Management Science: Decision-Making Through Systems Thinking

Contents......Page 8
Preface......Page 14
1.1 Motivation......Page 18
1.2 Systems thinking......Page 22
1.3 Overview of what follows......Page 23
Part 1 Systems and systems thinking: Introduction......Page 25
2.1 Increased complexity of today's decision making......Page 27
2.2 Efficiency and effectiveness......Page 30
2.3 Unplanned and counterintuitive outcomes......Page 32
2.4 Reductionist and cause-and-effect thinking......Page 34
2.5 Systems thinking......Page 35
Exercises......Page 36
3.1 Pervasiveness of systems......Page 38
3.2 Out-there and inside-us view of systems......Page 39
3.3 Subjectivity of system description......Page 41
3.4 Formal definition of the concept 'system'......Page 44
3.5 System boundary and relevant environment......Page 46
3.6 Some examples of system descriptions......Page 47
3.7 Systems as 'black boxes'......Page 51
3.8 Hierarchy of systems......Page 52
3.9 System behaviour......Page 54
3.10 Different kinds of system......Page 57
3.11 Feedback loops......Page 59
3.12 Control of systems......Page 61
3.13 Chapter highlights......Page 66
Exercises......Page 67
4.1 The problem situation and what is a 'problem'?......Page 70
4.2 Stakeholders or roles of people in systems......Page 73
4.3 Problem situation summary — mind maps......Page 76
4.4 Rich picture diagrams......Page 78
4.5 Guidelines for mind maps and rich pictures......Page 80
4.6 Uses and strengths of rich pictures and mind maps......Page 82
4.7 Cognitive mapping......Page 83
4.8 Cognitive map for NuWave Shoes......Page 84
4.9 Problem definition and boundary selection......Page 90
4.11 Chapter highlights......Page 92
Exercises......Page 93
5.1 System models......Page 98
5.2 Approaches for describing a relevant system......Page 100
5.3 Essential properties of good models......Page 104
5.4 The art of modelling......Page 107
5.5 Causal loop diagrams......Page 109
5.6 Influence diagrams......Page 112
5.7 Other system diagrams......Page 116
5.8 Chapter highlights......Page 122
Exercises......Page 123
Part 2 Management science methodologies: Introduction......Page 125
6.1 Hard OR paradigm and diagrammatic overview......Page 130
6.2 Problem formulation or problem scoping......Page 131
6.3 The project proposal or go-ahead decision......Page 133
6.4 The problem modelling phase......Page 136
6.6 The nature of the hard OR process......Page 140
6.7 The Lubricating Oil Division — a situation summary......Page 142
6.8 Identifying the problem to be analysed......Page 145
6.9 Relevant system for stock replenishment problem......Page 148
6.10 Project proposal for LOD......Page 150
6.11 A complete definition of the relevant LOD system......Page 151
6.12 Mathematical models......Page 154
6.13 Mathematical model for LOD: first approximation......Page 157
6.14 Second approximation for LOD model......Page 159
6.15 Exploring the solution space for T(L,Q)......Page 160
6.17 Sensitivity and error analysis of the LOD solution......Page 164
6.19 Deriving a solution to the model......Page 167
6.20 Reflections on the hard OR methodology......Page 171
6.21 Chapter highlights......Page 173
Exercises......Page 174
Appendix 1......Page 180
Appendix 2......Page 183
7 Soft systems thinking......Page 188
7.1 Soft system paradigm and working modes......Page 189
7.2 Checkland's soft systems methodology......Page 192
7.3 SSM applied to the NuWave Shoe problem......Page 194
7.4 Strategic option development and analysis......Page 199
7.5 Strategic choice approach......Page 201
7.6 SCA applied to NuWave Shoes......Page 204
7.7 Survey of other problem structuring approaches......Page 209
7.8 Critical systems heuristics, critical systems thinking, meta-methodologies......Page 213
7.9 Concluding remarks......Page 218
7.10 Chapter highlights......Page 219
Exercises......Page 220
8.1 Implementation and its difficulties......Page 222
8.2 Planning for implementation......Page 224
8.3 Controlling and maintaining the solution......Page 227
8.4 Following up implementation and model performance......Page 229
8.5 Ethical considerations......Page 230
8.6 Chapter highlights......Page 233
Exercises......Page 234
Part 3 Assessing costs and benefits, and dealing with time......Page 235
9.1 Explicit, implicit, and intangible costs......Page 236
9.2 Accounting versus economics concepts of costs......Page 238
9.3 Relevant costs and benefits......Page 240
9.4 Champignons Galore — problem formulation......Page 245
9.5 Champignons Galore — analysis of costs......Page 249
9.6 Mathematical model for annual profit......Page 252
9.7 Computation of cost factors for each subsystem......Page 254
9.9 Chapter highlights......Page 255
Exercises......Page 258
Appendix: Champignons Galore — situation summary......Page 262
10 Discounted cash flows......Page 268
10.1 The time value of money......Page 269
10.2 The present value of a series of cash flows......Page 271
10.3 Annuities and perpetuities......Page 274
10.4 Accept/reject criteria for financial projects......Page 275
10.5 Choice of target rate of return......Page 276
