Chapter 1

An Introduction to Model Building

to accompany
Operations Research: Applications and Algorithms
4th edition
by Wayne L. Winston

Copyright (c) 2004 Brooks/Cole, a division of Thomson Learning, Inc.

1.1 An Introduction to Modeling
„ Operations research (management science)
is a scientific approach to decision making that
seeks to best design and operate a system,
usually under conditions requiring the
allocation of scarce resources.
† Term coined during WW II when leaders asked
scientists and engineers to analyze several military
problems.
„ A system is an organization of interdependent
components that work together to accomplish
the goal of the system.

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„ The scientific approach to decision making
requires the use of one or more mathematical
models.
„ A mathematical model is a mathematical
representation of the actual situation that may
be used to make better decisions or clarify the
situation.

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Example 1: A Modeling Example
„ Eli Daisy produces the drug Wozac in batches
by heating a chemical mixture in a pressurized
container.
„ Each time a batch is produced, a different
amount of Wozac is produced.
† The amount produced is the process yield (measured
in pounds).
„ Daisy is interested in understanding the factors
that influence the yield of Wozac production
process.
„ Describe a model-building process for this
situation. 4
 Example 1: Solution
„ Daisy is first interested in determining the
factors that influence the process yield.
† This is a descriptive model since it describes the
behavior of the actual yield as a function of various
factors.
„ Daisy might determine that the following
factors influence yield:
† Container volume in liters (V)
† Container pressure in milliliters (P)
† Container temperature in degrees centigrade (T)
† Chemical composition of the processed mixture

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Ex. 1: Solution continued
„ Letting A, B, and C be the percentage of the
mixture made up of chemical A, B, and C, then
Daisy might find , for example, that: 2 2
Yield = 300 + 0.8V +0.01P + 0.06T + 0.001T*P - 0.01T – 0.001P +
11.7A + 9.4B + 16.4C + 19A*B + 11.4A*C – 9.6B*C

„ To determine the relationship the yield of the

process would have to measured for many
different combinations of the factors.
„ Knowledge of this equation would enable Daisy
to describe the yield of the production process
once volume, pressure, temperature, and
chemical composition were known.
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„ Prescriptive models “prescribe” behavior for
an organization that will enable it to best meet
its goals.
† Components of this model include:
„ objective function(s)
„ decision variables
„ constraints

„ An optimization model seeks to find values

of the decision variables that optimize
(maximize or minimize) an objective function
among the set of all values for the decision
variables that satisfy the given constraints.
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Ex. 1: Solution continued
„ The Daisy example seeks to maximize the yield
for the production process.
„ In most models, there will be a function we
wish to maximize or minimize. This function is
called the model’s objective function.
„ To maximize the process yield we need to find
the values of V, P, T, A, B, and C that make
the yield equation (below) as large as possible.
2 2
Yield = 300 + 0.8V +0.01P + 0.06T + 0.001T*P - 0.01T – 0.001P
+ 11.7A + 9.4B + 16.4C + 19A*B + 11.4A*C – 9.6B*C

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„ In many situations, an organization may have
more than one objective.
† For example, in assigning students to the two high
schools in Bloomington, Indiana, the Monroe County
School Board stated that the assignment of students
involve the following objectives:
„ equalize the number of students at the two high
schools
„ minimize the average distance students travel to
school
„ have a diverse student body at both high schools

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„ Variables whose values are under our control
and influence system performance are called
decision variables.
† In the Daisy example, V, P, T, A, B, and C are
decision variables.
„ In most situations, only certain values of the
decision variables are possible.
† For example, certain volume, pressure, and
temperature conditions might be unsafe. Also, A, B,
and C must be nonnegative numbers that sum to one.
„ These restrictions on the decision variable
values are called constraints.

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 Ex. 1: Solution continued
„ Suppose the Daisy example has the following
constraints:
† Volume must be between 1 and 5 liters
† Pressure must be between 200 and 400 milliliters
† Temperature must be between 100 and 200 degrees
centigrade
† Mixture must be made up entirely of A, B, and C
† For the drug to perform properly, only half the
mixture at most can be product A.

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Ex. 1: Solution continued
„ Mathematically, these constraints can be
expressed:

V≤5 A≥0
V≥1 B≥0
P ≤ 400 C≥0
P ≥ 200 A + B + C = 1.0
T ≤ 200 A ≤ 0.5
T ≥ 100

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 Ex. 1: Solution continued
„ The Complete Daisy Optimization Model
† Letting z represent the value of the objection function
(the yield), the entire optimization model may be
written as:
2
Maximize z = 300 + 0.8V +0.01P + 0.06T + 0.001T*P - 0.01T
2
– 0.001P + 11.7A + 9.4B + 16.4C + 19A*B + 11.4A*C – 9.6B*C

Subject to (s.t.) V≤5 T ≤ 200 A≥0

V≥1 T ≥ 100 B≥0
P ≤ 400 A + B + C = 1.0 C≥0
P ≥ 200 A ≤ 0.5

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 Ex. 1: Solution continued
„ Any specification of the decision variables that
satisfies all the model’s constraints is said to
be in the feasible region.
† For example, V = 2, P = 300, T = 150, A = 0.4, B =
0.3 and C = 0.3 is in the feasible region.
„ An optimal solution to an optimization model
any point in the feasible region that optimizes
(in this case maximizes) the objective function.
† Using LINGO, it can be determined that the optimal
solution to its model is V = 5, P = 200, T = 100, A =
0.294, B = 0, C = 0.706, and z = 209.384.

