THE GUIDE TO OPERATIONAL RESEARCH

BOLDER DECISIONS WITH LESS GUT-FEEL

THE WORLDS MOST SUCCESSFUL EXECUTIVES ARE MAKING BOLDER DECISIONS AND RUNNING EVERYDAY OPERATIONS WITH LESS RISK AND BETTER OUTCOMES. THEIR SECRET? OPERATIONAL RESEARCH: THE SCIENCE OF BETTER

OUR NETWORK SALES ORGANISATION HAS SEEN FIRSTHAND HOW OPERATIONAL RESEARCH METHODOLOGIES CAN REVOLUTIONISE HOW WE WORK. WE WILL CONTINUE TO DEPLOY THESE TECHNOLOGIES ACROSS ALL FUNCTIONS AS WE GROW AND IMPROVE OUR BUSINESS.
ROBERT C. WRIGHT VICE CHAIRMAN & EXECUTIVE OFFICER, GE CHAIRMAN & CEO, NBC

CONTENTS UNDERSTANDING O.R. HOW O.R. COULD HELP YOUR BUSINESS FINDING O.R. EXPERTISE O.R. ONLINE RESOURCE

OPERATIONAL RESEARCH: THE SECRET OF BETTER DECISION MAKING IN A COMPLEX WORLD

THE SECRET OF BETTER DECISION MAKING IN A COMPLEX WORLD
We all have to make decisions based on gut-feel sometimes. But its best to avoid making too many decisions based on gut-feel alone. Executives in every kind of organisation large and small, private and public, for-profit and not for-profit are using operational research (O.R.) to structure their problems, unlock the value in their data, model complex systems and make better decisions with less risk. Whether O.R. is used to inform high-level strategy or improve day-to-day operations, the results speak for themselves: insight into difficult problems, improved processes, productivity, and performance. Millions in cost savings and increased revenues. More (and better) options. Accurate predictions, plans, and forecasts. More profitable pricing. Greater market share. Higher quality. Superior ROI. Better customer service. Improved safety. A healthier population. Better asset utilisation. O.R. isnt just another management buzz-word - its been around since the 1940s. But in our cost-conscious, productivity-driven age, O.R. professionals continue to find new ways to use O.R. to increase revenues and profits, streamline processes and save organisations big money.

THIS GUIDE WILL GET YOU STARTED FAST

In just a few minutes, youll learn what you need to know about O.R. What it really is and why its so powerful. Youll also find out about the kind of value it has delivered for others and how to recognise your own opportunities. And, how to find and work with the right O.R. professional.

REDUCING QUEUE DURATIONS AND LENGTHS, CONTAINING QUEUES WITHIN THE BMI CHECKIN CONCOURSE AND IMPROVING THE CUSTOMER CHECK-IN EXPERIENCE. (full story page 8)
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WHAT IS OPERATIONAL RESEARCH?

In a nutshell, O.R. is the discipline of applying appropriate, often advanced, analytical methods to help make better decisions. By using techniques such as problem structuring methods and mathematical modelling to analyse complex situations, operational research gives executives the power to make more effective decisions and build more productive systems based on: A better understanding of the problems More complete data Consideration of all available options Careful predictions of outcomes and estimates of risk The latest decision tools and techniques

A UNIQUELY POWERFUL APPROACH TO DECISION MAKING

Youve probably seen dozens of articles and ads about solutions that claim to enhance your decision-making capabilities. You may not realise it, but the best of these solutions are based on O.R. When it comes to technology that assists decision making, O.R. is unique. Its best of breed, employing highly developed methods practiced by specially trained professionals. Its powerful, using advanced tools and technologies to provide analytical power that no ordinary software or spreadsheet can deliver out of the box. And its tailored to individual needs, because an O.R. professional offers organisations the ability to define a specific challenge in ways that make the most of the available data and uncover the most beneficial options.

THE EFFECT OF SUPPOSEDLYEMPTY PROPERTIES THAT WERE IN FACT OCCUPIED WAS COMPUTED THESE ACCOUNTED FOR 1.5MILLION WORTH OF WATER LEAKAGE ALONE. (full story page 9)
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To achieve these results, O.R. professionals draw upon the latest analytical technologies, including: Problem structuring methods helping managers to comprehend the real nature of the problems they face. Simulation giving organisations the ability to try out approaches and test ideas for improvement and answer what if questions. Optimisation narrowing the choices to the very best when there are virtually innumerable feasible options and comparing them is difficult. Probability and statistics helping organisations to measure risk, mine data to find valuable connections and insights, test conclusions, and make reliable forecasts.

