THE GUIDE TO OPERATIONAL RESEARCH
BOLDER
DECISIONS
WITH LESS
GUT-FEEL
THE WORLD’S MOST SUCCESSFUL EXECUTIVES ARE
MAKING BOLDER DECISIONS – AND RUNNING EVERYDAY
OPERATIONS – WITH LESS RISK AND BETTER OUTCOMES.
THEIR SECRET?
OPERATIONAL RESEARCH: THE SCIENCE OF BETTER
OUR NETWORK SALES
ORGANISATION HAS SEEN
FIRSTHAND HOW OPERATIONAL
RESEARCH METHODOLOGIES CAN
REVOLUTIONISE HOW WE WORK.
WE WILL CONTINUE TO DEPLOY
THESE TECHNOLOGIES ACROSS ALL
FUNCTIONS AS WE GROW AND
IMPROVE OUR BUSINESS.
“
ROBERT C. WRIGHT
VICE CHAIRMAN & EXECUTIVE OFFICER, GE
CHAIRMAN & CEO, NBC
”
CONTENTS
UNDERSTANDING O.R.
HOW O.R. COULD HELP YOUR BUSINESS
FINDING O.R. EXPERTISE
O.R. ONLINE RESOURCE
OPERATIONAL RESEARCH:
THE SECRET OF BETTER DECISION MAKING
IN A COMPLEX WORLD
THE SECRET OF BETTER DECISION MAKING IN A COMPLEX WORLD
We all have to make decisions based on ‘gut-feel’ sometimes. But it’s best to
avoid making too many decisions based on ‘gut-feel’ alone. Executives in every
kind of organisation – large and small, private and public, for-profit and not
for-profit – are using operational research (O.R.) to structure their problems,
unlock the value in their data, model complex systems and make better
decisions with less risk. Whether O.R. is used to inform high-level strategy or
improve day-to-day operations, the results speak for themselves: insight into
difficult problems, improved processes, productivity, and performance. Millions
in cost savings and increased revenues. More (and better) options. Accurate
predictions, plans, and forecasts. More profitable pricing. Greater market share.
Higher quality. Superior ROI. Better customer service. Improved safety.
A healthier population. Better asset utilisation.
O.R. isn’t just another management buzz-word - it’s been around since the
1940s. But in our cost-conscious, productivity-driven age, O.R. professionals
continue to find new ways to use O.R. to increase revenues and profits,
streamline processes and save organisations big money.
THIS GUIDE WILL GET YOU STARTED FAST
In just a few minutes, you’ll learn what you need to know about O.R. What it
really is and why it’s so powerful. You’ll also find out about the kind of value it
has delivered for others and how to recognise your own opportunities. And, how
to find and work with the right O.R. professional.
REDUCING QUEUE DURATIONS
AND LENGTHS, CONTAINING
QUEUES WITHIN THE BMI CHECKIN CONCOURSE AND IMPROVING
THE CUSTOMER CHECK-IN
EXPERIENCE. (full story page 8)
3
WHAT IS OPERATIONAL RESEARCH?
In a nutshell, O.R. is the discipline of applying appropriate, often advanced,
analytical methods to help make better decisions.
By using techniques such as problem structuring methods and mathematical
modelling to analyse complex situations, operational research gives executives
the power to make more effective decisions and build more productive systems
based on:
A better understanding of the problems
More complete data
Consideration of all available options
Careful predictions of outcomes and estimates of risk
The latest decision tools and techniques
A UNIQUELY POWERFUL APPROACH TO DECISION MAKING
You’ve probably seen dozens of articles and ads about solutions that claim to
enhance your decision-making capabilities. You may not realise it, but the best
of these solutions are based on O.R.
When it comes to technology that assists decision making, O.R. is unique. It’s
best of breed, employing highly developed methods practiced by specially
trained professionals. It’s powerful, using advanced tools and technologies to
provide analytical power that no ordinary software or spreadsheet can deliver
out of the box. And it’s tailored to individual needs, because an O.R. professional
offers organisations the ability to define a specific challenge in ways that make
the most of the available data and uncover the most beneficial options.
