NOTES FOR DECSCI 22

DATE: August 23, 2019

September 12, 2019 (TH) 6:00-8:00

Introduction to Management Science

In WWII, the Allied forces recruited scientists who utilized mathematical

models to manage resources because resources were scarce. A method of
quantitative decision-making which utilizes mathematical models to optimize
decisions.

Management Science
- The discipline that adapts the scientific approach for problem solving
to managerial or executive decision making in order to accomplishing
the goal of “doing the best you can with what you’ve got.”
o Executive and managerial decision-making- big decisions; these
models take time and resources to make. So we have to make
them more worthwhile
o Scientific Approach- not just guess work
o Doing the best you can with what you’ve got- there is a specific
goal that you have in mind. You want to maximize something,
given the restrictions that you have. You have constraints.

Why do you need management science?

- Today’s world is becoming more and more complex. In the advent of
technology, things get more complicated. There are more decisions to
be made. In a managerial context, a better, more structured way of
making decisions is needed.
- The decisions impact the entire business and the people that work for
the business.

Management Science
- Focuses
- Applies the scientific method to decision-making
o Use these to make decisions that are more informed
- Examines the situation from a broad perspective using a systems
approach
o Example: You work in finance. And you notice the costs are high,
the salaries are high. Do we lower salaries agad? This only takes
into account the numbers, this impacts motivation of employees.
SO things impacts other aspects of the business.
 - Uses methods and knowledge from several disciplines.
o Takes into a psychological discipline where it factors in the
motivation of employees.
o Philo POV, is it ethical?
- Relies on mathematical and quantitative methods.
- Extensively utilizes technology.

Typical MS Problems
- Allocation
- Distribution
o What is the best way to distribute goods from plants to location
based on supply and demand of the location as well as factoring
transportation cost.
- Network and Project Management
o
- Inventory Policy
- Waiting Lines
o How long in fastfood lines? How much less time if added one
counter? How bout remove a counter?

Mathematical Models
- Models are approximate representation of something real.
- Models which are repleresented and quantified

Components of a Model
- Decision Variables (IV)
o Describes the elements in the problem where a choice must be
made by the decision-maker.
o Independent Variable.
o Who’s your manufacturer, How much to manufacture
- Results Variables (DV)
o The outcomes/results you are trying to achieve which are
affected by the decisions made. Measures the effectiveness of
the systems and decision
o
- Uncontrollable Factors
o Factors that affect the results variables but cannot be controlled
by the decision-maker
o Acts of God, Weather, Economics
Kinds of Mathematical Models

Optimization Models
- Manufacturing
Prediction Models
 - Probability Statistical Model
- Given an input x, what do we predict output y to b
Deterministic Models
- Everything is assumed to be a fixed and known constant
Stochastic Models
- Takes into element of probability and randomness into account
- Takes a lot more time to do, hence deterministic ones to be more
common.

Insert Picture

United Parcel Services

Each Driver makes an average of 120 stops per day. How many route options
do you think there are per driver?

ORION: On-road integrated optimization and navigation

Uses a search

You try to do the best route you can. You don’t have to find the best route.

Date: August 28, 2019

MS Process

1. Identify the problem at hand

2. Create a Model for the problem
3. Solve using tech to get a solution which given the parameters of the
model created
4. Analyze the solutions to make a decision
5. Implement the solution.

The optimal solution does not necessarily have to be the best solution.
- Ex. High costs. Best way may seem to be laying people off. But this has
other implications.

Three General Components of a Model

- These are not the only components of a model

Parameters
- The givens and assumptions of the problem
 o There will be cost of electricity
Objectives
- The outcomes you want to achieve
- Minimize costs and maximize revenue
Decisions
- Decisions and activities that are under your control
- How many people to hire? How many computers to buy?
Constraints
- Conditions that limit possible decisions
- Hard to differentiate with Parameters
o They are actually a subset of parameters
- The only difference is that parameters don’t limit the decisions that
you can make while constraints do.
- Your budget limits you from buying a certain number of computers.
MM Objective
- He wants to minimize costs while maximizing profits
Parameters
- Price= 700/c
- Holding Cost=3.5/wk/c
- Demand=66c/wk
- Time to travel= 1wk
- Trip= 2000
Constraints
- Minimum amount to buy= 100 carats per trip
- No shortages
Decision
- How many to buy per trip?= Q
- When to buy?