ALREADY AT WORK AROUND YOU

O.R., which can be used for strategic planning, operational planning and decision making, has enhanced organisations and experiences all around us. From better scheduling of airline crews to the design of queuing policies at Disney theme parks. From two-person start-ups to FTSE100 leaders. From resource planning in the National Health Service to local and national government - where O.R. supports policy-making, strategy and operations in many different departments by providing advice on how to make the best possible use of public money. See some more examples of O.R. at work at www.scienceofbetter.co.uk

DETECTION RATES IMPROVED, PLUS SAVINGS OF 2.47 MILLION IN THE FIRST YEAR OF IMPLEMENTATION.
(full story page 10)

WHAT OPERATIONAL RESEARCH CAN DO FOR YOU

Organisations and the world in which they operate continue to become more complex. Huge numbers of choices and relentless time and margin pressures make the decisions managers face more daunting and more difficult. Meanwhile, new enterprise applications and software are generating massive amounts of data and it can seem like an overwhelming task to turn that data into insight and answers. But all that data and the availability of more and cheaper computing power are creating an important opportunity for decision makers, one that O.R. is ideally designed to help them take advantage of. O.R. professionals thrive on challenges that involve tricky problems, large numbers of variables, complex systems, and significant risks.

IDENTIFYING AN O.R. OPPORTUNITY

Opportunities to benefit from O.R. are everywhere! Most executives begin with a general review of their organisation, its departments, and its processes. They look for difficult decisions that could benefit from the analysis of large amounts of data like where to locate a new plant or service centre or how to make manufacturing processes or service delivery more efficient. Perhaps they then look for complex processes that are being performed manually or with outdated systems, or for decisions that are made routinely and might benefit from automation. O.R. can help with answers to tricky questions such as Are we gaining the most from our supply chain, logistics, or systems? Our manufacturing or customer service processes? The way we deliver our products or services, set our prices, or evaluate our portfolio? These are all areas where O.R. can help executives to make significant improvements.

AN AVERAGE COST BENEFIT OF BETWEEN 2,800 - 4,200 ACHIEVED, PER PRODUCT LINE PER YEAR. (full story page 11)

7 SIGNS THAT AN ORGANISATION COULD BENEFIT FROM OPERATIONAL RESEARCH

1. The management face complex decisions. Management are faced with more decision factors than they feel they can cope with and key operational information systems lack intelligence. O.R. professionals can analyse complex situations and build intelligence into key systems, so as to reveal the truly best options. 2. The management isnt sure what the main problem is. Managers know that they face problems but find it difficult to determine exactly what the problems are, or which areas and projects should be prioritised. 3. The management is uncertain about potential outcomes. Managers face great uncertainty about the operating environment and what could happen as a consequence of various decisions. O.R. professionals can model various scenarios, undertake what-if analyses and help to determine potential outcomes and strategies. 4. The organisation is having problems with processes. One or more of the organisations processes is broken or needs to work a lot better. Many small, day-to-day decisions are not being made well, and its having an impact on the bottom line. O.R. can help improve these processes and their outcomes. 5. Management is troubled by risk. Assessing the risk of a new project or contract can be tricky. O.R. can help to quantify risk, which is key to controlling it. O.R. professionals can assist by planning how best to balance risk against the gains an organisation can expect. 6. The organisation is not making the most of its data. Most organisations probably track information about many aspects of their operations and have huge amounts of data theyre not sure how to use for decision making. O.R. specialises in working with data extracting the most valuable information from whats currently collected, and showing what additional data could be collected to increase the value even further. 7. The organisation needs to beat stiff competition. Others in the organisations field are probably already using O.R. to gain competitive advantage. An O.R. professional can help an organisation to stay on top with the latest methods and open up important new sources of advantage.

