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Chapter 11 (Goal Programming)

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Introduction: what goal programming is?

All problems studied in the previous chapters share one common characteristic: a single
objective function that express the overall measure of performance

It is not always possible to put all managements objectives into one overall measure of
performance

Objectives might be so different (contradictory) that no common basis for measuring


progress toward these objectives

Management might instead set numeric goals for the various objectives and seek a
solution that make as much progress as possible toward all these goals

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


The Dewright Company

The Dewright Company is one of the largest producers of power tools in the
United States.

The company is preparing to replace its current product line with the next
generation of productsthree new power tools.

Management needs to determine the mix of the companys three new products
to best meet the following three goals:
1. Achieve a total profit (net present value) of at least $125 million.
2. Maintain the current employment level of 4,000 employees.
3. Hold the capital investment down to no more than $55 million.

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Relative Importance of the Goals

It will not be possible to attain all these goals simultaneously

All are important but by small margins their order of importance is:
Goal 1, part of Goal 2 (avoid decreasing the employment level), Goal 3,
part of Goal 2 (avoid increasing the employment level),

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Penalty Weights

Goal Factor Penalty Weight for Missing Goal


1 Total profit 5 (per $1 million under the goal)
2 Employment level 4 (per 100 employees under the goal)
2 (per 100 employees over the goal)
3 Capital investment 3 (per $1 million over the goal)

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Data for Contribution to the Goals

Unit Contribution of Product


Factor 1 2 3 Goal
Total profit (millions of dollars) 12 9 15 125
Employment level (hundreds of employees) 5 3 4 = 40
Capital investment (millions of dollars) 5 7 8 55

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Weighted Goal Programming

A common characteristic of many management science models (linear


programming, integer programming, nonlinear programming) is that they have
a single objective function.

It is not always possible to fit all managerial objectives into a single objective
function. Managerial objectives might include:
Maintain stable profits.
Increase market share.
Diversify the product line.
Maintain stable prices.
Improve worker morale.
Maintain family control of the business.
Increase company prestige.

Weighted goal programming provides a way of striving toward several


objectives simultaneously.

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Weighted Goal Programming

With weighted goal programming, the objective is to


Minimize W = weighted sum of deviations from the goals.
The weights are the penalty weights for missing the goal.

Introduce new changing cells, Amount Over and Amount Under, that
will measure how much the current solution is over or under each goal.

The Amount Over and Amount Under changing cells are forced to
maintain the correct value with the following constraints:
Level Achieved Amount Over + Amount Under = Goal

This way of formulating the model makes it a LP model

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Weighted Goal Programming Formulation for
the Dewright Co. Problem

Let Pi = Number of units of product i to produce per day (i = 1, 2, 3),


Under Goal i = Amount under goal i (i = 1, 2, 3),
Over Goal i = Amount over goal i (i = 1, 2, 3),

Minimize W = 5(Under Goal 1) + 2(Over Goal 2) + 4 (Under Goal 2) + 3 (Over Goal 3)


subject to
Level Achieved Deviations Goal
Goal 1: 12P1 + 9P2 + 15P3 (Over Goal 1) + (Under Goal 1) = 125

Goal 2: 5P1 + 3P2 + 4P3 (Over Goal 2) + (Under Goal 2) = 40

Goal 3: 5P1 + 7P2 + 8P3 (Over Goal 3) + (Under Goal 3) = 55

and
Pi 0, Under Goal i 0, Over Goal i 0 (i = 1, 2, 3)

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Weighted Goal Programming Spreadsheet

B C D E F G H I J K L M N O
3 Goals Deviations Constraints
4 Contribution per Unit Produced Level Amount Amount Balance
5 Product 1 Product 2 Product 3 Achieved Goal Over Under (Level - Over + Under) Goal
6 Goal 1 (Profit) 12 9 15 125 >= 125 0 0 125 = 125
7 Goal 2 (Employment) 5 3 4 48.333333 = 40 8.333333 0 40 = 40
8 Goal 3 (Investment) 5 7 8 55 <= 55 0 0 55 = 55
9
10
11 Product 1 Product 2 Product 3 Penalty Over Under Weighted Sum
12 Units Produced 8.33333333 0 1.66666667 Weights Goal Goal of Deviations
13 Profit 5 16.66666667
14 Employment 2 4
15 Investment 3

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Weighted vs. Preemptive Goal Programming

Weighted goal programming is designed for problems where all the goals are
quite important, with only modest differences in importance that can be
measured by assigning weights to the goals.

