Business managers face an endless list of complex issues every day. They must make decisions about financing, where to build a plant, how much of a product to manufacture, how many people to hire, and so on. Often, the factors that make up business issues are complicated, and they may be difficult to comprehend. Operations research is a way to deal with these thorny problems.
These mathematical techniques used in operations research help managers do their jobs more effectively:
Maintaining Better Control
Managers use techniques of operations research to maintain better control over their subordinates. This is possible because operations research provides a basis in which to establish standards of performance and ways to measure productivity. Reporting deviations from standards enables managers to identify problem areas and to take corrective action.
Better Decision Making
The mathematical models of operations research allow people to analyze a greater number of alternatives and constraints than would usually be possible, if they were to use only an intuitive approach. Using operations research, it is easier to analyze multiple alternatives, which results in greater confidence in the optimal choice.
Better Coordination of Departments
Operations research analysis blends together the objectives of different departments. For example, operations research coordinates the aims of the marketing department with the schedules of the production department.
Increased Business Productivity
The mathematical formulas used in operations research can increase productivity, as they offer a greater number of optimal choices of inventory mix, plant machine utilization, factory size, manpower planning and implementing new technologies.
Operational objectives differ from strategic objectives in that they focus more on “how” than “what.” For example, a business might decide it needs to improve profits by improving its margins, rather than increasing sales. It would pursue this strategic goal using operational objectives targeted at reducing overhead or manufacturing costs, changing the way the business operates in those areas.
Operational objectives in the human resources department help meet strategic goals such as improved recruiting, retention and labor cost management. An example of an operational objective to reduce labor costs is to improve scheduling. This helps reduce labor costs by avoiding overtime, decreasing the use of more expensive contract labor, reducing turnover and avoiding the need to add a shift. HR would work with the production and sales departments to learn when large orders might occur and when there will be slow times. This allows production to schedule higher output during slow periods to ensure there is product on hand during busy periods, avoiding extra labor costs during those times.
Improving the operations of a production area is a common operational objective. Production areas include the factory of a manufacturer, kitchen of a restaurant or service area of an auto repair shop. Improving production includes increasing output, decreasing costs and raising quality. Improving quality as an operational objective helps improve sales, strengthen a brand and decrease returns and the costs associated with repairs and make-goods. Improved scheduling, new equipment and worker training are operational objectives that increase productivity and reduce costs.
Better Debt Management
A finance department does more than simply set budgets and record numbers as they occur. Finance sets strategies that help maximize profits through optimal billing, collections, debt-service management and investing. An operational objective of a finance department might include decreasing interest payments. It can do this operationally by shopping for better lines of credit, reducing the credit terms it offers customers so it can get cash in quicker to pay down debt, using excess cash to reduce principal balances on loans and reducing receivables collection times.
Increased Use of Information Technology
If a business relies on its website and social media to sell its products, operational objectives will target ways to make it easier for customers to buy online and share information about the business at the best possible costs. One operational objective might include adding or upgrading online sales capabilities, which includes optimizing a shopping cart and checkout process. This would require IT to evaluate different carts and credit card payment processing systems. An operational objective to enhance social media strategies might include increasing the data the company gets from its website and social media pages and performing more analysis of that data.