Sensitivity Analysis (Part I)

OPIM101 Management Science

Suggested Reading Material:

Taylor 10th Ed, Chapter 3

Sensitivity Analysis

Sensitivity analysis determines the effect on the optimal solution of changes in parameter values of the objective function and constraint equations. Changes may be reactions to anticipated uncertainties in the parameters or to new or changed information concerning the model.

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Sensitivity Analysis

How sensitive are the optimal solution and objective function value to changes in problem data? Why should we be interested in changes in problem data?

changing business conditions problem data are often estimated evaluate impact of management policies

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OPIM 101 Management Science

In sensitivity analysis, we usually consider the impact of changes to one parameter while keeping the rest of the problem unchanged. We will use the graphical approach to study sensitivity analysis of

Objective function coefficients (covered in Part I) RHS values (covered in Part II)

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OPIM 101 Management Science

Illustration: Taylor 10th Edition Chapter 2, Qn 2 AGAIN

A company produces two products that are processed on a assembly line with 100 available hours. Each product requires 10 hours on the assembly line. The profit for product 1 is $6 per unit and profit for product 2 is $4 per unit. We have learnt how to solve graphically.

What happens if the profit of product 1 increases to $10 per unit, what is the effect on our ordering policy?

What happens if the profit of product 2 increases to $10 per unit, what is the effect on our ordering policy?

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Beaver Creek Pottery Example

Maximize Z = $40x1 + $50x2 subject to: x1 + 2x2 40 4x1 + 3x2 120 x1, x2 0

Figure 3.1 Optimal Solution Point

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Change x1 Objective Function Coefficient

Maximize Z = $100x1 + $50x2 subject to: x1 + 2x2 40 4x1 + 3x2 120 x1, x2 0

Figure 3.2 Changing the x1 Objective Function Coefficient

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Change x2 Objective Function Coefficient

Maximize Z = $40x1 + $100x2 subject to: x1 + 2x2 40 4x1 + 3x2 120 x1, x2 0

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OPIM 101 Management Science

Objective Function Coefficient Sensitivity Range

The sensitivity range for an objective function coefficient is the range of values over which the current optimal solution point will remain optimal. The sensitivity range for the xi coefficient is designated as ci.

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Objective Function Coefficient Sensitivity Range for c1 and c2

objective function Z = $40x1 + $50x2 sensitivity range for: x1: 25 c1 66.67 x2: 30 c2 80

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Production-Planning Problem: Case Chemicals

Produces solvents: CS-01 and CS-02.

Profit margins: $0.30 per gallon for CS-01 $0.50 per gallon for CS-02
Demand for CS-02 is at most 120,000 gallons per week.

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LP Model for Case Chemicals

x1 = no. of thousands of gallons of CS-01 to produce x2 = no. of thousands of gallons of CS-02 to produce ------------------------------------------------------------------------

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Sensitivity Analysis of Objective Function Coefficient for x1

Intuitive Analysis: When profit margin increase, objective value will increase.

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Sensitivity Analysis of Objective Function Coefficient for x1 : Graphical Analysis

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Summary:

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Sensitivity Analysis of Objective Function Coefficient for x2

We consider the same objective function with the same constraints. Slope of objective function is now -3/c2

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Sensitivity Analysis of Objective Function Coefficient for x2

We can show that as long as

, optimal solution remain the same.

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Sensitivity Analysis

In our analysis, we only considered varying one parameter at a time (either c1 or c2) while holding everything else constant. Although the graphical analysis is good for explaining concepts, it is not practical. Most LP software (including Excel Solver) can perform sensitivity analysis.
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What we have covered

Know what is sensitivity analysis What happens if objective function changes What is left to be covered?

Changes in RHS Using Excel to generate insights. Graphical analysis is too tedious and restrictive.

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