-
Lei monthly additional bonus. Furthermore, mothers are entitled to maternity leaves to raise their children
until the latter turn two years old, or three years old referring to children with disabilities.

4. Conclusions
Economic recovery in Romania is difficult and somewhat delayed on one hand because of the
imbalances having occurred before the crisis (procyclical policies) and on the other because of the
political instability which has lately become a dominant feature of our country. Political instability
attracts economic instability which in turn brings about foreign investors reticence to invest in Romania
on medium and long term. It is obligatory to go on with the firm implementation of the economic
programme by observing the conditions imposed by (present and future) agreements made with the IMF
and EU, maintaining the credibility of this programme by a proper mix of monetary, fiscal, budget,
revenue, and structural reform policies, all these in order to resume the economic growth in a sustainable
way, to strengthen inflationary anticipations on medium term, and the future accession to the Economic
and Monetary Union.
The goals and rules of the fiscal and budget policies must be set in compliance with the
principles and rules of fiscal and budget responsibility included in Fiscal and Budget Responsibility Law
no.69/2010, with those assumed by the governments convergence programme and with those comprised
in the Fiscal and Budget Strategy drawn up by the Ministry of Public Finance and also assumed by the
government, as well as with domestic and foreign constraints.

5. References
Golinelli, R., Momigliano, S. (2009) The Cyclical Reaction of Fiscal Policies in the Euro Area:
The Role of Modelling Choices and Data Vintages, Fiscal Studies, ISSN 0143-5671, volume 30,
pp.39-72
Popa Ionela (2010) Romanian Fiscal System Integration in the European One, Doctoral Thesis,
available at www.biblioteca.ase.ro/downres.php?tr=1544
*** - Fiscal-Budget Strategy during 20122014 available at
http://discutii.mfinante.ro/static/10/Mfp/strategbug/SFB2012-2014.pdf
*** - Convergence Programme for 2012-2015 available at
http://discutii.mfinante.ro/static/10/Mfp/pdc/Progr_convergenta2012_ok.pdf
*** - http://www.gov.ro
*** - www.eur-lex.europa.eu
*** - www.europarl.europa.eu
*** - www.EurActiv.ro

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I

KEYWORDS international currency,euro,internationalrole,americandollar

Exchange rates are

have the same meaning. Since b

w prices, because the total cashing is the same:

5/2 -3/2 0 9/2 0 5/2

which checks the restrictions (2), (3) and (4)

, that of the coefficients by

, the matrix of the coefficients by

, and the terms vector from the

relation (8) and add at (7), we obtained:

relation (8) and decrease of (7), we obtained:

becomes very small for

0 the solution is optimal.

0 the solution is optimal.

<0, the largest in absolute value (or the smallest negative

>0, the largest one.

value. We check if the solution found is dual realizable (it is

to the strictly negative components of

. There are the cases:

correspond to the optim condition, then the optimal

does not verify the optim condition then it is applied

is added with the corresponding

, then the considered solution is not optimal and it

to be equal to the smallest quantity ij

, and in the other

and the dual variables are written in the

and for dual variables we have the table:

. In each of the situations it can be considered

we have the table:

iii) the average of selection variances:

Checking the mathematical relations between the variation indicators of total

2. In a simple, non-repeated, random selection, there are the following distributions:

iii) the average of selection variances:

Constantin Brancoveanu, Rm. Valcea

Secondary products percentage:

Main products expenses:

is the maximum difference among utilities.

) on Riemannian metric g M(M) for each k 0, . . . , n if

Keywords and phrases: Hodge-de Rham operator, eigenvalues,

Remark 4. The normalization of -product is chosen using the con-

(= the orthogonal complement of E in H with respect to the inner

-manifold structure on T(H, E), whose subjacent topology

Sniatycki and H.Fischer [2].

(meaning Frechet dierentiability).

(in the Frechet sense) [M(H) ,= is an open sub-

-applications between Banach spaces is all the

-difeomorsm for any g M(H). Since Ker (B

Sniatycki and H.Fischer [2]).

The Hodge star operator S

-topology on M(M), so that Corollary 15 includes in particu-

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