THE EFFECT OF SUPPOSEDLYEMPTY PROPERTIES THAT WERE IN
FACT OCCUPIED WAS COMPUTED THESE ACCOUNTED FOR
£1.5MILLION WORTH OF WATER
LEAKAGE ALONE. (full story page 9)
4
To achieve these results, O.R. professionals draw upon the latest analytical
technologies, including:
Problem structuring methods – helping managers to comprehend the real
nature of the problems they face.
Simulation – giving organisations the ability to try out approaches and test
ideas for improvement and answer ‘what if’ questions.
Optimisation – narrowing the choices to the very best when there are virtually
innumerable feasible options and comparing them is difficult.
Probability and statistics – helping organisations to measure risk,
mine data to find valuable connections and insights, test conclusions,
and make reliable forecasts.
ALREADY AT WORK AROUND YOU
O.R., which can be used for strategic planning, operational planning and
decision making, has enhanced organisations and experiences all around us.
From better scheduling of airline crews to the design of queuing policies at
Disney theme parks. From two-person start-ups to FTSE100 leaders.
From resource planning in the National Health Service to local and national
government - where O.R. supports policy-making, strategy and operations in
many different departments by providing advice on how to make the best
possible use of public money.
See some more examples of O.R. at work at
www.scienceofbetter.co.uk
DETECTION RATES IMPROVED,
PLUS SAVINGS OF £2.47 MILLION
IN THE FIRST YEAR OF
IMPLEMENTATION.
(full story page 10)
5
WHAT OPERATIONAL RESEARCH
CAN DO FOR YOU
Organisations and the world in which they operate continue to become more
complex. Huge numbers of choices and relentless time and margin pressures
make the decisions managers face more daunting and more difficult. Meanwhile,
new enterprise applications and software are generating massive amounts of
data – and it can seem like an overwhelming task to turn that data into insight
and answers.
But all that data and the availability of more and cheaper computing power are
creating an important opportunity for decision makers, one that O.R. is ideally
designed to help them take advantage of.
O.R. professionals thrive on challenges that involve tricky problems,
large numbers of variables, complex systems, and significant risks.
IDENTIFYING AN O.R. OPPORTUNITY
Opportunities to benefit from O.R. are everywhere! Most executives begin
with a general review of their organisation, its departments, and its processes.
They look for difficult decisions that could benefit from the analysis of large
amounts of data – like where to locate a new plant or service centre or how to
make manufacturing processes or service delivery more efficient. Perhaps they
then look for complex processes that are being performed manually or with
outdated systems, or for decisions that are made routinely and might benefit
from automation.
O.R. can help with answers to tricky questions such as ‘Are we gaining the most
from our supply chain, logistics, or systems? Our manufacturing or customer
service processes? The way we deliver our products or services, set our prices,
or evaluate our portfolio?’
These are all areas where O.R. can help executives to make
significant improvements.
AN AVERAGE COST BENEFIT
OF BETWEEN £2,800 - £4,200
ACHIEVED, PER PRODUCT LINE
PER YEAR. (full story page 11)
6
7 SIGNS THAT AN ORGANISATION COULD
BENEFIT FROM OPERATIONAL RESEARCH
1. The management face complex decisions. Management are faced with
more decision factors than they feel they can cope with and key operational
information systems lack ‘intelligence’. O.R. professionals can analyse complex
situations and build intelligence into key systems, so as to reveal the truly
best options.
2. The management isn’t sure what the main problem is. Managers know that
they face problems but find it difficult to determine exactly what the problems
are, or which areas and projects should be prioritised.
3. The management is uncertain about potential outcomes. Managers face
great uncertainty about the operating environment and what could happen as a
consequence of various decisions. O.R. professionals can model various
scenarios, undertake ‘what-if’ analyses and help to determine potential
outcomes and strategies.
4. The organisation is having problems with processes. One or more of the
organisation’s processes is broken or needs to work a lot better. Many small,
day-to-day decisions are not being made well, and it’s having an impact on the
bottom line. O.R. can help improve these processes and their outcomes.
