This is a course offered for Agricultural Economics

1. Chapter One
Introduction to Operational Research
By;-Dagnaygebaw Goshme (MSc.)

2. Think over it
Economics Management
Mathematics Statistics
Mathematics for economics
Statistics for economics
OR

3. At the end of the chapter students able
to :-
Define Operational Research
Aware the dev’t of Operational Research
Know Features of Operational Research
State the Scope and Applications of
Operational Research
Clarify phases of Operational Research
Introduce tools of Operational Research

4. 1.1.Definition of OR
Operations:-The activities carried out in an
organization.
Research:- The process of observation and
testing characterized by the scientific method.
 Situation, problem statement, model construction,
validation, experimentation, candidate solutions.
Operational Research is a systematic and analytical
approach to decision making and problem solving.
It is a Branch of applied mathematics that uses
techniques and statistics to arrive at optimal
solutions to solve complex problems.

5. Operations Research is the scientific approach to
execute decision making, which consists of:
 The art of mathematical modeling of
complex situations
 The science of the development of solution
techniques used to solve these models
 The ability to effectively communicate the
results to the decision maker
It is typically concerned with determining ;
maximum :-profit, sale, output, utility, quality,
crops yield and efficiency
Minimum:- losses, risks, cost, damages, and
time of some objective function.

6. 1.2.Development of Operation
Research
 Since the advent of the industrial revolution,the world
has seen a remarkable growth in the size and
complexity of organizations.
 An integral part of this revolutionary change has been a
remarkable increase in ;
division of labor
segmentation of management responsibilities
in these organizations.
Increasing specialization has created new
problems, problems that are still occurring in
many organizations.

7.  As complexity and specialization in an organization
increase,so does the problems .
 It becomes more and more difficult to allocate the
available resources to the various activities in a way that is
most effective for the organization as a whole.
 These kinds of problems and the need to find a better
way to solve them provided the environment for the
emergence of operations research.
 It originated in England during the WW II by Charles
Babbage (1791-1871) is the Father of OR for military
purpose.
 Computer revolution and improving techniques are the key
for rapid growth of OR.

8. 1.3. Features of Operational
Research
i. Decision-Making:- OR aims to help the executives to
obtain optimal solution with the use of OR techniques.
 It also helps the decision maker:-
To improve his creative and judicious capabilities
To analyze and understand the problem situation
leading to better control,
For better co-ordination,
For better systems and finally better decisions.
ii. Scientific Approach:-OR applies scientific methods,
techniques and tools for the purpose of analysis and
solution of the complex problems.
 In this approach there is no place for guesswork and
the person bias of the decision maker.

9. iii. Inter-DisciplinaryTeam Approach:- scientist,
mathematician and technocrats jointly use the
OR tools to obtain a optimal solution of the
problem.
They tries to analyze the cause and effect
relationship between various parameters of the
problem and evaluates the outcome of various
alternative strategies.
iv. System approach:- OR trace out all
significant and indirect effects for each
proposal on all sub-system on a system and to
evaluate each action in terms of effects for the
system as a whole.

10. The inter-relationship and interaction of each sub-
system can be handled with the help of
mathematical/analytical models of OR to
obtain acceptable solution.
vi. Objective :-OR always try to find the best and
optimal solution to the problem.
 For this purpose objectives of the organization
are defined and analyzed.
These objectives are then used as the basis to
compare the alternative courses of action.
vii. Human factors :- it considers human factors
viii. Use of computer:- we can use computer for
complex problem solving .

11. 1.4.Scope and Applications of O R
 OR is not only confined to any specific agency like defense
services but today it is widely used in all industrial
organizations.
 It can be used to find the best solution to any problem be it
simple or complex.
 It is useful in every field of human activities.
 The main fields where OR;-
A. National Planning and Budgeting
Plans(one year, five Years, ten years…)
Annual Budgets
Forecasting of Income and Expenditure
Scheduling of Major Projects of National Importance
Estimation of GNP & GDP
Population
Employment and Generation of Agriculture Yields, etc

12. B. Defense Services
Development of NewTechnology
Optimization of Cost andTime
Tender Evaluation
Setting and Layouts of Defence Projects
Assessment of “Threat Analysis”
Strategy of Battle
Effective Maintenance and Replacement of Equipment
Inventory Control,
Transportation
Supply Depots, etc.
C. Industrial Establishments and Private Sector Units
Plant Location and Setting Finance Planning
Product and Process Planning
Facility Planning and Construction
Production Planning and Control
Purchasing
Maintenance Management
Personnel Management, etc.

13. D.R&D and Engineering:- Research and development being the
heart of technological growth, OR has wide scope and can be
applied in-
Technology Forecasting and Evaluation,
Technology and Project Management,
Value Engineering,
Work/Method Study and so on.
E.Agriculture science
 Inventory control
 Facility design (distribution decision)
 Product mix determination
 Portfolio analysis
 Allocation of scarce resources(land, labor, capital…..
 Agricultural Investment decisions
 Agricultural Project management.

14. 1.5. Overview of the OR
modeling approach
Seven phases of Operations Research Study :-
Step 1: Formulate the problem :analyst first defines
the organization’s problem.
This includes specifying the organization’s
that must be studied before the problem can be
solved.
Step 2: Observe the system: collects data to
estimate the values of the parameters that
affect the organization’s problem.
Step 3: Formulate mathematical model of the
problem: analyst develops an idealized
representation i.e. a mathematical model
of the problem.

15. Step 4: Verify the model and use it for prediction:
determine if the mathematical model developed in
Step 3 is an accurate representation of the reality.
The verification typically includes observing the
system to check if the parameters are correct.
If the model does not represent the reality well
enough then the OR analyst goes back either to Step
3 or Step 2.
Step 5: Select a suitable alternative Given a model
and a set of alternatives: the analyst now
chooses the alternative that best meets the
organization’s objectives.
Sometimes there are many best alternatives

16. Step 6: Present the results and conclusions :analyst
presents the model and recommendations from
Step 5 to the organization’s decision-makers.
At this point OR analyst may do not approve of the
recommendations due to incorrect definition of the
organization’s problems or parameters or the
mathematical model.The analyst goes back to Step 1,
Step 2, or Step 3, where the disagreement lies.
Step 7: Implement and evaluate recommendation:
Finally, when the organization has accepted the
study, the OR analyst helps in implementing the
recommendations.
The system must be constantly monitored and updated
dynamically as the environment changes.

17. 1.6. Significance of OR
It provides a tool for scientific analysis and
provides solution for various business
problems.
It enables proper deployment and
optimum allocation of scarce resources.
It helps in minimizing waiting and servicing
costs.
It enables the management to decide
when to buy and how much to buy
through the technique of inventory
planning.

18. It helps in evaluating situations involving
uncertainty
It enables experimentation with models,
thus eliminating the cost of making errors
while experimenting with reality.
It allows quick and inexpensive
examination of large numbers of
alternatives.
In general OR facilitates and improves the
decision making process.

19. Techniques/Tools of Operational
Research
Linear Programming
Integer Problems
Transportation Problems
Assignment Problems
Network analyses