What is Business Modelling?
Quantitative methods for planning business operations
Business modelling has traditionally been done by operations research
(OR) and management science professionals. It involves the use of quantitative
and computer methods for planningthe efficient allocation of resources
in business, industry and the agencies of government. It overlaps economics
as a discipline but it
- primarily focuses on the internal operations of organisations
- emphasises planning rather than market mechanisms for allocating
resources
- makes more extensive use of quantitative methods.
An early success story for OR occurred in the oil industry. Here a quantitative
method called linear programming was found to be particularly helpful
in planning the complex production and distribution systems involved in
getting oil and its offshoots from the well head to the market place.
Methods, with a wider impact for business and industry in general, resulted
from the application of quantitative techniques to the area of inventory
control. Now a standard part of business computer software for many large
companies, these methods have helped business to significantly reduce
inventory levels while improving service to customers.
Modern project management techniques, used extensively in the construction
and software industries, grew out of early endeavours in the area by OR
analysts. So too did materials requirements planning, a technique now
used widely in larger manufacturing enterprises to control production.
More recently, operations research has been applied in the US air industry.
It has been involved in the rationalisation of flights and the scheduling
of aircrews. The hub-and-spoke system, now in use over continental USA,
arose from operations research studies aimed at improving the efficiency
of airline operations.
New applications of OR can now be found in the emerging privatised electricity
and gas industries. Linear programming is being used to set market clearing
prices as demand and supply conditions change on an hourly basis.
Reading
- P. Rivett & R. L. Ackoff, A Managers Guide to Operational Research,
John Wiley, 1963.
- C. H. Waddington, OR in World War 2: Operational Research against
the U Boat, P. Elek (Scientific Books) Ltd, 1973.
Interesting Links
- WORMS - World-Wide-Web
for Operations Research and Management Science
- OR - The Operations Research
Society homepage
- Informs Online - Homepage of
the Institute for Operations Research and the Management Sciences