5. Management is troubled by risk. Assessing the risk of a new project or
contract can be tricky. O.R. can help to quantify risk, which is key to controlling
it. O.R. professionals can assist by planning how best to balance risk against the
gains an organisation can expect.
6. The organisation is not making the most of its data. Most organisations
probably track information about many aspects of their operations and have
huge amounts of data they’re not sure how to use for decision making. O.R.
specialises in working with data – extracting the most valuable information from
what’s currently collected, and showing what additional data could be collected
to increase the value even further.
7. The organisation needs to beat stiff competition. Others in the organisation’s
field are probably already using O.R. to gain competitive advantage. An O.R.
professional can help an organisation to stay on top with the latest methods –
and open up important new sources of advantage.
THE PROJECT ACHIEVED
IMPACT IN CYCLE ALIGNMENT TO
THE EXTENT THAT £40 MILLION
HAS BEEN SAVED ON STORAGE
COST ALONE. (full story page 12)
7
O.R. HELPS BMI IMPROVE USE OF
CHECK-IN CAPACITY AT HEATHROW AIRPORT
THE CHALLENGE
bmi, the second highest frequency carrier
through London Heathrow Airport, has a
check-in operation at Terminal 1 that
handles up to 10,000 passengers each day.
A range of check-in products are available
to passengers – internet, self-service and
traditional economy and business check-in.
The airline felt that there was opportunity
to make better use of check-in capacity, in
particular take-up of the self-service
product, reducing waiting times for
passengers and congestion at check-in
area, and eliminating the need to expedite
for closing flights.
Transport & Logistics Consultancy
(T&L) applied O.R. and Industrial
engineering-based solutions to
support bmi in achieving these goals.
THE O.R. SOLUTION
Well-established O.R. approaches, in the
form of process optimisation and capacity
modelling solutions, were central to
improving the effectiveness of bmi’s endto-end check-in operation, from passenger
arrival at the check-in concourse through
to their exit from the area following
the transaction.
Solution development was based on root
cause analysis of queues and congestion.
The T&L team analysed check-in activities
on a daily basis for a number of weeks, as
well as a series of historical data. This
provided the necessary depth in
understanding of current constraints,
8
production rates, the effect of passenger
behaviour, and existing and potential
demand for the different check-in products
and transaction types by time of day and
day of week.
To enable the client to calculate capacity
requirements following the process
improvements, a check-in model was
developed. Applying flight schedules,
passenger show-up profiles, production
rates and proportional use of check-in
products, the model determined the
number of check-in and bag drop desks,
self-service kiosks and ground handling
employees required across the operational
day. The custom-designed tool also
demonstrated the formation and duration
of passenger queues at check-in and
established the queuing area requirements
for each product type to accommodate
waiting passengers at peak times.
THE VALUE
The O.R.-based check-in solution
provides the ability to make better use of
self-service desk capacity, maximise the
success rate of each transaction and
minimise the transaction costs in time,
resources and equipment for bmi.
The layout was successfully trialled,
approved and fully installed during the
summer of 2006. bmi is currently applying
the same principles at other UK
operating stations.
visit www.tlconsult.com
O.R. HELPS PLUG THE LEAKS
AT THAMES WATER
THE PROBLEM
Thames Water has over 12 million
customers in the UK and London has over
18,000 kilometres of underground water
piping, much of it laid in the
nineteenth century.
With so much antiquated piping serving so
many customers, Thames Water had a big
strategic problem: how to make sense of
water leakage from piping, in terrain and
to non-billed customers. Another problem
area concerned the under-recording of low
flows from water meters. Thames Water
identified that considerable water losses
were being made, even though they had a
corporate modelling program in place.
Following a post election water summit on
leakage in May 1997, there had been a
Director-level call for corporate modelling
to act as a ‘leakage think tank’. Clearly this
was a time when new attention needed to
be focussed on accurately determining,
how, when and where, and why water
leakages occurred.