We need to use variables

Price= c
Holding Cost= h
Demand= d
Time to travel= lead time
Trip= k
How many to buy= Q

Systems Thinking: An Introduction

Date: August 30, 2019
A lot of the time, we think of problems as if it were in a bubble. But really, in
real life, we need to factor in different factors that all affect our profit.

Most of the time. The internal factors are things that we take into account
(supply, costs, sales, tax), while we should be taking into account external
factors too (economy, demand, market).

Traditional Analysis
- Focuses on the individual pieces of what is being studied

Systems Thinking
- Focuses on how the individual pieces interact with and affect each
other.
- Does not see things as one-way or linear.
- It shows how events are actually loops.
o Economic Recession- sales go down. But if sales go down,
economic recession goes up. It sees both, It sees how the
sales affecting the recession is shown and how the recession
also impacts the sales.
- This is important because things don’t happen in isolation.
- Ex. You have many different departments in a company. You have
HR, Finance, Marketing, etc. But all of these departments work
together. While they have individual roles, they do not act
independently of each other.
- It allows us to see the bigger picture of how a company works.
- Allows us to notice and better make sense of events and patterns.
- End of the month scenario in the mall. If you look at the mall alone,
you wont know why this is. You need to factor in the rest of the
factors so u can capitalize on the foot traffic. E.g. sales.
- It allows us to see the less obvious, indirect, and unintended
consequences of our actions.
- It allows us to view a problem from a variety of different
perspectives.
o Unmotivated employee. We may think of him just being lazy.
But what if he’s just not being paid enough? Bad boss?

System
- An interconnected set of elements that is coherently organized in a
way that achieves something.

Components of a System
- Elements
o The individual units of a system
 Finance, HR, Management, etc.
- Connections
 o How the elements of a system interact with one another.
Often involves the flow of activities, resources, and
information.
 Finance- Sets the budgets of different depts
 HR- impacts other depts by hiring specific people
 Marketing- drives sales that impacts budgets
- Function
o The ultimate goal of the system
o The determinant of the system’s behavior
 To earn profit. Maximize revenue and minimize costs.
o In analyzing a system, knowing the function is very important.
 Building system- more people; less time it takes
 Playing in a symphony- more people; same time
Characteristics of a System
- A system is more than the sum of its parts.
- A system together can do so much more than what the individual
departments can accomplish on their own.
- Institutional memory of a system- systems will find a way to
function even if some of its elements are taken out.
- Systems evolve and adapt over time. This is to respond to both
internal and external stimuli.
o Internal adaptation- restructuring hierarchy to meet certain
goals
o External- mergers with other companies; acquisition of
brands.

Limitations of Systems Thinking

- Reality is too complex to fully map out.

Economic Recession

Systems Thinking Approach

- Attempts to

Events
- Independent events that occur. When you study, the studying
happens and this is something observable.
Patterns
- Events that continuously occur following a certain pattern or trend
- We study more when we know that there is an exam coming up.
Structures
- Structures, systems, and policies that explain the appearance of
events and patterns
 -The educational system is the structure that makes us study
whenever there is a test coming up.
Mental Models
- We go one level deeper; we question why these structures exist and
why they continue to persist
- Because society says we need a degree. Because society believes
that a degree pertains to certain skills and personality traits. People
get work based on their degrees. This shows how society trusts in
the educational system,

Iceberg Model of Reality

- Ex. Business; You buy a product. You buy stuff when you see an
advertisement. These are structures. This is a structure of
marketing.
o Mental Models: Why? What does this say about us as a
people? We tend to trust what other people say. We believe in
the judgement of other people.