Preemptive goal programming is used when there are major differences in


the importance of the goals.
The goals are listed in the order of their importance.
It begins by focusing solely on the most important goal.
It next does the same for the second most important goal (as is possible without
hurting the first goal).
It continues with the following goals (as is possible without hurting the previous
more important goals).

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Preemptive Goal Programming

Introduce new changing cells, Amount Over and Amount Under, that will
measure how much the current solution is over or under each goal.
The Amount Over and Amount Under changing cells are forced to maintain
the correct value with the following constraints:
Level Achieved Amount Over + Amount Under = Goal
Start with the objective of achieving the first goal (or coming as close as
possible):
Minimize (Amount Over/Under Goal 1)

Continue with the next goal, but constrain the previous goals to not get any
worse:
Minimize (Amount Over/Under Goal 2)
subject to
Amount Over/Under Goal 1 = (amount achieved in previous step)

Repeat the previous step for all succeeding goals.

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Preemptive Goal Programming for Dewright

The goals in the order of importance are:


1. Achieve a total profit (net present value) of at least $125 million.
2. Avoid decreasing the employment level below 4,000 employees.
3. Hold the capital investment down to no more than $55 million.
4. Avoid increasing the employment level above 4,000 employees.
Start with the objective of achieving the first goal (or coming as close as
possible):
Minimize (Under Goal 1)

Then, if for example goal 1 is achieved (i.e., Under Goal 1 = 0), then
Minimize (Under Goal 2)
subject to
(Under Goal 1) = 0

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Preemptive Goal Programming Formulation for
the Dewright Co. Problem (Step 1)

Let Pi = Number of units of product i to produce per day (i = 1, 2, 3),


Under Goal i = Amount under goal i (i = 1, 2, 3),
Over Goal i = Amount over goal i (i = 1, 2, 3),

Minimize (Under Goal 1)


subject to
Level Achieved Deviations Goal
Goal 1: 12P1 + 9P2 + 15P3 (Over Goal 1) + (Under Goal 1) = 125
Goal 2: 5P1 + 3P2 + 4P3 (Over Goal 2) + (Under Goal 2) = 40
Goal 3: 5P1 + 7P2 + 8P3 (Over Goal 3) + (Under Goal 3) = 55

and
Pi 0, Under Goal i 0, Over Goal i 0 (i = 1, 2, 3)

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Preemptive Goal Programming Formulation for
the Dewright Co. Problem (Step 2)

Let Pi = Number of units of product i to produce per day (i = 1, 2, 3),


Under Goal i = Amount under goal i (i = 1, 2, 3),
Over Goal i = Amount over goal i (i = 1, 2, 3),

Minimize (Under Goal 2)


subject to
Level Achieved Deviations Goal
Goal 1: 12P1 + 9P2 + 15P3 (Over Goal 1) + (Under Goal 1) = 125
Goal 2: 5P1 + 3P2 + 4P3 (Over Goal 2) + (Under Goal 2) = 40
Goal 3: 5P1 + 7P2 + 8P3 (Over Goal 3) + (Under Goal 3) = 55

(Under Goal 1) = (Level Achieved in Step 1)


and
Pi 0, Under Goal i 0, Over Goal i 0 (i = 1, 2, 3)

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Preemptive Goal Programming Formulation for
the Dewright Co. Problem (Step 3)

Let Pi = Number of units of product i to produce per day (i = 1, 2, 3),


Under Goal i = Amount under goal i (i = 1, 2, 3),
Over Goal i = Amount over goal i (i = 1, 2, 3),

Minimize (Over Goal 3)


subject to
Level Achieved Deviations Goal
Goal 1: 12P1 + 9P2 + 15P3 (Over Goal 1) + (Under Goal 1) = 125
Goal 2: 5P1 + 3P2 + 4P3 (Over Goal 2) + (Under Goal 2) = 40
Goal 3: 5P1 + 7P2 + 8P3 (Over Goal 3) + (Under Goal 3) = 55

(Under Goal 1) = (Level Achieved in Step 1)


(Under Goal 2) = (Level Achieved in Step 2)
and
Pi 0, Under Goal i 0, Over Goal i 0 (i = 1, 2, 3)