THE O.R. SOLUTION
An O.R. project estimated at having a
duration of four years was initiated. One
aspect of the project was to model leakage
and make sense of repair location. Pipe
repairs were mapped to streets and many
possible explanatory factors were
assembled by street. These included age of
piping, traffic loading,soil corrosivity and
'shrinkability' - its tendency to cause
ground movements.
The project identified the need for
engineering trials to focus a 'microscope'
on individual streets, their water demand
and leakage, and also to review pipe
renewal methods. Water meter performance
was also assessed and a case made for the
installation of new meters to give a better
picture on usage and hence leakage.
Two core models were developed. One was
a street gazetteer of repair location, and
the other modelled the dynamics of
leakage over time. Regression-type
models were considered, but were shown
to have too much 'noise', so streets were
grouped together to make 'super streets'.
Time was also spent in the 'field' by O.R.
professionals, particularly in the case of
assessing the numbers of non-billed
customers - some properties had to be
visited repeatedly in order to establish
whether they were occupied and thus
drawing off the water mains.
THE VALUE
The effect of supposedly-empty properties
that were in fact occupied was computed these accounted for £1.5million worth of
water leakage alone. The independent
modelling also allowed differentiation to
be made regarding the mix of small and
large leaking pipes being reported.
Correcting for this led to a significant
improvement in relative efficiency: such
gains were fed through into
allowed price rises.
9
O.R. HELPS DERBYSHIRE CONSTABULARY
CLAMP DOWN ON CRIME
THE PROBLEM
Scenes of Crime Officers (SoCOs).
The UK government’s agenda for
‘Narrowing the Justice Gap’ recently set
out an agenda for reducing crime and the
fear of crime, and for bringing more
offenders to justice.
It was not possible to go to all crimes
though. The vast majority of SoCOs
attended the scene of car and burgling
crimes, the so called “volume crimes”. It
was possible however to “add value” by
attending scenes of crime that would
not usually be considered for
SoCO attendance.
Forensic Science has a critical role to play
in detecting crime through the matching of
fingerprint and DNA evidence lifted from
scenes of crime. Research carried out by
Her Majesty’s Inspectorate of Constabulary
suggested that many forces were failing to
exploit this technology and the processes
involved, to the full.
The use of Data Mining in O.R has proven
to be effective in process improvement and
the Derbyshire Constabulary recognising
this, decided to utilise data mining
techniques along with simulation
modelling to establish how forensic
science process improvements
could be made.
THE O.R. SOLUTION
O.R. consultants were used to develop a
two phase project utilising new
technologies and simulation modelling. Its
brief, simply, was to recommend cost
effective improvements that would result
in increased detection rates of crime.
Phase 1 looked at the process of
generating identifications; phase 2 looked
at the conversion of those identifications
into detections. It quickly became obvious
that process improvements would be
beneficial in decision making too,
particularly deciding on the allocation of
10
Discovering other areas of crime outside
“volume” crime that led to identification
and committal, required the application of
data mining to fully exploit usable
knowledge. Indeed, data analysis showed
that the highest crime detection and solve
rates actually depended on particular
SoCO officers.
This information could be used to
isolate those groups where officers were
under performing, and to make decisions
regarding their retraining to improve
efficiency. The time taken to detect
crime had, under the new system, been
reduced by 68%.
THE VALUE
In financial terms, the application of this
new approach and use of simulation made
a saving of £2.47 million in the first year of
implementation. Applying simulation
methodologies had proved to be a great aid
in improving detection rates, adding value
for money and increasing overall efficiency
of operations. The results of the project
were so significant that the approach taken
has already been rolled out to other police
forces in the UK.
O.R. IMPROVES PERFORMANCE AND
PROFITABILITY FOR A REGIONAL BAKER
THE PROBLEM
A medium sized bakery’s new managing
director inherited a successful business;
he also inherited a large amount of legacy
data and operational processes which
could compromise further growth and
success of the business.
If the company were to maintain its
position and continue to grow in an
increasingly competitive market, the
problems associated with legacy processes
and the processing of legacy data, would
have to be isolated and solved.
