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INTRODUCTION

Suppose that you have just completed a linear programming solution which will have major

impact on your company, such as determining how much to increase the overall production

capacity, and are about to present the results to the board of directors. How confident are you in

the results? How much will the results change if your basic data (e.g. profit per item produced, or

availability of a component) is slightly wrong? Will that have a minor impact on your results?

Will it give a completely different outcome, or change the outcome only slightly?

These are the kinds of questions addressed by sensitivity analysis. Formally, the question is this:

is my optimum solution (both the values of the variables and the value of the objective function)

sensitive to a small change in one of the original problem coefficients (e.g. coefficients of the

variables in the objective function or constraints, or the right hand side constants in the

constraints)? If Z or the X1 change when an original coefficient is changed, then we say that the

LP is sensitive. We could ask, for example, if the Acme Bicycle Company solution is sensitive to

a reduction in the availability of the metal finishing machine from 4 hours per day to only 3 (i.e.

a change in the third constraint from X1+X2 4 to X1+X2 3).

This sort of examination of the impact of the input data on the output results is crucial. The

procedures and algorithms of mathematical programming are important, but the problems that

really bedevil you in practice are usually associated with data: getting it at all, and getting

accurate data. Some data, necessary for your mathematical model, is inherently uncertain.

Consider profit per item, for example, which is approximated from estimates of the fluctuating

costs of raw materials, expected sales volumes, labor costs, etc. What you want to know from

sensitivity analysis is which data has a significant impact on the results: then you can concentrate

on getting accurate data for those items, or at least running through several scenarios with

various values of the crucial data in place to get an idea of the range of possible outcomes.

2

There are several ways to approach sensitivity analysis. If your model is small enough to solve

quite quickly, you can use a brute force approach: simply change the initial data and solve the

model again to see what results you get. You can do this as many times as needed. At the

opposite extreme, if your model is very large and takes a long time to solve, you can apply the

formal methods of classical sensitivity analysis. The classical methods rely on the relationship

between the initial tableau and any later tableau (in particular the optimum tableau) to quickly

update the optimum solution when changes are made to the coefficients of the original tableau.

One final observation on the state of the art in sensitivity analysis: you are typically limited to

analyzing the impact of changing only one coefficient at a time. There are a few accepted

techniques for changing several coefficients at once: the 100% rule, and parametric

programming. The 100% rule is typically limited to changing only a few coefficients at once,

with tight limits on how much they can change, and parametric programming changes all of the

coefficients in ratio.

.

3

DEFINITION

Sensitivity analysis (SA) is the study of how the variation (uncertainty) in the output of a

mathematical model can be apportioned, qualitatively or quantitatively, to different sources of

variation in the input of a model

Sensitivity Analysis provides a range of probability over which the choice of alternative would

remain the same. The approach implemented here is useful when there are two states of nature. It

involves constructing a graph and then using algebra to determine a range of probability over

which the various alternatives are optimal, and the algebra provides exact values of the endpoints

of the ranges.

In most real world situations that are modeled using LP, conditions are dynamic and changing.

Hence, input data such as resource availabilities, prices, and costs used in the LP model are

estimated, rather than known with certainty. In such environments, sensitivity analysis can be

used to identify the ranges of values of these input data for which the current LP solution

remains optimal. This is done without solving the problem again each time we need to examine a

change in an input data¶s value.

Sensitivity analysis is a systematic study of how sensitive (duh) solutions are to (small) changes

in the data. The basic idea is to be able to give answers to questions of the form:

y If the objective function changes, how does the solution change?

y If resources available change, how does the solution change?

Chunges ln the Ob|ectlve Functlon

A change in an objective function coefficient changes the slope of the objective function, with

respect to that variable. The change in the slope may be sufficient to make a different corner

point become the new optimal solution to the LP model.

4

Chunges ln Rlght Hund Slde

A change in a resource¶s availability (right-hand-side) changes the size of a feasible region. An

increase means more units of that resource are available, causing the feasible region to increase

in size. A decrease means fewer units are available. Obviously, if more units of a binding

resource are available, it may be possible for the optimal objective value to improve. In contrast,

if more units of a non-binding resource are available, the additional units would just contribute to

more slack and there would be no improvement in the optimal objective value.

A Sensitivity Analysis simply means the following:

y For one or more selected input parameters, the user specifies a Minimum and a

Maximum value.

y Each parameter is then varied in uniform increments, between the Minimum and

Maximum values, and the safety factor of the Global Minimum slip surface is calculated

at each value. NOTE: while a parameter is being varied, ALL OTHER input parameters

are held constant, at their MEAN values.

y This results in a plot of safety factor versus the input parameter(s), and allows you to

determine the ³sensitivity´ of the safety factor, to changes in the input parameter(s).

y A steeply changing curve on a Sensitivity Plot, indicates that the safety factor is sensitive

to the value of the parameter.

y A relatively ³flat´ curve indicates that the safety factor is not sensitive to the value of the

parameter.

y A sensitivity analysis indicates which input parameters may be critical to the assessment

of slope stability, and which input parameters are less important

5

6

WHY SENSITIVITY ANALYSIS?

The following is a condensed list of reasons why sensitivity analysis should be considered:

Decision making or development of recommendations for decision makers

y Testing the robustness of an optimal solution. Surprise is not an element of a robust

optimal decision.

y Identifying critical values, thresholds, or breaking-even values where the optimal strategy

changes.

y Identifying sensitivity, i.e., important parameters, e.g., in Elasticity applications.

y Investigating sub-optimal solutions.

y Developing flexible recommendations that depend on the circumstances.

y Comparing the values of simple and complex decision strategies.

y Assessing the "risky-ness" of a strategy or scenario.