Casual Loop Diagram

- Shows the causal relationship where the increase or decrease in one
item leads to increase/decrease in another item.
- Causal relationship between sales and revenue. Increase in sales-
> increase in revenue. These are always correlational.
- Correlation. Sales and murdering increase together. But this does
not necessarily mean causation. This can be mathematically tested.

2 Kinds of Loops: Reinforcing Loop and Balancing Loop

Reinforcing Loops
- The element that increases further increases. You have two
elements. You have sales and you have the economy. When sales
go up, economy goes up. Boosts in economy further boosts sales.
- Insert Picture.

Balancing Loop
- When one element increases, the element itself tends to decrease.
When one element decreases, the element itself tends to increase.
- When the economy goes down, the people will want to create more
innovation(up). When innovation goes up, economy goes up.
Traditional Company: Traditional Bottom line: Profit
Triple Bottom Line: People, Planet, Profit

People
- How the company contributes to both equity and social
development

Planet
- How environmentally sustainable the company’s operations are

Profit
- The economic benefit enjoyed by both the company and its
environment.
- Not just monetary; It also means economic and social benefit
enjoyed by its environment. Ex. Cellphones produce revenue for
company, but it also provides us convenience of having one.

Traditional Investment Criteria: What investors look for

- Profitability
- Liquidity
o How well receivables can turn into cash
- Potential
o Potential for company to produce new and better things.

Social Investment Criteria

- Environmental
o Investors look at environmental impact created by company’s
activities
- Societal
o Social impact created by company’s activities
o Rich stay rich and poor stay poor?
- Governance
o How transparent the company’s activities are and how much
they adhere to laws and regulations.

Sustainability: Sustainable Development

Stone Age
- Stone tools
- Hunter-gatherer
Iron Age
- Tools were made of iron
- Pastoralist Societies
- Invent certain tools and machines that could help them in daily lives

PRIMARY GOALS FOR THE FIRST 2 AGES WERE SURVIVAL:

Paradigm Shift

Industrial Age
- focus shifted from just wanting to survive, but production became
automated. Steam engine. Produce as much as you can. Main driver
of economy was how much capital you have. Introduction of profit,
currency, and money. There is a class distinction between those
that have less and those that have more. There weren’t as evident
as it was before.

Information Age
- Capital was just as important. Right now, information is power.
People can use this info to earn more profit and earn more capital.
Gap between rich and poor just worsened. Life is more convenient
than it was for our ancestors.

Primary axiom of Economics: “More is better”

- Produce more in less time?
- Traditional notion of progress. Progress being able to produce more
in less time.
- Is progress always a good thing?
o Losing humanity to technology
o Progress for some may not be progress for other people.

Growth is good. Our lives today are a lot easier, more comfortable, and more
convenient than that of our ancestors.

Limits to Growth
- The Earth cannot sustain our growth past the year 2100.

Carrying Capacity- population it can sustain before severe depletion on

resources.

Inequality and Poverty

- Growth leads to a widening of the gap between rich and poor.
Sustainable Development
- “Sustainable development is development that meet the needs of
the present,

How much of your profit should you allocate for CSR projects?
- CSR- cpmpany’s responsible to give back to society through
donations
- Traditionally carried out through projects funded by the company’s
profits.

Creating Shared Value

- Finds ways to incorporate creating social impact into the company’s
core business model
- Incorporating giving back on your business model
- In the previous model of CSR, if you give charity. It isn’t
empowering them or enabling them to earn for themselves. By
creating shared value, you don’t treat them as beneficiaries, but
you treat them as partners. You increase their capabilities as a
means for them to fend for themselves.
- It doesn’t just create good PR, but it creates benefits for all parties
involved.

Traditional CSR Projects

- Detached
- “Beneficiaries”
- Short-term

- Unsustainable. Because they rely on excess profit. If the company

deems no profit as surplus, they wont have money for CSR projects.