THE PROJECT ACHIEVED IMPACT IN CYCLE ALIGNMENT TO THE EXTENT THAT 40 MILLION HAS BEEN SAVED ON STORAGE COST ALONE. (full story page 12)
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O.R. HELPS BMI IMPROVE USE OF CHECK-IN CAPACITY AT HEATHROW AIRPORT

THE CHALLENGE
bmi, the second highest frequency carrier through London Heathrow Airport, has a check-in operation at Terminal 1 that handles up to 10,000 passengers each day. A range of check-in products are available to passengers internet, self-service and traditional economy and business check-in. The airline felt that there was opportunity to make better use of check-in capacity, in particular take-up of the self-service product, reducing waiting times for passengers and congestion at check-in area, and eliminating the need to expedite for closing flights. Transport & Logistics Consultancy (T&L) applied O.R. and Industrial engineering-based solutions to support bmi in achieving these goals. production rates, the effect of passenger behaviour, and existing and potential demand for the different check-in products and transaction types by time of day and day of week. To enable the client to calculate capacity requirements following the process improvements, a check-in model was developed. Applying flight schedules, passenger show-up profiles, production rates and proportional use of check-in products, the model determined the number of check-in and bag drop desks, self-service kiosks and ground handling employees required across the operational day. The custom-designed tool also demonstrated the formation and duration of passenger queues at check-in and established the queuing area requirements for each product type to accommodate waiting passengers at peak times.

THE O.R. SOLUTION

Well-established O.R. approaches, in the form of process optimisation and capacity modelling solutions, were central to improving the effectiveness of bmis endto-end check-in operation, from passenger arrival at the check-in concourse through to their exit from the area following the transaction. Solution development was based on root cause analysis of queues and congestion. The T&L team analysed check-in activities on a daily basis for a number of weeks, as well as a series of historical data. This provided the necessary depth in understanding of current constraints,

THE VALUE
The O.R.-based check-in solution provides the ability to make better use of self-service desk capacity, maximise the success rate of each transaction and minimise the transaction costs in time, resources and equipment for bmi. The layout was successfully trialled, approved and fully installed during the summer of 2006. bmi is currently applying the same principles at other UK operating stations. visit www.tlconsult.com

O.R. HELPS PLUG THE LEAKS AT THAMES WATER

THE PROBLEM
Thames Water has over 12 million customers in the UK and London has over 18,000 kilometres of underground water piping, much of it laid in the nineteenth century. With so much antiquated piping serving so many customers, Thames Water had a big strategic problem: how to make sense of water leakage from piping, in terrain and to non-billed customers. Another problem area concerned the under-recording of low flows from water meters. Thames Water identified that considerable water losses were being made, even though they had a corporate modelling program in place. Following a post election water summit on leakage in May 1997, there had been a Director-level call for corporate modelling to act as a leakage think tank. Clearly this was a time when new attention needed to be focussed on accurately determining, how, when and where, and why water leakages occurred. The project identified the need for engineering trials to focus a 'microscope' on individual streets, their water demand and leakage, and also to review pipe renewal methods. Water meter performance was also assessed and a case made for the installation of new meters to give a better picture on usage and hence leakage. Two core models were developed. One was a street gazetteer of repair location, and the other modelled the dynamics of leakage over time. Regression-type models were considered, but were shown to have too much 'noise', so streets were grouped together to make 'super streets'. Time was also spent in the 'field' by O.R. professionals, particularly in the case of assessing the numbers of non-billed customers - some properties had to be visited repeatedly in order to establish whether they were occupied and thus drawing off the water mains.

THE VALUE
The effect of supposedly-empty properties that were in fact occupied was computed these accounted for 1.5million worth of water leakage alone. The independent modelling also allowed differentiation to be made regarding the mix of small and large leaking pipes being reported. Correcting for this led to a significant improvement in relative efficiency: such gains were fed through into allowed price rises.

THE O.R. SOLUTION

An O.R. project estimated at having a duration of four years was initiated. One aspect of the project was to model leakage and make sense of repair location. Pipe repairs were mapped to streets and many possible explanatory factors were assembled by street. These included age of piping, traffic loading,soil corrosivity and 'shrinkability' - its tendency to cause ground movements.

O.R. HELPS DERBYSHIRE CONSTABULARY CLAMP DOWN ON CRIME

THE PROBLEM
The UK governments agenda for Narrowing the Justice Gap recently set out an agenda for reducing crime and the fear of crime, and for bringing more offenders to justice. Forensic Science has a critical role to play in detecting crime through the matching of fingerprint and DNA evidence lifted from scenes of crime. Research carried out by Her Majestys Inspectorate of Constabulary suggested that many forces were failing to exploit this technology and the processes involved, to the full. The use of Data Mining in O.R has proven to be effective in process improvement and the Derbyshire Constabulary recognising this, decided to utilise data mining techniques along with simulation modelling to establish how forensic science process improvements could be made. Scenes of Crime Officers (SoCOs). It was not possible to go to all crimes though. The vast majority of SoCOs attended the scene of car and burgling crimes, the so called volume crimes. It was possible however to add value by attending scenes of crime that would not usually be considered for SoCO attendance. Discovering other areas of crime outside volume crime that led to identification and committal, required the application of data mining to fully exploit usable knowledge. Indeed, data analysis showed that the highest crime detection and solve rates actually depended on particular SoCO officers. This information could be used to isolate those groups where officers were under performing, and to make decisions regarding their retraining to improve efficiency. The time taken to detect crime had, under the new system, been reduced by 68%.