Communication

y Making recommendations more credible, understandable, compelling, or persuasive.

y Allowing decision makers to select assumptions.

y Conveying a lack of commitment to any single strategy.

y The decision maker might incorporate some other perspectives of the problem such as

cultural, political, psychological, etc., into the management scientist's recommendations.

Increase Understanding or qualification of the system

y Estimating relationship between parameters and the output.

y Understanding relationship between input and output variables.

y Developing hypotheses testing.

7

Model development

y Testing the model for validity or accuracy.

y Searching for errors in the model

y Simplifying the model.

y Calibrating the model.

y Coping with poor or missing data.

y Prioritizing acquisition of information.

8

APPLICATIONS OF SENSITIVITY

ANALYSIS

Envlronmentul

Computer environmental models are increasingly used in a wide variety of studies and

applications. For example global climate model are used for both short term weather forecasts

and long term climate change.

Moreover, computer models are increasingly used for environmental decision making at a local

scale, for example for assessing the impact of a waste water treatment plant on a river flow, or

for assessing the behavior and life length of bio-filters for contaminated waste water.

In both cases sensitivity analysis may help understanding the contribution of the various sources

of uncertainty to the model output uncertainty and system performance in general. In these cases,

depending on model complexity, different sampling strategies may be advisable and traditional

sensitivity indexes have to be generalized to cover multivariate sensitivity analysis,

heterokedastic effects and correlated inputs.

Buslness

In a decision problem, the analyst may want to identify cost drivers as well as other quantities for

which we need to acquire better knowledge in order to make an informed decision. On the other

hand, some quantities have no influence on the predictions, so that we can save resources at no

loss in accuracy by relaxing some of the conditions. See Corporate finance: Quantifying

uncertainty. Sensitivity analysis can help in a variety of other circumstances which can be

handled by the settings illustrated below:

y To identify critical assumptions or compare alternative model structures

y Guide future data collections

y Detect important criteria

9

y Optimize the tolerance of manufactured parts in terms of the uncertainty in the

parameters

y Optimize resources allocation

y Model simplification or model lumping, etc.

y However there are also some problems associated with sensitivity analysis in the business

context:

y Variables are often interdependent, which makes examining them each individually

unrealistic, e.g.: changing one factor such as sales volume, will most likely affect other

factors such as the selling price.

y Often the assumptions upon which the analysis is based are made by using past

experience/data which may not hold in the future.

y Assigning a maximum and minimum (or optimistic and pessimistic) value is open to

subjective interpretation. For instance one person 'optimistic' forecast may be more

conservative than that of another person performing a different part of the analysis. This

sort of subjectivity can adversely affect the accuracy and overall objectivity of the

analysis.

10

IMPORTANCE OF SENSITIVITY ANALYSIS

Sensitivity analysis is important in all decision modeling techniques. For example, it is important

in breakeven analysis to test the model¶s sensitivity to selling price, fixed cost, and variable cost.

Likewise, it is important in inventory models in which we tests the result¶s sensitivity to changes

in demand, lead time, costs, and so on.

Sensitivity analysis should be considered:

y With controlling the problems, SA may help to identify critical regions in the space of the

input parameters.

y In screening exercises, SA may help to locate a few influential parameters in systems

with hundreds of uncertain inputs.

y Variance based SA techniques are useful to ascertain if a subset of input parameters may

account for (most of) the output variance.

y Point (3) above may be used for mechanism reduction (dropping or fixing non relevant

parts of the model) and for model lumping (building/extracting a model from a more

complex one). See also the problem of model "relevance": are the parameters in the

model input set relevant to the task of the model?

y Point (3) above may also be used for model identification by pinpointing the

experimental conditions for which your ability to discriminate among the model is at

maximum.

y As in (5) above, SA may be used for model calibration, to ascertain if the experiments

with its related uncertainties will allow parameter estimation. This is especially useful

against ill-conditioned (formulated) problems.

y SA may be coupled to optimization / search algorithms; by identifying the most

important parameters, SA may allow the dimensionality of the space where the search is

made to be reduced.

y As a quality assurance tool, SA makes sure that the dependence of the output from the

input parameters in the model has a physical resemblance and explanation.

11

y To solve an inverse problem, SA serves as a tool to extract parameters embedded into

models whose output does not correlate easily with the unknown input (e.g., in chemical

kinetics, to extract kinetic constants of complex systems from the measured yield rate of

components.

y To optimally allocate resources in R&D, SA shows where it is more worthwhile to invest

in order to reduce the model's range of uncertainty.

y SA can ascertain on a quantitative basis what fraction of my prediction uncertainty is due

to parametric estimation uncertainty and how much to structural uncertainty.

12

VARIOUS SENSITIVITY ANALYSIS ACTIVITIES

WITH THEIR LIMITATIONS

Given the outcome of a linear program formulation and calculation for the solution a series of

analysis can provide valuable management information to deal with uncertainties. These

uncertainty ranges can be obtained by performing the following different types of sensitivity

analysis depending on the nature of the uncertainty: perturbation analysis; tolerance analysis;

individual symmetric tolerance analysis; symmetric tolerance analysis; parametric sensitivity

analysis; and ordinary sensitivity analysis.

