MSG Team's other articles

11309 Smart Cities – What they are, How Realistic are they, and what can be done

What are Smart Cities and How They Have the Potential to Revolutionize Urban Living We often hear the term Smart Cities mentioned in the media. We also come across excited business leaders and politicians as well as urban planners and members of think tanks breathlessly talk about how Smart Cities would transform the way we […]

13007 Executive Pay: The Curious Case of Carlos Ghosn’s Arrest

Carlos Ghosn is a 64-year-old French citizen who is the head of three major automobile companies viz. Mitsubishi, Nissan as well as Renault. To people who are familiar with the automobile industry, Carlos Ghosn is not a name that needs any introduction. He is the wonder executive who has rescued automotive firms from the brink […]

10729 The Problem with Antitrust Laws

During the 19th century, the robber barons were dominating the American economy. A handful of people had more wealth and power than the entire nation. It is for this reason that they would collude with each other to keep everyone else at bay. These robber barons were depriving everybody else of fair opportunity as a […]

9426 The Future of Work

Abstract The world of work is changing as we speak and the winners and losers in the workplace of the present are those who can adapt and thrive in this paradigm without being lost in the maze of complexity and chaotic work arraignments. Unlike the baby boomers and those before them, the Millennial generation cannot […]

9002 Documenting a Process – Importance and Its Benefits

While improving business processes, it is essential that one document the process as well as any improvements made to it. Most consultants will document both the “As-Is Process” as well as the “To-Be Process”. While many think about it as customary and do it for the same reasons, there are other important reasons to document […]

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