MSG Team's other articles

9368 Introduction to Flow Chart as BPI Tool

Business Process Improvement programs have become the major tools for Organizations to keep working on their internal operations to enhance the operational efficiencies, to implement new processes in line with business requirement and to eliminate redundancies and wastage. When the Organizations used to be managed and run based on hierarchy and centralized decision making, the […]

11225 Selecting 3PL Service Partner

When an Organization chooses to outsource its inventory management services, the project success hinges on choosing the right partner because the stakes in a warehouse management projects are very high. Besides the impact on the other functions like manufacturing or markets, the third party service provider is the custodian of your inventory which meaning your […]

11930 Why are American Companies no Longer Manufacturing Cars?

American car companies are pursuing a very unique strategy to increase growth and profitability. Generally, when companies talk about increasing growth and profitability, they talk about exploring new markets and launching newer products. However, the American automotive industry is planning to do the exact opposite. Executives from Ford Motor Company have announced that within a […]

8743 What is Inventory Management – Definition & Types of Inventory

In any business or organization, all functions are interlinked and connected to each other and are often overlapping. Some key aspects like supply chain management, logistics and inventory form the backbone of the business delivery function. Therefore these functions are extremely important to marketing managers as well as finance controllers. Inventory management is a very […]

12963 Creating a SIPOC Chart

The SIPOC Chart, being one of the fundamental documents of any process improvement project must be developed in such a manner that it is easy to understand. It must also be coherent with the logic inbuilt in the process. There is a method which has been described to ensure the proper development of the SIPOC […]

Search with tags

  • No tags available.

Introduction

Decision making is crucial for survival of business. Businesses have to make decision considering the limited amount of information. Decision making problems are divided into two types deterministic and probabilistic.

Deterministic model of problem solving depends on the relationship between uncontrollable factors and continuing process of optimizing system performance. A model is developed in under assumption related to existing business condition. If the variables under assumption do not truly reflect the current business conditions, the model developed also will not reflect the reality.

Mathematical optimization utilizes mathematical equation to determine the business decision. The business decision derive is in a numerical form.

A business model for decision making is constructed by analyst based on inputs of a decision maker. A business model is developed over a period of time using a progressive approach method.

Optimization Modeling Process

Optimization model is developed in three steps, 1st step is describing the problem, 2nd step is elaborating the solution and 3rd step is controlling the problem.

The optimized problem of the 1st step can be classified into linear and non-linear depending upon on nature of variables. Optimization problem has three following aspects:

  • An objective function to maximize or minimize.
  • A set of variables which affect the value of the objective function.
  • A set of uncontrollable factors referred as parameters.

The solution of optimized problem satisfying all parameters and constraints is referred as feasible solution. The objective of an optimization process is to value of variables, which minimize or maximize objective giving out an optimal solution.

Linear Programming

Linear programming is a mathematical procedure of determining linear allocation of business variables. For constructing linear program following factors are essential:

  • The objective function needs to be linear.
  • The objective must be to either maximize or minimize a linear function.
  • The constraints in the program should also be linear.

In formulating a linear program certain variables are integer in nature, such as function with integer variable is known as integer programming.

Decision Tree

In a certain decision-making process, probability plays an important role. On the decision model based upon probability is decision trees.

Scenario modeling

Business environment is always unpredictable and can throw up unusual situation more than often. Thus, organizations find themselves in the middle of dynamic environment. Here model and methods like sensitivity analysis, stability analysis, what-if analysis, scenario modeling, etc. is utilized.

Therefore, model under used uncertainties are as follows:

  • Scenario Analysis: this model assumes a different scenario a business may find itself with certain value of parameters.
  • Worst Case Analysis: this model assumes an extreme case scenario in computing different variables.
  • Monte-Carlo Model: this model assumes uncertainty through statistical distribution.

Theory of Constraints

Theory of constraints is a management concept which helps organization deal with situation, which hampers its growth and march towards higher level of performance. Theory of constraint encourages an organization to deal one constraint at a time and consist of following steps:

  • Identifying constraints of the existing system.
  • Identifying was to potential extract more out of system constraints.
  • Exploiting constraints to its fullest potential should be made priority.
  • As the company overcomes 1st constraint, it should look forward to working upon other constraints.

Article Written by

MSG Team

An insightful writer passionate about sharing expertise, trends, and tips, dedicated to inspiring and informing readers through engaging and thoughtful content.

Leave a reply

Your email address will not be published. Required fields are marked *

Related Articles

Capacity Planning – Meaning, Classification and its Goals

MSG Team

What is Aggregate Planning? – Importance and its Strategies

MSG Team

Operational Transparency

MSG Team