Perturbation Analysis: Simultaneous and independent changes in the any parameter in either

direction (over or under estimation) for each parameter that maintain the optimal basis. This

provides the largest set of perturbations.

Tolerance Analysis: Simultaneous and independent changes expressed as the maximum

allowable percentage of the parameter's value in either direction (over or under estimation) for

each parameter that maintains the optimal basis. This provides a range of values for each

parameter.

Individual Symmetric Tolerance Analysis: Simultaneous and independent equal changes

expressed as the maximum allowable percentage of the parameters' value in both directions (over

and under estimation) for each parameter that maintains the optimal basis. This provides a range

of values for each parameter with the current value at its center.

Symmetric Tolerance Analysis: Simultaneous and independent equal changes expressed as

maximum allowable percentage of the parameter's value in both directions (over and under

estimation) for all activity that maintain the optimal basis. This provides one single range of

values of uncertainty for all parameters.

13

Parametric Analysis: Simultaneous changes of dependent parameter values from their nominal

values that maintain the optimal basis. This provides the maximum magnitude of change for

values of dependent parameters.

Ordinary Sensitivity Analysis: One change-at-a-time in any parameter value that maintains the

optimal basis. This provides a range for the change of any specific parameter value, holding all

others at their nominal values.

In performing the above various type of sensitivity analysis, the needed computations are some

elementary matrix manipulations of the readily available tools for construction of the sensitivity

region.

14

SENSITIVITY ANALYSIS

GENERAL LP PROBLEM

Dr Feeroze

ICI Pakistan produces both Oil paints and Plastic paints from two raw materials, M1 and M2.

The following table provides the basic data of the problem:

Tons of raw material per ton of Maximum daily

availability (tons)

Exterior Paint Interior Paint

Raw Material, M1 5 10 60

Raw Material, M2 4 4 40

Profit per ton 6 8

Constructlon of LP model

Decision Variables

X

1

= Tons of produced daily of Oil paint.

X

2

= Tons of produced daily of Plastic paint.

Objective Function

P max = 6X

1

+ 8X

2

Subject To

5X

1

+ 10X

2

60

4X

1

+ 4X

2

40

X

1

and X

2

0

Gruphlcul LP Solutlon

Llne Slde

15

5X

1

+ 10X

2

= 60

If X

1

= 0, we get X

2

= 6

If X

1

= 0, we get X

1

= 12

4X

1

+ 4X

2

= 40

If X

1

= 0, we get X

2

= 10

If X

2

= 0, we get X

1

= 10

5X

1

+ 10X

2

< 60

Left hund slde of the llne

4X

1

+ 4X

2

< 40

Left hund slde of the llne

Decision Variables The closed polygonal A-B-C-D are the feasible region.

Objective Function

î P max = 6X

1

+ 8X

2

Substituting the value of each coordinate in objective function we get,

î PA = 6(0) +8(0)=0

16

î PB = 6(10) +8(0)=60

î PC = 6(8) +8(2)=64 - Value is maximum

î PD = 6(0) +8(6)=48

Hence optimum point is point C where the value of P is maximum

Gruphlcul Sensltlvlty Anulysls

Changes in Objective function coefficients

P max = 6X

1

+ 8X

2

î Changing in the objective function coefficient will cause the slope of objective function to

change such changes causes the object function line to rotate about extreme points.

î Rotating the objective function line anticlockwise increase the slope.

î Slope of constraint of material one (Line A) provide upper limit for the slop of objective

function line.

î Rotating the objective function line clockwise decrease the slope.

î Slope of constraint of material two (Line B) provide lower limit for the slop of objective

function line.

î Point C will remain optimal as long as,

Slope of line B Slope of objective function line Slope of line A

17

For the slope of constraint of

material 2 (Line B)

For the slope of constraint of

material 1 (Line A)

4X

1

+ 4X

2

40

As we know that,

Y= mX + C ( Slope intercept form )

4X

1

+ 4X

2

40

4X

1

+ 4X

2

= 40

4X

2

= 40 ± 4X

1

X

2

= ± ( 4/4)X

1

+ (40/4)

X

2

= ± (1)X

1

+ 10

Compeer it with Y= mX + C we get,

m = slope = -1

5X

1

+ 10X

2

60

As we know that,

Y= mX + C ( Slope intercept form )

5X

1

+ 10X

2

60

5X

1

+ 10X

2

= 60

10X

2

= -5X

1

+ 60

X

2

= -(5/10) X

1

+ 6

X

2

= -(1/2)X

1

+ 6

Compeer it with Y= mX + C we get,

m = slope = -1/2

-1 Slope of objective function line -1/2

18

For the slope of Objective Function

General form of objective function

P = CX

1

X

1

+ CX

2

X

2

As we know that,

Y= mX + C ( Slope intercept form )

X

2

= -(cx

1

/cx

2

) + P/cx

2

Slope = m = - (cx

1

/cx

2

)

-1 -(cx

1

/cx

2

) -1/2

-1 ֱ -(cx

1

/cx

2

) ֱ -1/2

Put the vulue of Cx

2

from ob|ectlve functlon

-1 ֱ -(cx

1

/8) ֱ -1/2

For the LHS For the RHS

-1 ֱ -(cx

1

/8)

