Operations research: It's the hidden key to making informed decisions with less risk and better outcomes by Mary Crissey, SAS

It's true. Most people have never heard of operations research (OR), yet it affects virtually everyone in some way. OR acts much like an invisible agent, simplifying incredibly complex situations and presenting the best alternatives for any decision maker to choose from.

For example, if you're planning a vacation online, OR can help you determine optimal plane schedules at the cheapest fares from among thousands of options. It helps the airlines stay on time by determining the most reliable scheduling possible for flight crews. OR helps you find low-cost and convenient hotels, and if you use an online map, it gives you the best directions possible. If you're shipping a souvenir back home, operations research tells the delivery company which truck or plane will get it there fastest, and exactly what route the driver should follow. OR even enables the Disney theme parks to help you avoid long lines at their most popular attractions.

This valuable strategy is used in commercial and government decision making, as well. It helps stock grocery store shelves precisely and provides professional sports leagues the capability to design game schedules systematically by sorting through tens of millions of possible combinations to satisfy even conflicting goals. OR even helps Pentagon officials devise military personnel policies and compensation benefits for the troops defending the United States.

What exactly is operations research?
Basically, OR is the discipline of applying advanced analytic methods to help make better decisions. It is applied mathematics that follows the "scientific method" to deliver uniquely powerful enhancements to decision making in real-life situations.

As a science, OR traces its roots back to World War II. Long before the advent of high-speed digital computers, OR originated as a way to bring scientific calculations to Allied warfare against Nazi Germany. It never reached its full potential, however, until the 1990s, when numerical processing became faster and more widely available, thanks to advancements in computer technology.

With operations research, decision makers no longer have to rely on intuition. OR gives executives the power to make effective decisions and build productive systems based on:

• Rigorous mathematical models.
• Consideration of all options.
• Careful predictions of outcomes and estimates of risk.
• State-of-the-art decision tools and time-tested algorithms.

To achieve these results, OR professionals draw upon the latest analytic technologies, including simulation, optimization, visualization, neural networks, genetic algorithms, pattern recognition, data mining, probability and statistics.

What operations research can do for your enterprise
OR delivers significant value, both strategically and tactically, to organizations and executives who take advantage of it. As businesses continue to become more sophisticated and collect more electronic records, the task of analyzing data becomes much more daunting. Fortunately, business intelligence software, data warehouses and OR have all matured to the point of giving companies that employ them more precise information – and insight – than they've ever had before. With these software resources at their fingertips, OR professionals confront and overcome challenges that involve large numbers of variables, complex systems and significant risks.

In fact, the essence of OR and management science is to deliver accurate knowledge in a timely fashion, helping executives make confident, calculated decisions with less risk than ever before.

Today’s software technologies for optimization and management science methods are used to tackle a wide range of business issues profitably. These include:

• Resource allocation.
• Retail and inventory planning.
• Product mix and blending.
• Staffing allocations.
• Distribution, routing, scheduling and traffic flow.
• Supply chain management and logistics.
• Capital budgeting, asset allocation and portfolio selection.

Organizations that use OR have found it to be a strategic weapon in the fight for competitive advantage. Per the www.scienceofbetter.org Web site, here are a few examples:

• Continental Airlines applied OR to revise crew schedules during the Sept. 11 terrorist crisis. The savings were estimated at $40 million in 2001 alone.
• AT&T applied OR to plan emergency rerouting of voice, data, wireless and satellite communication systems. Efficient allocation of resources won customer loyalty, increased revenue and saved hundreds of millions of dollars.
• Samsung used OR to reduce manufacturing times to capture an additional $1 billion in sales of semiconductor devices.
• Using OR, UPS redesigned its overnight delivery network, saving $87 million and projecting an additional $189 million savings over the following decade.
• NBC applied OR to improve advertising sales plans, increasing revenues by some $200 million.
• Ford used OR to optimize the way it designs and tests vehicle prototypes, saving $250 million.

1. You face complex decisions. Perhaps you’re faced with more decision factors than you can handle manually. Do you have competing goals or difficulty weighing the pros and cons involved with multiple criteria? OR professionals can analyze complex situations and build intelligence into software systems.
2. You’re having problems with processes. One or more of your processes are limping along and you aren’t sure exactly what to change. Many small, day-to-day decisions are simply repeats of what’s typically worked well in the past, and you’d like to incorporate creative improvements. OR can simulate and test proposed changes to your processes before you implement costly revisions.
3. Your organization is not making the most of its data. Do you track information about your organization and have data that is begging to be used? OR specializes in working with this unused or underused data – extracting the most valuable information from what’s currently collected, and showing what additional data you could collect to increase the value even further.
4. You need to beat the competition. Others in your field may already be using OR to gain competitive advantage. An OR professional can help you get ahead and stay ahead – because OR provides a big-picture view of the world and can pinpoint critical interconnections.
5. You’re troubled by risk. Do you want to limit or reduce risk? Assessing the risk of a new project or contract is often tricky. OR helps you quantify risk, which is critical to controlling it.

Strategic planning is crucial to the success of business initiatives and entire organizations. It's important to ask the right questions, think outside the box, sort through the myriad of factors and consider all potential options before you select the best course of action.

OR is a proven management solution, and it will continue to grow exponentially. No matter what stage of growth an organization falls into, OR techniques can help make dramatic improvements, decision by decision. The sooner a company implements OR into its decision-making process, the more far-reaching the benefits will be.