Creating Shared Value

- Integrated with their business model. Sourcing from indigenous
people’s who do not have a market for their products. By doing this,
you don’t just treat them as beneficiaries, but as partners.
- “Partners”- If they were removed, something would happen to your
business. They play an active role in your business model. You
empower them
- Long-Term
- By integrating CSV, the costs are integrated in the core business
model. When you reach net profit, you wont need money to shell
out.

Reconceiving Products and Markets

- Meeting social needs by coming up with and providing the
appropriate services
 1. Microfinance Institutions
- Providing accessible credit.
- Banks through interest through loans
- You have to prove good credit score to get the loan. Because of this,
poor aren’t able to take out loans from banks
- Microfinance institutions- provide loans to those that cant take out
loans from banks
o This helps them a lot

2. Redefining Productivity in the Value Chain

- Refining processes to be more efficient and environmentally
sustainable
o Marikina Plastic Regulations
 Ordinance 18 S.2012
 “Regulating the use of Plastic/Packaging/bags on
wet goods and banning the use of plastic
packaging on dry goods”
o South Supermarket Eco bags
 Bonus loyalty points from bringing their own eco-bags.
 Cuts cost on paper bags
3. Enabling Local Cluster Development
- Meeting social needs by strengthening the infrastructure that
support their operations
o JFI Farmer Entrepreneurship Program
 Partners with farmers to supply them with produce.
o Got Heart Foundation
 Bridges communities with the opportunities they need.
 People don’t know how to market their products.
Provides avenue for them to sell their products anyway.

Linear Programming
Date: September 16, 2019
Linear Programming
- Constituent Pieces: Linear
and Programming
- Program- You always
feed it an input to which it
generates an output
- Linear- Straight
Linear Program
- Identify a business
problem
- Model it in a linear way
- Come up with a solution
- Then Analyze the solution
to come up with a decision
3 Components of a Linear
Program
- Decision Variables
- Objective Function
- Constraints
Decision Variables
- Essentially the actions
that you have control
over. For a manufacturing
company, the decision
variables is how much of a
thing the company can
produce.
Let H= # of Hash browns
produced
CN= # of CN produced
P= # of pancakes
Objective Function
- What you want to achieve
with the linear program.
What is the ultimate goal
of the program. Maybe a
minimization problem
(cost) or a maximization
problem (profit).
- Maximize Z (Profit level).
- Max Z= 2000H + 120CN
+ 5P
Constraints
- Budgets
- If you have 30H to
produce, but you can only
Linear Programming
Date: September 20, 2019
1. Decision Variable
- What are the decisions that Mr. Santiago can make?
o He can choose how many of each animal to raise
produce up to a certain
amount.
- S.t. 30H <= 50,000 (cap)
- CN <= 10,000
- P <= 20,000
- Total capacity per day is
60,000
- H+CN+P (how much
produced per day)
<=60,000
 Nonnegativity Constraint
o Simplex method does
not allow negative
value
o We ensure that all
decision variables have
a value greater than or
equal to 0
o Added at the end of all
linear programs
o Makes all constraints
take up positive values
because it can’t take
negative values
Notes: Make sure to Label your
Constraints
Decision Variables:

Let Cow - # of cows raised

Pig- # of pigs raised
CPC- # of chickens raised

What is the point of the linear program?

- We want to maximize the profit/revenue

We set our linear program objective function to be:

Objective function:
Max Z= 20,000 COW + 8000 Pig + 300 CPC

We next have to formulate our program subject to our

constraints/limitations.

Our limitations are our resources. In this case we have four: area,
cow feeds, pig feeds, and chicken feeds.