-8 ֱ-cx

1

8 ֲ cx

1

-(cx

1

/8) ֱ -1/2

-cx

1

ֱ -8/-2

-cx

1

ֱ -4

Cx

1

ֲ 4

Runge of 1

st

coefflclent: 8 ֲ CX

1

ֲ 4

-1 ֱ -(cx

1

/cx

2

) ֱ -1/2

Put the vulue of Cx

1

from ob|ectlve functlon

-1 ֱ -(6/cx

2

) ֱ -1/2

For the RHS For the LHS

19

-1 ֱ -(6/cx

2

)

-CX

2

ֱ -6

CX

2

ֲ 6

-(6/cx

2

) ֱ -1/2

-12 ֱ -CX

2

12 ֲ CX

2

Runge of 2

nd

coefflclent : 12 ֲ CX

2

ֲ 6

Right Hand Side of the Constraints

5X

1

+ 10X

2

60

4X

1

+ 4X

2

40

Most of the LP models, constraints usually represent the usage of limited resources. Such

constraints, the right hand side provides the limit on the availability of the resources.

Analysis provides a single measure, called the unit worth of the resource or shadow price, that

quantifies the rate of change in the optimum value in the objective function as a result of making

changes in the availability of the recourses.

Constraint of Material 1 (M

1

): 5X

1

+ 10X

2

60

Constraint of Material 2 (M

2

): 4X

1

+ 4X

2

40

When the availability of M

1

and M

2

changes (increase or decrease) line of constraint move on

RHS or LHS respectively.

End points B(10,0) & E(0, 10) delineate the feasibility range for M

1

and points D (0,6) & F(12,0)

delineate the feasibility range for M

2

.

20

Feuslblllty runges of Construlnts

Feuslblllty runge for construlnt 1

5X

1

+ 10X

2

ֱ 60

Feuslblllty runge for construlnt 2

4X

1

+ 4X

2

ֱ 40

B = (10, 0)

E = (0,10)

At point B

5(10) + 10(0) = 50

At point E

5(0) + 10(10) = 100

Feasibility range of constraint 1

50 <= M

1

<= 100

D = (0,6)

F = (12,0)

At point F

4(12) + 4(0) = 48

At point D

4(0) + 4(6) = 24

Feasibility range of constraint 2

24 <= M

2

<= 48

Feuslblllty runges of Construlnts

21

RHS Increuse by 6 tons

Construlnt 1

5X

1

+ 10X

2

ֱ 66

Construlnt 2

4X

1

+ 4X

2

ֱ 46

5X

1

+ 10X

2

= 66

If X

1

= 0, we get X

2

= 6.6

If X

2

= 0, we get X

1

= 13.2

By constructlng thls construlnt on gruph we get

new optlmum polnt ut (8,3)

4X

1

+ 4X

2

= 46

If X

1

= 0, we get X

2

= 11.5

If X

2

= 0, we get X

1

= 11.5

By constructlng thls construlnt on gruph we get

new optlmum polnt ut (10,2.5)

C(8,3)

The new vulue of ob|ectlve functlon ls

P = 6X

1

+ 8X

2

6(6.8) + 8(3.3) = 67.2

Compeer lt wlth old vulue of Ob|ectlve functlon

72-67.2=4.8

Increused proflt occur ut the rute of 4.8/6=0.8

per ton of muterlul 1

C(10,2.5)

The new vulue of ob|ectlve functlon ls

P = 6X

1

+ 8X

2

6(0.5) + 8(11) = 91

Compeer lt wlth old vulue of Ob|ectlve

functlon 91-64=27

Increused proflt occur ut the rute of 27/6=4.5

per ton of muterlul 2

22

23

:orth per unlt of Ruw Muterlel

Change in Objective function between two extreme points

Change in constraints between two extreme points

Chunge ln Ob|. functlon for M

1

Chunge ln Ob|. functlon for M

2

B = (10, 0)

E = (0,10)

P = 6x

1

+ 8x

2

For B point

6(10) + 8(0) = 60

For E point

6(0) + 8(10)= 80

Change in Obj. function

80-60 = 20

D = (0,6)

F = (12,0)

P = 6x

1

+ 8x

2

For point D

6(0) + 8(6) = 48

For point F

6(12) , 8(0) = 72

Change in Obj. function

72-48 = 24

Chunge ln Construlnts for M

1

5X

1

+ 10X

2

ֱ 60

Chunge ln Construlnts for M

2

4X

1

+ 4X

2

ֱ 40

B = (10, 0)

E = (0,10)

At point B

5(10) + 10(0) = 50

At point E

5(0) + 10(10) = 100

Change in Constraints

100-50 = 50

D = (0,6)

F = (12,0)

At point F

4(12) + 4(0) = 48

At point D

4(0) + 4(6) = 24

Change in Constraints

48-24 = 24

:orth per unlt for muterlul 1 :orth per unlt for muterlul 2

24

W = ǻ in P from B to E /ǻ in M

1

from B to E

W = (80 ± 60) / (100 ± 50)

W = 20 / 50

Worth ( Material 1 )= 2 / 5

W = ǻ in P from D to F) / ǻ in M

1

from D to F

W = (72 ± 48) / (48-24)

W = 24/24

Worth ( Material 1 ) = 1

25

CONCLUSION

Gruphlcul LP Solutlon

Value of profit (P) is maximum (64000) when ICI Produce 8 tons of Oil paints and 2 tons of

Plastic paints.