THE O.R. SOLUTION

O.R. consultants were used to develop a two phase project utilising new technologies and simulation modelling. Its brief, simply, was to recommend cost effective improvements that would result in increased detection rates of crime. Phase 1 looked at the process of generating identifications; phase 2 looked at the conversion of those identifications into detections. It quickly became obvious that process improvements would be beneficial in decision making too, particularly deciding on the allocation of

THE VALUE
In financial terms, the application of this new approach and use of simulation made a saving of 2.47 million in the first year of implementation. Applying simulation methodologies had proved to be a great aid in improving detection rates, adding value for money and increasing overall efficiency of operations. The results of the project were so significant that the approach taken has already been rolled out to other police forces in the UK.

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O.R. IMPROVES PERFORMANCE AND PROFITABILITY FOR A REGIONAL BAKER

THE PROBLEM
A medium sized bakerys new managing director inherited a successful business; he also inherited a large amount of legacy data and operational processes which could compromise further growth and success of the business. If the company were to maintain its position and continue to grow in an increasingly competitive market, the problems associated with legacy processes and the processing of legacy data, would have to be isolated and solved. The problems identified in this instance concerned legacy processes at the shop floor which were clearly inhibiting performance. Additionally, a significant amount of the legacy data stored within the company was either redundant or had never been used. Would it be possible to identify redundant effort in data collection and help management turn existing data into useful information for shop floor dissemination? Soft Systems Methodology for example, was applied, in order to identify actions for change that would be culturally acceptable to the company. Subsequently a Balanced Scorecard approach was devised that incorporated Quick Response Manufacturing and Theories of Constraint that would assist management with decision making

THE VALUE
The bakery now uses the Balanced Scorecard concept to provide management and shop floor staff with relevant information; and a process mapping exercise now employed, has allowed for the switching off of certain processes that were adding no value to the business. Reporting systems have now been mapped and refined to reduce duplication of data and deliver a single version of the truth Another benefit of the application of O.R. was the discovery that some product lines experienced higher levels of wastage than others. Applying a simple mathematical model to this revealed a means of operating such product lines at alternative settings. The application of these alternative settings generated an average of 2,800 to 4,200 cost benefit per product line, per year.

THE O.R. SOLUTION

The application of soft O.R. techniques to such problems has been particularly successful it seemed likely that O.R. could gain something from the legacy data and improve operational processes. So a number of tried and tested O.R. techniques were applied to the bakerys problems.

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O.R. TRANSFORMS INVENTORY MANAGEMENT PROCEDURE AT HEATHROW

THE PROBLEM
The current business environment at British Airways, one of the worlds longest established airlines, is one of growth and development in all areas of long, medium and short haul travel. Considering its short haul operation alone at Heathrow, British Airways is responsible for 2,600 flights per week, to 42 UK destinations, using a fleet of 85 aircraft. Every one of those 85 aircraft has to undergo pre-flight checks and regular mechanical overhauling often involving parts replacement. Inventory management for the spare parts needed to maintain an air fleet for long, medium and short haul use can be problematical from the perspective that some components have short life time cycles and rapid turnover from inventory. Other components, however, may be needed less often and remain in stock for considerable periods of time. Identifying a need to optimise engineering inventory management, British Airways enlisted the help of O.R. experts to find the most efficient means of optimising overall inventory without compromising safety factors and maintenance turn around. in various destinations (with about 10% being housed overseas), decisions had to be made about issues concerning component repair, replacement or scrapping - the O.R. process here was one that focused on implementation. The O.R. approach led to the construction of a modelling system that included the process and technologies for provisioning, deprovisioning, managing and synchronising inventory while complying with governing policies. The modelling system provided a unified view which aided the implementation of provisioning and deprovisioning across multiple stores. Additionally a user manual was created for the new model along with guidelines to how implementation of best practices would streamline procedures and provide significant cost benefits.

THE VALUE
The project achieved impact in cycle alignment to the extent that 40 million had been saved on storage costs alone.