The problems identified in this instance
concerned legacy processes at the shop
floor which were clearly inhibiting
performance. Additionally, a significant
amount of the legacy data stored within the
company was either redundant or had
never been used.
Would it be possible to identify redundant
effort in data collection and help
management turn existing data into useful
information for shop floor dissemination?
THE O.R. SOLUTION
The application of ‘soft’ O.R. techniques to
such problems has been particularly
successful – it seemed likely that O.R.
could gain ‘something’ from the legacy
data and improve operational processes.
So a number of tried and tested O.R.
techniques were applied to the
bakery’s problems.
Soft Systems Methodology for example,
was applied, in order to identify actions for
change that would be culturally acceptable
to the company. Subsequently a ‘Balanced
Scorecard’ approach was devised that
incorporated ‘Quick Response
Manufacturing’ and ‘Theories of
Constraint’ that would assist management
with decision making
THE VALUE
The bakery now uses the Balanced
Scorecard concept to provide management
and shop floor staff with relevant
information; and a process mapping
exercise now employed, has allowed for
the switching off of certain processes that
were adding no value to the business.
Reporting systems have now been mapped
and refined to reduce duplication of data
and deliver a ‘single version of the truth’
Another benefit of the application of O.R.
was the discovery that some product lines
experienced higher levels of wastage than
others. Applying a simple mathematical
model to this revealed a means of
operating such product lines at alternative
settings. The application of these
alternative settings generated an average
of £2,800 to £4,200 cost benefit per
product line, per year.
11
O.R. TRANSFORMS INVENTORY
MANAGEMENT PROCEDURE AT HEATHROW
THE PROBLEM
The current business environment at
British Airways, one of the world’s longest
established airlines, is one of growth and
development in all areas of long, medium
and short haul travel. Considering its short
haul operation alone at Heathrow, British
Airways is responsible for 2,600 flights per
week, to 42 UK destinations, using a fleet
of 85 aircraft.
Every one of those 85 aircraft has to
undergo pre-flight checks and regular
mechanical overhauling often involving
parts replacement. Inventory management
for the spare parts needed to maintain an
air fleet for long, medium and short haul
use can be problematical from the
perspective that some components have
short life time cycles and rapid turnover
from inventory. Other components,
however, may be needed less often and
remain in stock for considerable
periods of time.
Identifying a need to optimise engineering
inventory management, British Airways
enlisted the help of O.R. experts to find the
most efficient means of optimising overall
inventory without compromising safety
factors and maintenance turn around.
in various destinations (with about 10%
being housed overseas), decisions had to
be made about issues concerning
component repair, replacement or
scrapping - the O.R. process here was one
that “focused on implementation.”
The O.R. approach led to the construction
of a modelling system that included the
process and technologies for provisioning,
deprovisioning, managing and
synchronising inventory while complying
with governing policies. The modelling
system provided a unified view which aided
the implementation of provisioning and
deprovisioning across multiple stores.
Additionally a user manual was created for
the new model along with guidelines to
how implementation of best practices
would streamline procedures and provide
significant cost benefits.
THE VALUE
The project achieved impact in cycle
alignment to the extent that £40 million
had been saved on storage costs alone.
THE O.R. SOLUTION
Optimisation was achieved by focusing on
costs and best practices within the airline.
British Airways held an inventory of
several thousand components of varying
criticality. These components were stored
12
SEE SOME MORE
EXAMPLES OF O.R. AT WORK AT
WWW.SCIENCEOFBETTER.CO.UK
START BENEFITING
FROM OPERATIONAL RESEARCH NOW
No matter what size or at what stage an organisation is, no matter what kind of
decision, problem, or opportunity it faces, there’s probably a way for O.R. to help.
And the sooner an organisation makes O.R. part of the decision-making
processes, the more far reaching the benefits can be.
FINDING O.R. EXPERTISE
There’s more than one way to engage O.R. professionals who have the expertise
an organisation needs.