Gruphlcul Sensltlvlty Anulysls

- Objective function coefficients

Range of optimality of 1

st

coefficient: 8 CX

1

4

Show that the profit contribution for the oil paint can be anywhere between 4000 Rs. Per

ton and 8000 Rs. Per ton, and the production quantities of 8 tons of Oil paints and 2 tons

of Plastic paints will remain optimal.

Range of optimality of 2

nd

coefficient: 12 CX

2

6

Show that the profit contribution for the oil paint can be anywhere between 4000 Rs. Per

ton and 8000 Rs. Per ton, and the production quantities of 8 tons of Oil paints and 2 tons

of Plastic paints will remain optimal.

Rlght Hund Slde of the Construlnts

Shadow Price: The change in the value of the optimal solution per unit increase in the right

hand side of the constraints is called the shadow price.

Shadow price for material 1 constraint is 0.8 x 1000

If we increase or decrease material 1 by 1 ton the value of objective function will increase

or decrease by 800 Rs.

Shadow price for material 2 constraint is 4.5x 1000

If we increase or decrease material 2 by 1 ton the value of objective function will increase

or decrease by 4500 Rs.

SUMMERY

26

Sensitivity analysis is the study of how changes in the coefficient of a linear program affect the

optimal solution. First we describe the concept of sensitivity analysis that the basic idea is to be

able to give answers to questions of the form, if the objective function changes, how does the

solution change? And if resources available change, how does the solution change?

Then we discus about sensitivity analysis business and environmental applications. In business

decision problem, the analyst may want to identify cost drivers as well as other quantities for

which we need to acquire better knowledge in order to make an informed decision for which they

use sensitivity analysis. In environmental sensitivity analysis may help understanding the

contribution of the various sources of uncertainty to the model output uncertainty and system

performance in general.

After this we discuss the importance of sensitivity analysis. Sensitivity analysis is important in

all decision modeling techniques. Various sensitivity analysis activities and their limitations

provide us valuable management information to deal with uncertainties. These uncertainty ranges

can be obtained by performing the following different types of sensitivity analysis depending on

the nature of the uncertainty: perturbation analysis; tolerance analysis; individual symmetric

tolerance analysis; symmetric tolerance analysis; parametric sensitivity analysis; and ordinary

sensitivity analysis.

Then we show how a graphical method can be used to determine how a change in one of the

objective function coefficients or a change in the right hand side value for a constraint will affect

the optimal solution to the problem. By explain problem formulation, Sensitivity analysis and the

interpretation of the solution of ICI problem.

There are several ways to approach sensitivity analysis. If your model is small enough to solve quite quickly, you can use a brute force approach: simply change the initial data and solve the model again to see what results you get. You can do this as many times as needed. At the opposite extreme, if your model is very large and takes a long time to solve, you can apply the formal methods of classical sensitivity analysis. The classical methods rely on the relationship between the initial tableau and any later tableau (in particular the optimum tableau) to quickly update the optimum solution when changes are made to the coefficients of the original tableau. One final observation on the state of the art in sensitivity analysis: you are typically limited to analyzing the impact of changing only one coefficient at a time. There are a few accepted techniques for changing several coefficients at once: the 100% rule, and parametric programming. The 100% rule is typically limited to changing only a few coefficients at once, with tight limits on how much they can change, and parametric programming changes all of the coefficients in ratio. .

2

sensitivity analysis can be used to identify the ranges of values of these input data for which the current LP solution remains optimal. conditions are dynamic and changing. and the algebra provides exact values of the endpoints of the ranges. input data such as resource availabilities. The basic idea is to be able to give answers to questions of the form: y y If the objective function changes. 3 . It involves constructing a graph and then using algebra to determine a range of probability over which the various alternatives are optimal. how does the solution change? &KDQJHVLQWKH2EMHFWLYH)XQFWLRQ A change in an objective function coefficient changes the slope of the objective function. This is done without solving the problem again each time we need to examine a change in an input data¶s value. qualitatively or quantitatively. to different sources of variation in the input of a model Sensitivity Analysis provides a range of probability over which the choice of alternative would remain the same. with respect to that variable. The approach implemented here is useful when there are two states of nature. In such environments. The change in the slope may be sufficient to make a different corner point become the new optimal solution to the LP model. how does the solution change? If resources available change. Hence. prices. and costs used in the LP model are estimated. In most real world situations that are modeled using LP.DEFINITION Sensitivity analysis (SA) is the study of how the variation (uncertainty) in the output of a mathematical model can be apportioned. rather than known with certainty. Sensitivity analysis is a systematic study of how sensitive (duh) solutions are to (small) changes in the data.

at their MEAN values. NOTE: while a parameter is being varied. A Sensitivity Analysis simply means the following: y For one or more selected input parameters. to changes in the input parameter(s). An increase means more units of that resource are available. and allows you to determine the ³sensitivity´ of the safety factor.&KDQJHVLQ5LJKW+DQG6LGH A change in a resource¶s availability (right-hand-side) changes the size of a feasible region. ALL OTHER input parameters are held constant. y A steeply changing curve on a Sensitivity Plot. y A sensitivity analysis indicates which input parameters may be critical to the assessment of slope stability. if more units of a binding resource are available. between the Minimum and Maximum values. it may be possible for the optimal objective value to improve. A decrease means fewer units are available. Obviously. causing the feasible region to increase in size. and which input parameters are less important 4 . In contrast. the additional units would just contribute to more slack and there would be no improvement in the optimal objective value. if more units of a non-binding resource are available. the user specifies a Minimum and a Maximum value. y Each parameter is then varied in uniform increments. indicates that the safety factor is sensitive to the value of the parameter. y This results in a plot of safety factor versus the input parameter(s). y A relatively ³flat´ curve indicates that the safety factor is not sensitive to the value of the parameter. and the safety factor of the Global Minimum slip surface is calculated at each value.