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Preemptive Goal Programming Formulation for
the Dewright Co. Problem (Step 4)

Let Pi = Number of units of product i to produce per day (i = 1, 2, 3),


Under Goal i = Amount under goal i (i = 1, 2, 3),
Over Goal i = Amount over goal i (i = 1, 2, 3),

Minimize (Over Goal 2)


subject to
Level Achieved Deviations Goal
Goal 1: 12P1 + 9P2 + 15P3 (Over Goal 1) + (Under Goal 1) = 125
Goal 2: 5P1 + 3P2 + 4P3 (Over Goal 2) + (Under Goal 2) = 40
Goal 3: 5P1 + 7P2 + 8P3 (Over Goal 3) + (Under Goal 3) = 55

(Under Goal 1) = (Level Achieved in Step 1)


(Under Goal 2) = (Level Achieved in Step 2)
(Over Goal 3) = (Level Achieved in Step 3)
and
Pi 0, Under Goal i 0, Over Goal i 0 (i = 1, 2, 3)

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Preemptive Goal Programming Spreadsheet
Step 1: Minimize (Under Goal 1)

A B C D E F G H I J K L M N O
1 Dewright Co. Goal Programming (Preemptive Priority 1: Minimize Under Goal 1)
2
3 Goals Deviations Constraints
4 Contribution per Unit Produced Level Amount Amount Balance
5 Product 1 Product 2 Product 3 Achieved Goal Over Under (Level - Over + Under) Goal
6 Goal 1 (Profit) 12 9 15 125 >= 125 0 0 125 = 125
7 Goal 2 (Employment) 5 3 4 40 = 40 0 0 40 = 40
8 Goal 3 (Investment) 5 7 8 61.481 <= 55 6.481 0 55 = 55
9
10 Minimize (Under Goal 1)
11 Product 1 Product 2 Product 3
12 Units Produced 3.7037 0 5.3704

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Preemptive Goal Programming Spreadsheet
Step 3: Minimize (Over Goal 3)

A B C D E F G H I J K L M N O
1 Dewright Co. Goal Programming (Preemptive Priority 3: Minimize Over Goal 3)
2
3 Goals Deviations Constraints
4 Contribution per Unit Produced Level Amount Amount Balance
5 Product 1 Product 2 Product 3 Achieved Goal Over Under (Level - Over + Under) Goal
6 Goal 1 (Profit) 12 9 15 125 >= 125 0 0 125 = 125
7 Goal 2 (Employment) 5 3 4 48.333 = 40 8.333333 0 40 = 40
8 Goal 3 (Investment) 5 7 8 55 <= 55 0 0 55 = 55
9
10 Minimize (Over Goal 3)
11 Product 1 Product 2 Product 3 (Under Goal 1) = 0
12 Units Produced 8.333 0 1.667 (Under Goal 2) = 0

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Preemptive Goal Programming Spreadsheet
Step 4: Minimize (Over Goal 2)

A B C D E F G H I J K L M N O
1 Dewright Co. Goal Programming (Preemptive Priority 4: Minimize Over Goal 2)
2
3 Goals Deviations Constraints
4 Contribution per Unit Produced Level Amount Amount Balance
5 Product 1 Product 2 Product 3 Achieved Goal Over Under (Level - Over + Under) Goal
6 Goal 1 (Profit) 12 9 15 125 >= 125 0 0 125 = 125
7 Goal 2 (Employment) 5 3 4 48.333 = 40 8.333 0 40 = 40
8 Goal 3 (Investment) 5 7 8 55 <= 55 0 0 55 = 55
9
10 Minimize (Over Goal 2)
11 Product 1 Product 2 Product 3 (Under Goal 1) = 0
12 Units Produced 8.333 0 1.667 (Under Goal 2) = 0
13 (Over Goal 3) = 0

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003


Multi-Objective Decision Making

Many problems have multiple objectives:


Planning the national budget
save social security, reduce debt, cut taxes, build national defense
Admitting students to college
high SAT or GMAT, high GPA, diversity
Planning an advertising campaign
budget, reach, expenses, target groups
Choosing taxation levels
raise money, minimize tax burden on low-income, minimize flight of business
Planning an investment portfolio
maximize expected earnings, minimize risk

Techniques
Preemptive goal programming
Weighted goal programming

McGraw-Hill/Irwin 11. The McGraw-Hill Companies, Inc., 2003