This article throws light upon the four main steps involved in the construction of OR model. The steps are: 1. Selecting Components of the System 2. Pertinence of Components 3. Combining the Components 4. Substituting Symbols.
Step # 1. Selecting Components of the System:
All the components of the system which contribute towards the effectiveness measure of the system should be listed.
Step # 2. Pertinence of Components:
Once a complete list of components is prepared the next step in the construction of OR model is to find whether or not to take each of these components into account. This is determined by finding the effect of various alternative courses of action on each of these components. Generally, one or more components are independents of the changes made among the various alternative courses of action. Such components may be temporarily dropped from consideration.
Step # 3. Combining the Components:
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It may be convenient to group certain components of the system. The next step in the construction of OR model is to determine. For each component remaining on the modified list, whether its value is fixed or variable. If a component is variable, various aspects of the system affecting its value must be determined.
Step # 4. Substituting Symbols:
Once each variable components in the modified list has been broken down then symbol may be assigned to each of these sub-components.
The foregoing steps will be clear from the example given below:
A news boy wants to decide the number of newspaper. He should order to maximize his expected profit. He purchased a certain number of newspaper every-day and sells some or all of them. He earns a profit on each paper sold. He can return the unsold papers, but at a loss.
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The number of persons who buy newspapers varies from day – to- day. To construct the model for this problem, we identify the various relevant components and then assign symbols to them.
Let
N = No. of newspapers ordered per day
A = Profit earned on each newspaper sold.
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B = Loss on each newspaper returned
D = Demand i.e., no. of newspaper sold per day
P(D) = Probability that the demand will be equal to D on any randomly selected day.
P = Net profit per day.
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If D>N i.e., demand is more than the no. of newspapers ordered, the profit to the news boy is p(D> N) = NA
If on the other hand, demand is less than the member ordered, the profit is
P(D≤h) = DA —(N – D)B
... Net expected profit per day, p can be expressed as:
This is a decision model of the risk type. Here, p is the measure of performance. N. is the controlled variable, D is an uncontrollable variable, while A and B are uncontrollable variable, while A and B are uncontrollable constants solution of this model consists of finding that value of N which maximizes p.