5 .

political. The decision maker might incorporate some other perspectives of the problem such as cultural. Increase Understanding or qualification of the system y y y Estimating relationship between parameters and the output.g. 6 . compelling. Allowing decision makers to select assumptions. Developing hypotheses testing. Conveying a lack of commitment to any single strategy. important parameters.WHY SENSITIVITY ANALYSIS? The following is a condensed list of reasons why sensitivity analysis should be considered: Decision making or development of recommendations for decision makers y Testing the robustness of an optimal solution. thresholds..e. Developing flexible recommendations that depend on the circumstances. understandable. Assessing the "risky-ness" of a strategy or scenario. psychological. or persuasive. y y y y y Identifying sensitivity. or breaking-even values where the optimal strategy changes.. etc. e. y Identifying critical values. Communication y y y y Making recommendations more credible. in Elasticity applications. Comparing the values of simple and complex decision strategies. i.. Understanding relationship between input and output variables. Surprise is not an element of a robust optimal decision. Investigating sub-optimal solutions. into the management scientist's recommendations.

7 . Coping with poor or missing data. Prioritizing acquisition of information.Model development y y y y y y Testing the model for validity or accuracy. Searching for errors in the model Simplifying the model. Calibrating the model.

so that we can save resources at no loss in accuracy by relaxing some of the conditions. the analyst may want to identify cost drivers as well as other quantities for which we need to acquire better knowledge in order to make an informed decision. See Corporate finance: Quantifying uncertainty.APPLICATIONS OF SENSITIVITY ANALYSIS (QYLURQPHQWDO Computer environmental models are increasingly used in a wide variety of studies and applications. heterokedastic effects and correlated inputs. computer models are increasingly used for environmental decision making at a local scale. For example global climate model are used for both short term weather forecasts and long term climate change. On the other hand. Sensitivity analysis can help in a variety of other circumstances which can be handled by the settings illustrated below: y y y To identify critical assumptions or compare alternative model structures Guide future data collections Detect important criteria 8 . Moreover. some quantities have no influence on the predictions. In these cases. or for assessing the behavior and life length of bio-filters for contaminated waste water. different sampling strategies may be advisable and traditional sensitivity indexes have to be generalized to cover multivariate sensitivity analysis. depending on model complexity. for example for assessing the impact of a waste water treatment plant on a river flow. %XVLQHVV In a decision problem. In both cases sensitivity analysis may help understanding the contribution of the various sources of uncertainty to the model output uncertainty and system performance in general.

etc.: changing one factor such as sales volume. e. For instance one person 'optimistic' forecast may be more conservative than that of another person performing a different part of the analysis. which makes examining them each individually unrealistic. will most likely affect other factors such as the selling price.y Optimize the tolerance of manufactured parts in terms of the uncertainty in the parameters y y y Optimize resources allocation Model simplification or model lumping. This sort of subjectivity can adversely affect the accuracy and overall objectivity of the analysis.g. y Often the assumptions upon which the analysis is based are made by using past experience/data which may not hold in the future. 9 . y Assigning a maximum and minimum (or optimistic and pessimistic) value is open to subjective interpretation. However there are also some problems associated with sensitivity analysis in the business context: y Variables are often interdependent.

y Point (3) above may be used for mechanism reduction (dropping or fixing non relevant parts of the model) and for model lumping (building/extracting a model from a more complex one). it is important in breakeven analysis to test the model¶s sensitivity to selling price. SA may help to identify critical regions in the space of the input parameters. SA may be used for model calibration. y In screening exercises. SA may allow the dimensionality of the space where the search is made to be reduced. y As a quality assurance tool. to ascertain if the experiments with its related uncertainties will allow parameter estimation. This is especially useful against ill-conditioned (formulated) problems. costs. SA makes sure that the dependence of the output from the input parameters in the model has a physical resemblance and explanation. SA may help to locate a few influential parameters in systems with hundreds of uncertain inputs. by identifying the most important parameters. y Variance based SA techniques are useful to ascertain if a subset of input parameters may account for (most of) the output variance. and so on. Likewise. fixed cost. y As in (5) above. and variable cost. For example. Sensitivity analysis should be considered: y With controlling the problems. it is important in inventory models in which we tests the result¶s sensitivity to changes in demand.IMPORTANCE OF SENSITIVITY ANALYSIS Sensitivity analysis is important in all decision modeling techniques. lead time. y SA may be coupled to optimization / search algorithms. 10 . See also the problem of model "relevance": are the parameters in the model input set relevant to the task of the model? y Point (3) above may also be used for model identification by pinpointing the experimental conditions for which your ability to discriminate among the model is at maximum.