Inside the organisation – some companies have employees with O.R. training
in one or more departments – engineering, R&D, IT, scheduling, marketing,
planning, logistics, pricing, etc. Those that don’t, should consider hiring an O.R.
professional and adding him or her to the mix, or even creating a new
department.
Outside the organisation – there are many highly experienced O.R. professionals
offering their services as independent consultants or members of consulting
firms. There are also companies delivering O.R. solutions like optimisation or
simulation software and services. You can also find advice on how to find
appropriate O.R. professionals at www.scienceofbetter.co.uk.
Inside and outside – combining both internal and external resources has
its advantages. This approach means that a company can leverage external
specialties beyond its own resources, while building solution and system
expertise internally for long-term support after the outside resources
have moved on.
13
START BENEFITING
FROM OPERATIONAL RESEARCH NOW
WORKING WITH AN O.R. PROFESSIONAL
Here are some typical ways an O.R. professional might work with an
organisation: the four basic phases of typical O.R. engagements are described
below. You’ll also find a plan for putting O.R. to work at
www.scienceofbetter.co.uk.
STEP 1: ASSESSMENT
The organisation starts by calling in an O.R. professional to assess how O.R.
might help it address the challenge or opportunity by helping management to
ask the right questions. Depending on the subject matter, he/she may
accomplish this step with a conversation or an assessment study.
STEP 2: QUICK-TURN-AROUND ANALYSIS
If the organisation and the O.R. professional agree to proceed, the next steps are
determined by the nature of the assignment. Some examples:
Critiquing technical material or evaluating a software package
with “O.R. inside”: the O.R. professional performs the work
and reports the results.
Advanced analysis for a one-time, critical decision: The professional
prepares and interprets an advanced analysis, in ongoing interaction with
the organisation’s management and others who either furnish input
or participate in the decision.
Preparing for system development to improve recurring decisions:
The professional designs a decision support system with “O.R. inside”
to identify preferred choices on demand.
STEP 3: PROTOTYPING – FOR SYSTEM DEVELOPMENT ONLY
A development team (including O.R. professionals, software engineers, and
operations staff as required) is assembled. The team constructs, tests, and
refines a system prototype while interacting frequently with prospective users.
The O.R. professional also recommends changes in processes and procedures
needed for effective system performance.
STEP 4: IMPLEMENTATION – FOR SYSTEM DEVELOPMENT ONLY
The development team works with management and users to finalise
development, install the system, train operators, revise processes and
procedures, provide for maintenance and future upgrades,
and measure benefits.
14
THERE’S MORE AT
WWW.SCIENCEOFBETTER.CO.UK
You’ll find examples of O.R. success stories and you can also access tools for
finding O.R. professionals and companies with the expertise you and your
organisation needs.
The site – and this guide – were developed for you by The O.R. Society.
A primary part of our mission is helping executives to use the power of O.R.
to improve their organisations.
O.R. ALLOWED US
TO SEIZE THE INITIATIVE
IN THE MARKETPLACE. WE
HAVE MOVED FORWARD LIKE
A BULLET TRAIN AND IT IS
OUR COMPETITORS THAT
ARE SCRAMBLING NOT
TO GET RUN OVER.
“
LAUNNY STEFFENS VICE-CHAIRMAN
MERRILL LYNCH AND COMPANY
”
Pass this guide on to management at senior and middle levels in
your organisation, and to any others who should know about the
benefits of operational research.
Additional copies of this guide can be
downloaded from www.scienceofbetter.co.uk
or call The OR Society on +44(0) 121 233 9300
OPERATIONAL RESEARCH:
WWW.SCIENCEOFBETTER.CO.UK
©2004 THE OPERATIONAL RESEARCH SOCIETY. ALL RIGHTS RESERVED. THE
SCIENCE OF BETTER IS A SERVICE MARK OF INFORMS. OTHER COMPANY, PRODUCT,
AND SERVICE, NAMES MAY BE THE TRADEMARKS OR SERVICE MARKS OF OTHERS.
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TEL: +44 (0)121 233 9300 WWW.THEORSOCIETY.COM