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 Ex. 1: Solution continued
„ Daisy problem formulation in LINGO 7.0

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 Ex. 1: Solution continued
„ Solution extract of Daisy example (shown
without slack, surplus, or dual prices) using
LINGO 7.0

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Category of the Models
„ A static model is one in which the decision
variables do not involve sequences of decisions
over multiple periods.
„ A dynamic model is a model in which the
decision variables do involve sequences of
decisions over multiple periods.
„ A linear model is one in which the objective
function and the constraints are linear.
„ The Daisy example is a nonlinear model. In
general, nonlinear models are much harder to
solve.
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„ If one or more of the decision variables must
be integer, then we say that an optimization
model is an integer model.
„ If all the decision variables are free to assume
fractional values, then an optimization model is
a noninteger model.
† The Daisy example is a noninteger example since
volume, pressure, temperature, and percentage
composition are all decision variables which may
assume fractional values.
„ Integer models are much harder to solve than
noninteger models.
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„ A deterministic model is a model in which for
any value of the decision variables the value of
the objective function and whether or not the
constraints are satisfied is known with certainty.
If this is not the case, then we have a
stochastic model.
† If we view the Daisy example as a deterministic
model, then we are making the assumption that for
given values of V, P, T, A, B, and C the process yield
will always be the same.
† Since this is unlikely, the objective function can be
viewed as the average yield of the process for given
decision variable values.
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1.2 The Seven-Step Model-
Building Process
1. Formulate the Problem
† Define the problem.
† Specify objectives.
† Determine parts of the organization to be studied.
2. Observe the System
† Determine parameters affecting the problem.
† Collect data to estimate values of the parameters.
3. Formulate a Mathematical Model of the
Problem

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4. Verify the Model and Use the Model for
Prediction
† Does the model yield results for values of decision
variables not used to develop the model?
† What eventualities might cause the model to become
invalid?
5. Select a Suitable Alternative
† Given a model and a set of alternative solutions,
determine which solution best meets the
organizations objectives.

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6. Present the Results and Conclusion(s) of
the Study to the Organization
† Present the results to the decision maker(s)
„ If necessary, prepare several alternative solutions
and permit the organization to choose the one that
best meets their needs.
† Any non-approval of the study’s recommendations
may have stemmed from an incorrect problem
definition or failure to involve the decision maker(s)
from the start of the project.
„ In such a case, return to step 1, 2, or 3.

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7. Implement and Evaluate
Recommendations
„ Assist in implementing the recommendations.
„ Monitor and dynamically update the system as the
environment and parameters change to ensure that
recommendations enable the organization to meet its
goals.

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1.3 CITGO Petroleum
„ Klingman et. Al. (1987) applied a variety of
management-science techniques to CITGO
Petroleum. Their work saved the company an
estimated $70 million per year.
„ Focus on two aspects of the CITGO’s team’s
work:
1. A mathematical model to optimize the operation of
CITGO’s refineries.
2. A mathematical model – supply, distribution and
marketing (SDM) system – used to develop an 11-
week supply, distribution and marketing plan for the
entire business.

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„ The Supply Distribution Marketing (SDM)
System
Step 1 (Formulate the Problem) CITGO wanted a
mathematical model that could be used to make
supply, distribution, and marketing decisions such as:
„ Where should the crude oil be purchased?
„ Where should products be sold?
„ What price should be charged for products?
„ How much of each product should be held in
inventory?
The goal was to maximize profitability associated with
these decisions.

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Step 2 (Observe the System) A database that kept
track of sales, inventory, trades, and exchanges of all
refined goods was installed. Also regression analysis
was used to develop forecasts of for wholesale prices
and wholesale demand for each CITGO product.
Step 3 (Formulate a Mathematical Model of the Problem)
and Step 5 (Select Suitable Alterative Solutions) A
minimum-cost network flow model (MCNFM) is used
a determine an 11-week supply, marketing, and
distribution strategy.
„ The model makes all decisions discussed in Step 1.
„ A typical model run involved 3,000 equations and
15,000 decision variables required only 30 seconds
on an IBM 4381.
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Step 4 (Verify the Model and Use the Model for
Prediction)
„ The forecasting models are continuously evaluated to
ensure that they continue to give accurate forecasts.
Step 6 (Present the Results and Conclusions) and Step
7 (Implement and Evaluate Recommendations)
Implementing the SDM required several
organizational changes.
„ A new vice-president was appointed to coordinate
the operation of the SDM and refinery LP model.
„ The product supply and product scheduling
departments were combined to improve
communications and information flow.

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