SA shows where it is more worthwhile to invest in order to reduce the model's range of uncertainty. in chemical kinetics. SA serves as a tool to extract parameters embedded into models whose output does not correlate easily with the unknown input (e. y To optimally allocate resources in R&D.. y SA can ascertain on a quantitative basis what fraction of my prediction uncertainty is due to parametric estimation uncertainty and how much to structural uncertainty.g. to extract kinetic constants of complex systems from the measured yield rate of components. 11 .y To solve an inverse problem.

tolerance analysis. This provides a range of values for each parameter. These uncertainty ranges can be obtained by performing the following different types of sensitivity analysis depending on the nature of the uncertainty: perturbation analysis. Symmetric Tolerance Analysis: Simultaneous and independent equal changes expressed as maximum allowable percentage of the parameter's value in both directions (over and under estimation) for all activity that maintain the optimal basis. symmetric tolerance analysis. Perturbation Analysis: Simultaneous and independent changes in the any parameter in either direction (over or under estimation) for each parameter that maintain the optimal basis. individual symmetric tolerance analysis. Tolerance Analysis: Simultaneous and independent changes expressed as the maximum allowable percentage of the parameter's value in either direction (over or under estimation) for each parameter that maintains the optimal basis. 12 . This provides the largest set of perturbations.VARIOUS SENSITIVITY ANALYSIS ACTIVITIES WITH THEIR LIMITATIONS Given the outcome of a linear program formulation and calculation for the solution a series of analysis can provide valuable management information to deal with uncertainties. Individual Symmetric Tolerance Analysis: Simultaneous and independent equal changes expressed as the maximum allowable percentage of the parameters' value in both directions (over and under estimation) for each parameter that maintains the optimal basis. parametric sensitivity analysis. This provides a range of values for each parameter with the current value at its center. This provides one single range of values of uncertainty for all parameters. and ordinary sensitivity analysis.

holding all others at their nominal values. This provides the maximum magnitude of change for values of dependent parameters. This provides a range for the change of any specific parameter value. the needed computations are some elementary matrix manipulations of the readily available tools for construction of the sensitivity region. Ordinary Sensitivity Analysis: One change-at-a-time in any parameter value that maintains the optimal basis.Parametric Analysis: Simultaneous changes of dependent parameter values from their nominal values that maintain the optimal basis. 13 . In performing the above various type of sensitivity analysis.

M2 Profit per ton 5 4 6 Interior Paint 10 4 8 60 40 Maximum daily availability (tons) &RQVWUXFWLRQRI/3PRGHO Decision Variables X1 = Tons of produced daily of Oil paint. X2 = Tons of produced daily of Plastic paint. M1 and M2. Objective Function P max = 6X1 + 8X2 Subject To 5X1 + 10X2 60 4X1 + 4X2 40 X1 and X2 0 *UDSKLFDO/36ROXWLRQ /LQH 6LGH 14 .SENSITIVITY ANALYSIS GENERAL LP PROBLEM Dr Feeroze ICI Pakistan produces both Oil paints and Plastic paints from two raw materials. The following table provides the basic data of the problem: Tons of raw material per ton of Exterior Paint Raw Material. M1 Raw Material.

. ... . Objective Function î P max = 6X1 + 8X2 Substituting the value of each coordinate in objective function we get. /HIWKDQGVLGHRIWKHOLQH . .I. ZHJHW. ZHJHW. ZHJHW. . .I.. î PA = 6(0) +8(0)=0 15 . .I. ZHJHW. /HIWKDQGVLGHRIWKHOLQH Decision Variables The closed polygonal A-B-C-D are the feasible region..I.

î Slope of constraint of material one (Line A) provide upper limit for the slop of objective function line. î Rotating the objective function line clockwise decrease the slope. î Slope of constraint of material two (Line B) provide lower limit for the slop of objective function line. Slope of line B Slope of objective function line Slope of line A 16 . î Rotating the objective function line anticlockwise increase the slope. î Point C will remain optimal as long as.Value is maximum î PD = 6(0) +8(6)=48 Hence optimum point is point C where the value of P is maximum *UDSKLFDO6HQVLWLYLW\$QDO\VLV Changes in Objective function coefficients P max = 6X1 + 8X2 î Changing in the objective function coefficient will cause the slope of objective function to change such changes causes the object function line to rotate about extreme points.î PB = 6(10) +8(0)=60 î PC = 6(8) +8(2)=64 .

Y= mX + C ( Slope intercept form ) 4X1 + 4X2 40 4X1 + 4X2 = 40 4X2 = 40 ± 4X1 X2 = ± ( 4/4)X1 + (40/4) X2 = ± (1)X1 + 10 Compeer it with Y= mX + C we get. m = slope = -1/2 -1 Slope of objective function line -1/2 17 .For the slope of constraint of material 2 (Line B) For the slope of constraint of material 1 (Line A) 4X1 + 4X2 40 As we know that. Y= mX + C ( Slope intercept form ) 5X1 + 10X2 60 5X1 + 10X2 = 60 10X2 = -5X1 + 60 X2 = -(5/10) X1 + 6 X2 = -(1/2)X1 + 6 Compeer it with Y= mX + C we get. m = slope = -1 5X1 + 10X2 60 As we know that.

Y= mX + C ( Slope intercept form ) X2 = -(cx1/cx2) + P/cx2 Slope = m = .(cx1/cx2) -1 -(cx1/cx2) -1/2 F[F[.For the slope of Objective Function General form of objective function P = CX1 X1 + CX2 X2 As we know that.