THE O.R. SOLUTION

Optimisation was achieved by focusing on costs and best practices within the airline. British Airways held an inventory of several thousand components of varying criticality. These components were stored

SEE SOME MORE EXAMPLES OF O.R. AT WORK AT WWW.SCIENCEOFBETTER.CO.UK

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START BENEFITING FROM OPERATIONAL RESEARCH NOW

No matter what size or at what stage an organisation is, no matter what kind of decision, problem, or opportunity it faces, theres probably a way for O.R. to help. And the sooner an organisation makes O.R. part of the decision-making processes, the more far reaching the benefits can be.

FINDING O.R. EXPERTISE

Theres more than one way to engage O.R. professionals who have the expertise an organisation needs. Inside the organisation some companies have employees with O.R. training in one or more departments engineering, R&D, IT, scheduling, marketing, planning, logistics, pricing, etc. Those that dont, should consider hiring an O.R. professional and adding him or her to the mix, or even creating a new department. Outside the organisation there are many highly experienced O.R. professionals offering their services as independent consultants or members of consulting firms. There are also companies delivering O.R. solutions like optimisation or simulation software and services. You can also find advice on how to find appropriate O.R. professionals at www.scienceofbetter.co.uk. Inside and outside combining both internal and external resources has its advantages. This approach means that a company can leverage external specialties beyond its own resources, while building solution and system expertise internally for long-term support after the outside resources have moved on.

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START BENEFITING FROM OPERATIONAL RESEARCH NOW

WORKING WITH AN O.R. PROFESSIONAL
Here are some typical ways an O.R. professional might work with an organisation: the four basic phases of typical O.R. engagements are described below. Youll also find a plan for putting O.R. to work at www.scienceofbetter.co.uk.

STEP 1: ASSESSMENT
The organisation starts by calling in an O.R. professional to assess how O.R. might help it address the challenge or opportunity by helping management to ask the right questions. Depending on the subject matter, he/she may accomplish this step with a conversation or an assessment study.

STEP 2: QUICK-TURN-AROUND ANALYSIS

If the organisation and the O.R. professional agree to proceed, the next steps are determined by the nature of the assignment. Some examples: Critiquing technical material or evaluating a software package with O.R. inside: the O.R. professional performs the work and reports the results. Advanced analysis for a one-time, critical decision: The professional prepares and interprets an advanced analysis, in ongoing interaction with the organisations management and others who either furnish input or participate in the decision. Preparing for system development to improve recurring decisions: The professional designs a decision support system with O.R. inside to identify preferred choices on demand.

STEP 3: PROTOTYPING FOR SYSTEM DEVELOPMENT ONLY

A development team (including O.R. professionals, software engineers, and operations staff as required) is assembled. The team constructs, tests, and refines a system prototype while interacting frequently with prospective users. The O.R. professional also recommends changes in processes and procedures needed for effective system performance.

STEP 4: IMPLEMENTATION FOR SYSTEM DEVELOPMENT ONLY

The development team works with management and users to finalise development, install the system, train operators, revise processes and procedures, provide for maintenance and future upgrades, and measure benefits.

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THERES MORE AT WWW.SCIENCEOFBETTER.CO.UK

Youll find examples of O.R. success stories and you can also access tools for finding O.R. professionals and companies with the expertise you and your organisation needs. The site and this guide were developed for you by The O.R. Society. A primary part of our mission is helping executives to use the power of O.R. to improve their organisations.

O.R. ALLOWED US TO SEIZE THE INITIATIVE IN THE MARKETPLACE. WE HAVE MOVED FORWARD LIKE A BULLET TRAIN AND IT IS OUR COMPETITORS THAT ARE SCRAMBLING NOT TO GET RUN OVER.

LAUNNY STEFFENS VICE-CHAIRMAN MERRILL LYNCH AND COMPANY

Pass this guide on to management at senior and middle levels in your organisation, and to any others who should know about the benefits of operational research. Additional copies of this guide can be downloaded from www.scienceofbetter.co.uk or call The OR Society on +44(0) 121 233 9300

OPERATIONAL RESEARCH: WWW.SCIENCEOFBETTER.CO.UK

2004 THE OPERATIONAL RESEARCH SOCIETY. ALL RIGHTS RESERVED. THE SCIENCE OF BETTER IS A SERVICE MARK OF INFORMS. OTHER COMPANY, PRODUCT, AND SERVICE, NAMES MAY BE THE TRADEMARKS OR SERVICE MARKS OF OTHERS.

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