10.6 Spreadsheet financial functions......Page 279
10.7 Dependent and mutually exclusive projects......Page 281
10.8 Replacement decisions......Page 285
Exercises......Page 292
11 Decision making over time......Page 299
11.1 The planning horizon......Page 300
11.2 Situation summary for seasonal production plan......Page 303
11.3 Choice of planning horizon......Page 305
11.4 Influence diagram for production planning problem......Page 306
11.5 Spreadsheet model......Page 307
11.6 Finding the optimal production plan......Page 310
11.7 Considerations for practical implementation......Page 314
11.8 An example of a rolling planning horizon......Page 315
11.10 Chapter highlights......Page 320
Exercises......Page 321
Part 4 Hard MS/OR methods......Page 325
12.1 Marginal analysis versus incremental analysis......Page 327
12.2 Total costs, marginal and average costs......Page 328
12.3 Total revenue and marginal revenue......Page 334
12.4 Breakeven analysis......Page 335
12.5 Basic principle of marginal analysis......Page 338
12.6 Applications of marginal analysis......Page 339
12.7 Marginal analysis for continuous variables......Page 342
12.8 Marginal analysis and differential calculus......Page 343
12.9 Incremental analysis......Page 344
12.10 A logistics analysis......Page 345
12.11 An investment portfolio selection......Page 353
12.12 Chapter highlights......Page 355
Exercises......Page 356
13 Constrained decision making......Page 359
13.1 Resource constraint on a single activity......Page 360
13.2 Sensitivity analysis......Page 363
13.3 Shadow price of a constraint......Page 364
13.4 Interpretation and uses of shadow price......Page 367
13.5 Several activities sharing a limited resource......Page 369
13.6 Discrete and irregular sized requirements of a resource......Page 371
Exercises......Page 373
14 Multiple constraints: linear programming......Page 376
14.1 Constrained optimization......Page 377
14.2 A product mix example......Page 379
14.3 A linear programming model......Page 382
14.4 Solution by computer......Page 385
14.5 Effect of forcing production of luxury......Page 395
14.6 Pineapple Delight case study......Page 396
14.7 A transportation problem......Page 403
14.8 Chapter highlights......Page 408
Exercises......Page 409
Appendix: Graphical solution to an LP......Page 418
15 Uncertainty......Page 424
15.1 Linguistic ambiguity about uncertainty......Page 425
15.2 Causes of uncertainty......Page 427
15.3 Types and degrees of uncertainty......Page 428
15.4 Prediction and forecasting......Page 429
15.5 Predictions by expert judgement......Page 432
15.6 Probability measures and their interpretation......Page 435
15.7 Behavioural research on subjective probabilities......Page 437
15.8 Random variables and probability distributions......Page 442
15.9 Expected value and standard deviation......Page 443
15.10 Approaches to deal with/reduce uncertainty......Page 444
15.11 Decision criteria under uncertainty......Page 447
15.12 Chapter highlights......Page 448
Exercises......Page 449
16 Waiting lines: stochastic systems......Page 451
16.1 Waiting lines......Page 452
16.2 What causes queues to form?......Page 455
16.3 Formulas for some simple queueing models......Page 460
16.4 The NZ Forest Products weighbridge case......Page 468
16.5 The two-weighbridge option......Page 474
16.6 Some conclusions......Page 475
16.7 Chapter highlights......Page 476
Exercises......Page 477
17 Simulation and system dynamics......Page 480
17.1 The weighbridge problem revisited......Page 481
17.2 The structure of simulation models......Page 489
17.3 How is a simulation planned and run?......Page 494
17.4 Computer simulation packages......Page 500
17.5 Other simulation structures......Page 502
17.6 System dynamics — continuous system simulation......Page 504
17.7 A simple health and social services model in ithink......Page 505
17.8 Process design in UK health care and social services......Page 507
17.9 Conclusions on simulation as a tool......Page 513
17.10 A comparison of the weighbridge queueing and simulation models......Page 517
17.11 Chapter highlights......Page 518
Exercises......Page 519
18 Decision and risk analysis......Page 523
18.1 Setting up a decision problem......Page 524
18.2 A decision problem with monetary outcomes......Page 528
18.3 The expected value of perfect information......Page 533
18.4 Capturing the intrinsic worth of outcomes......Page 535
18.5 Utility analysis......Page 538
18.6 Risk analysis: basic concepts......Page 543
18.7 Risk analysis for a ski-field development......Page 544
18.8 Chapter highlights......Page 551
Exercises......Page 552
19 Decisions with multiple objectives......Page 557
19.1 Three real MCDM problem situations......Page 558
19.2 Traditional MS/OR approach......Page 561
19.3 Some basic issues in MCDM......Page 562
19.4 The process of evaluating choices......Page 565
19.5 Conference venue selection......Page 567
19.6 Sensitivity analysis......Page 573
Exercises......Page 574
20 Reflections on MS/OR......Page 577
Bibliography......Page 581
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