Page 16 - DCOM303_DMGT504_OPERATION_RESEARCH

Unit 1: Introduction to Operations Research

SV = Sales Volume Notes
VC = Variable Cost.
The break-even point occurs when
TSR = TC or (SV) (PU) = TFC + SV (VC)

Hence, the volume (BEP) is determined by
FC
BEP = – VC represents the contribution to fixed cost.
SP VC
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(ii) Probabilistic Models: The risk involved and the state of uncertainty are covered
by these models. The decision variables take the form of a probability
distribution and can assume more than single values. In the presence of risk
and uncertainty, these models tend to yield different answers every time
when attempted to. For example, uncertainty over acquisition of raw material
to execute customer orders during a certain period. The purchaser has to
consider both the sale and the delivery timing of the orders as they are
variables. A probability distribution can be developed for the instant period
for both sales delivery timings. However, the optimum selection is adhered
to in accordance with the demand of the situation.
(3) Combined Analogue and Mathematical Models: When analogue models are interpreted
with the use of mathematical symbols, they can be termed as physical-symbolic models.
For instance, decision-makers tend to use mathematical symbols to represent their sales
or profit figures.
(4) Function Models: Models which are used to represent a group of functions performed, are
called function models.

Example: A monthly plan of processes to be carried on, a list of layouts, a calendar of
events are the common examples of a functional model.
(5) Heuristic Models: When intuition guides a problem-solver to find solutions, heuristic
models are developed. Even though he would not be able to find an optimum solution to
the problem, with his past experience he arrives at the most advantageous solution.
However, it depends on how intuitive and creative the decision-maker is.

!
Caution Models do not, and cannot represent every aspect of reality because of the
innumerable and changing characteristics of the real-life problems to be represented.
Instead, a model is the simplified representation or abstraction of reality.

Task Give real world examples of following OR models:
1. Analogue models
2. Symbolic models

3. Probabilistic model
4. Deterministic model

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