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• 0:04 Operations Research
• 1:05 An Example
• 1:50 Limitations
• 5:06 Lesson Summary

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Lesson Transcript
Instructor: Danielle Reed

Danielle works in digital marketing and advertising. She holds a bachelor's degree in English and an MBA.

After describing operations research as a general operations management strategy, this lesson covers the limitations and advantages of the method. Learn about why this method is applied in service and product-based businesses.

Operations Research

Have you ever watched shows or listened to podcasts about small businesses? On every episode, potential investors argue about the best way to spend limited monetary resources. Every side has a fair argument and most proposed paths could lead to real success.

Operations research is an operations management strategy that uses mathematical methods to find the right decision among a series of potentials. It uses mathematical, computational, and scientific methods for making decisions. Common applications of the mathematics of operations research include optimization, economics, simulation, and network analysis. In any business, you have scarce resources that need the most efficient allocation; operations research helps determine the right allocation.

While there are many advantages to operations research, the method does have its limits. Entrepreneurs should learn about both sides of operations research before applying it to a business decision.

An Example

Operations management can be applied to every type of business decision in the workplace. An example of operations research in the workplace would be the simulation of an airplane boarding process. Through the use of simulation software, different activities and paths can be tracked. Proper analysis reveals how concurrent activities occur in tandem, which activities must follow a sequence, and the amount of time spent on each activity.

The example of an airplane boarding simulation reveals how customers use your product or service, the full range of potential paths, the most common and understandable path, resource usage, and even sources of bottlenecks in foot traffic. A manager can now analyze the results to change flows in troublesome paths.

Limitations

As with any management system, there are flaws with operations research. In fact, some of the biggest limitations stem out of the advantages. For example, comparing fairly accounts for a completely impartial statistical analysis, but with people there are factors that cannot be quantified. Limitations of operations research include:

• Higher cost: Operations research has a high upfront cost for everything, including thorough analysis, professional assessment, and consultation fees. Because the field of study is so detailed, most companies need to pay a consultant for an operations research analysis.
• Relying on technology: The math required to analyze situations needs to be done by a computer. If technology fails or you lose records somehow, the operations of the company would be affected.
• Not accounting for the human element: While math is important and impartial in assessment, there is always a human element to business. For example, an investor with the greatest number of shares in your company may demand that a certain percentage of funding be used in a scenario that isn't the best according to operations research.
• Estimates used may be wrong: In many cases, you'll need to rely on estimates in operations research. A misleading result could be one you use for making a decision.

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