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called the unit worth of the resource or shadow price. Right Hand Side of the Constraints 5X1 + 10X2 60 4X1 + 4X2 40 Most of the LP models. Analysis provides a single measure. 5DQJHRIQGFRHIILFLHQW &. Constraint of Material 1 (M1): 5X1 + 10X2 60 Constraint of Material 2 (M2): 4X1 + 4X2 40 When the availability of M1 and M2 changes (increase or decrease) line of constraint move on RHS or LHS respectively. the right hand side provides the limit on the availability of the resources. 19 .0) delineate the feasibility range for M2.0) & E(0. &. 10) delineate the feasibility range for M1 and points D (0. Such constraints. &.6) & F(12. that quantifies the rate of change in the optimum value in the objective function as a result of making changes in the availability of the recourses. constraints usually represent the usage of limited resources. End points B(10.

)HDVLELOLW\UDQJHVRI&RQVWUDLQWV )HDVLELOLW\UDQJHIRUFRQVWUDLQW .0) At point F 4(12) + 4(0) = 48 At point D 4(0) + 4(6) = 24 Feasibility range of constraint 2 24 <= M2 <= 48 )HDVLELOLW\UDQJHVRI&RQVWUDLQWV 20 . 0) E = (0. )HDVLELOLW\UDQJHIRUFRQVWUDLQW ..6) F = (12.. B = (10.10) At point B 5(10) + 10(0) = 50 At point E 5(0) + 10(10) = 100 Feasibility range of constraint 1 50 <= M1 <= 100 D = (0.

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0) E = (0..0) At point F 4(12) + 4(0) = 48 At point D 4(0) + 4(6) = 24 Change in Constraints 48-24 = 24 :RUWKSHUXQLWIRUPDWHULDO :RUWKSHUXQLWIRUPDWHULDO 23 .10) P = 6x1 + 8x2 For B point 6(10) + 8(0) = 60 For E point 6(0) + 8(10)= 80 Change in Obj.10) At point B 5(10) + 10(0) = 50 At point E 5(0) + 10(10) = 100 Change in Constraints 100-50 = 50 D = (0.6) F = (12. function 72-48 = 24 &KDQJHLQ&RQVWUDLQWVIRU0 . function 80-60 = 20 D = (0. B = (10.6) F = (12.:RUWKSHUXQLWRI5DZ0DWHULHO Change in Objective function between two extreme points Change in constraints between two extreme points &KDQJHLQ2EMIXQFWLRQIRU0 &KDQJHLQ2EMIXQFWLRQIRU0 B = (10. 8(0) = 72 Change in Obj. 0) E = (0. &KDQJHLQ&RQVWUDLQWVIRU0 .0) P = 6x1 + 8x2 For point D 6(0) + 8(6) = 48 For point F 6(12) ..

W= in P from B to E / in M1 from B to E W= in P from D to F) / in M1 from D to F W = (80 ± 60) / (100 ± 50) W = 20 / 50 Worth ( Material 1 )= 2 / 5 W = (72 ± 48) / (48-24) W = 24/24 Worth ( Material 1 ) = 1 24 .

*UDSKLFDO6HQVLWLYLW\$QDO\VLV . Shadow price for material 1 constraint is 0. &21&/86.Objective function coefficients Range of optimality of 1st coefficient: 8 CX1 4 Show that the profit contribution for the oil paint can be anywhere between 4000 Rs.5x 1000 If we increase or decrease material 2 by 1 ton the value of objective function will increase or decrease by 4500 Rs. Per ton and 8000 Rs. Range of optimality of 2nd coefficient: 12 CX2 6 Show that the profit contribution for the oil paint can be anywhere between 4000 Rs. 6800(5< 25 . Per ton and 8000 Rs. and the production quantities of 8 tons of Oil paints and 2 tons of Plastic paints will remain optimal.8 x 1000 If we increase or decrease material 1 by 1 ton the value of objective function will increase or decrease by 800 Rs. and the production quantities of 8 tons of Oil paints and 2 tons of Plastic paints will remain optimal. 5LJKW+DQG6LGHRIWKH&RQVWUDLQWV Shadow Price: The change in the value of the optimal solution per unit increase in the right hand side of the constraints is called the shadow price. Shadow price for material 2 constraint is 4.21 *UDSKLFDO/36ROXWLRQ Value of profit (P) is maximum (64000) when ICI Produce 8 tons of Oil paints and 2 tons of Plastic paints. Per ton. Per ton.

These uncertainty ranges can be obtained by performing the following different types of sensitivity analysis depending on the nature of the uncertainty: perturbation analysis. 26 . Then we show how a graphical method can be used to determine how a change in one of the objective function coefficients or a change in the right hand side value for a constraint will affect the optimal solution to the problem. After this we discuss the importance of sensitivity analysis.Sensitivity analysis is the study of how changes in the coefficient of a linear program affect the optimal solution. if the objective function changes. the analyst may want to identify cost drivers as well as other quantities for which we need to acquire better knowledge in order to make an informed decision for which they use sensitivity analysis. First we describe the concept of sensitivity analysis that the basic idea is to be able to give answers to questions of the form. and ordinary sensitivity analysis. Various sensitivity analysis activities and their limitations provide us valuable management information to deal with uncertainties. individual symmetric tolerance analysis. Sensitivity analysis and the interpretation of the solution of ICI problem. symmetric tolerance analysis. In environmental sensitivity analysis may help understanding the contribution of the various sources of uncertainty to the model output uncertainty and system performance in general. tolerance analysis. Sensitivity analysis is important in all decision modeling techniques. By explain problem formulation. parametric sensitivity analysis. In business decision problem. how does the solution change? And if resources available change. how does the solution change? Then we discus about sensitivity analysis business and environmental applications.

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