You should label constraints. The right hand side is always a

constant. The right-hand side will be our resource capacities. Since
these are our capacities, we cant use more than these values. But
we can use the same as these capacities or less than these.
Therefore, all are less than or equal to. If right hand side is
capacity, and Left hand side is our usage. For cow feeds, # of cows
grown times how much cow feeds are used per cow grown. For pig
feeds, # of pigs grown times how much pig feeds are used per pigs
grown. For chicken feeds, # of chicken grown times how much
chicken feeds are used per chickens grown

s.t.

This first (easy):

120 x Cow <= 4000 (Cow Feeds)
90 x Pig <= 2000 (Pig Feeds)
30 x CPC <= 2500 (Chicken Feeds)

5(cow)+2.5(pig)+0.25(CPC) <= 230 (Area)

- We don’t just get individ
- ual area usage of each animal, we get the total usage. We
do this because each cow takes up 5 sq. meters same for
the rest of the animals. We just get the total which has to
be less than or equal 230
Cow, Pig, CPC >= 0 (NN)

Final Answer:

Decision Variables:

Let Cow - # of cows raised

Pig- # of pigs raised
CPC- # of chickens raised

Objective function:
Max Z= 20,000 COW + 8000 Pig +
300 CPC

Program with Constraints:

5(cow)+2.5(pig)+0.25(CPC) <= 230 (Area)

120 x Cow <= 4000 (Cow Feeds)
90 x Pig <= 2000 (Pig Feeds)
30 x CPC <=
2500 (Chicken Feeds)

Non-negativity constraint:
Cow, Pig, CPC >= 0 (NN)

2. Nok Tayag

When we create a linear program. 3 Parts: decision variables which are the
variables and decisions that we have control over, objective function which
relates decisions with the goal we want to achieve and quantifies the goal.
Then we have the constraints which are the things that limit our decisions.

Decision Variables:

How many of commercial x and how many of commercial y to

purchase:

Let

X = number of commercial x used

Y= number of commercial y used

Objective Function:
Minimize costs while at the same time meeting target number of
Filipinos

MinZ= 120000X+90000Y

Program with Constraints:

S.t. 5000x+4500y >= 120,000 (Metro Manila)

3000x+8000y>=56000 (Provinces)

We have to reach the target for both Metro Manila and Provinces, so
we have to have constraint for each
Left Side is Actual Reach, and the Right side is the Requirement
It is okay if we exceed or hit the requirement exactly, but not okay if
we don’t hit the requirement. Therefore it is greater than or equal
to.

Nonegativity constraint
X,Y >= 0 (NN)

ANSWER:

Let:
X = number of commercial x used
Y= number of commercial y used

Objective Function:

Minimize costs while at the same time meeting target number of

Filipinos

MinZ= 120000X+90000Y

Program with Constraints:

S.t. 5000x+4500y >= 120,000 (Metro Manila)

3000x+8000y>=56000 (Provinces)

Nonegativity constraint
X,Y >= 0 (NN)

3. JOLO TUMBLER COMPANY

Decision Variables:

S= # of Steel Tumblers produced

P= # of Plastic Tumblers produced

Objective Function:
MAX Z (REVENUE)=1100S + 700P

WITH CONSTRAINTS:

S.t. How much steel do you use

290s <= 20,000 (Steel)

220p <= 12,000 (Plastic)
24s + 22p <= 2,300 (Minutes)

Non-Negativity Constraint

S,p >= 0 (NN)

4. RAS CORNDOG

Decision Variables:

Let
Xi= # of Corndogs of type i produced
(i=1-3, 1=Classic, 2=Bacon, 3=Cheese)

Xi= is a variable and “i” is called an index; this is a way to group

similar variables together.

Objective Function:

Max Z= (40-12(times 1))X1

(55-12(1)-0.028(156))X2
(50-12(1)-0.037(89))X 3

Constraints:
0.02X1 + 0.04 X2 + 0.03 X3 < = 2600 (Labor)
0.08X1 + 0.12 X2 + 0.16 X3 <= 9200 (Machine)

X1>= 0 For All i (NN)

X1>=0
X2>=0
X3>=0