HARAMBEE UNIVERSITY

FACULTY OF SCHOOL OF BUSINESS AND ECONOMICS

MASTERS PROGRAM IN PROJECT MANAGEMENT DEPARTMENT

QUANTITATIVE ANALYSIS FOR DECISION MAKING

GROUP ASSIGNMENT-I:

BY:

To:
Mulachew (Phd)

FEBRUARY, 2022
ADAMA, ETHIOPIA

1. Let’s say XYZ Company is considering investing in several projects that have varying
capital requirements over the next four years. Faced with limited capital each year,
 management would like to select the most profitable projects. The estimated net present
value for each project, the capital requirements, and the available capital over the four-
year period are shown in Table below.

Project Plant Warehouse New New Total

Expansion Expansion Machinery Product Capital
Research Available
Present Value $90,000 $40,000 $10,000 $37,000  
Year 1 Cap Rqmt $15,000 $10,000 $10,000 $15,000 $40,000
Year 2 Cap Rqmt $20,000 $15,000 - $10,000 $50,000
Year 3 Cap Rqmt $20,000 $20,000 - $10,000 $40,000
Year 4 Cap Rqmt $15,000 $5,000 $4,000 $10,000 $35,000
i. Formulate the problem as LP?
1st. Decision variables of the problem is four of the
Investing projects. Thus let:
- X1: Plant Expansionproject
- X2: Warehouse Expansion project
- X3: New Machinery project and
- X4: New Product Research project
2nd. the objective function of the problem to select the
Projects which maximize the present value.
Z - Max = 90,000X1+40,000X2+10,000X3+37,000X4
3rd. The resource constraints of the problem are Projects that have
Varying capital requirements Faced with limited capital the next four years.
- X1<40,000$….(Year 1 capital requirements)
- X2<50,000$….(Year 2capital requirements)
- X3<40,000$….(Year 3 capital requirements)
- X4<35,000$….(Year 4 capital requirements)
4th. Determine appropriate values for parameters and determine whether an upper limit,
LowerLimit or equality is called for.Thus: the problem parameters are fixed values that
Specify the impact that one unit of each decision variable will have on the objective and
on
Any constraint it pertains to as well as the numerical value of each constraint.

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 - 15,000X1+10,000X2+10,000X3+15,000X4<40,000$...(Year 1 capital requirements)
- 20,000X1+15,000X2 +10,000X4<50,000$...(Year 2 capital requirements)
- 20,000X1+20,000X2 +10,000X4<40,000$...(Year 3 capital requirements)
- 15,000X1+ 5,000X2 + 4,000X3 +10,000X4<35,000$...(Year 4 capital requirements)
5th. Use this information to build a model and Validate the model.
Z - Max = 90,000X1+40,000X2+10,000X3+37,000X4
Subjected to:15,000X1+10,000X2+10,000X3+15,000X4<40,000$
20,000X1+15,000X2 +10,000X4<50,000$
20,000X1+20,000X2 +10,000X4<40,000$
15,000X1+ 5,000X2 + 4,000X3 +10,000X4<35,000$
X1, X2, X3, and X4> 0
2. The manager of a department store in Adama has decided to prepare a promotion
campaign on project basis to decide on the types and amounts of advertising the store
should use. He has invited representatives from the local radio station, television station,
and newspaper to make presentations in which they describe their audiences.
a. The television station representative indicates that a TV commercial, which costs Birr
15,000, would reach 25,000 potential customers. The breakdown of the audience is as
follows.
Male Female
Old 5,000 5,000
Young 5,000 10,000
b. The newspaper representative claims to be able to provide an audience of 10,000 potential
customers at a cost of Birr 4000 per ad. The breakdown of the audience is as follows.
Male Female
Old 4,000 3,000
Young 2,000 1,000
c. The radio station representative says that the audience for one of the station’s
commercials, which costs Birr 6000, is 15,000 customers. The breakdown of the audience
is as follows.
Male Female
Old 1,500 1,500
Young 4,500 7,500
The store has the following advertising policy:

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 a. Use at least twice as many radio commercials as newspaper ads.
b. Reach at least 100,000 customers
c. Reach at least twice as many young people as old people
d. Make sure that at least 30% of the audience is women.
Available space limits the number newspaper ads to 7. The store wants to know the optimal
number of each type of advertising to purchase to minimize total cost.
i. Formulate appropriate linear programming model.
1st. Identify the decision variables.
Thus let:
- X1: number of television commercials
- X2: number of radio commercials
- X3: number of newspaper ads
2nd. Determine the objective function. It is not only profit which is to be maximized. In this
Problem the objective to be maximized is audience exposure.
Z-Max = 25,000X1 + 10,000X2 + 15,000X3
Where:
- Z = total level of audience exposure
- 25,000x1 = estimated number of people reached by television commercials
- 10,000x2 = estimated number of people reached by newspaper ads
- 15,000x3 = estimated number of people reached by radio commercials
3rd. identify the constraints and Determine appropriate values for parameters and determine
Whether an upper limit, Lower Limit or equality is called for.Theproblem parameters
Are fixed values that specify the impact that one unit of each decision variable will have
On the Objective and on any constraint it pertains to as well as the numerical value of
each
Constraint.
Budget constraint:
- 15,000X1+4,000X2+6,000X3<100,000
Capacity constraint:Television commercials, radio commercialsandnewspaper ads are limited
to 1 respectively.

- X1 ¿ 1 television commercials

- X2 ¿ 1 radio commercials

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 - X3 ¿ 1 newspaper ads
Policy constraint: The Available space limits the number newspaper ads to 7.
- X1 + X2 + X3 ¿ 7
5th. Use this information to build a model and validate the model: The complete linear
Programming model for this problem is summarized as:
Z-Max = 25,000X1 + 10,000X2 + 15,000X3
Subjected to:15,000X1+4,000X2+6,000X3 <100,000
X1 <1
X2 <1
X3 <1
X1 + X2 + X3 ¿ 7
X1, X2, and X3 > 0
ii. Standardize the model
Z-Max = 25,000X1 + 10,000X2 + 15,000X3+0S1+0S2+0S3+0S4+0S5
Subjected to:15,000X1+4,000X2+6,000X3+S1 <100,000
X1 +S2<1
X2 + S3 <1
X3 +S4 <1
X1 + X2 + X3+S5 ¿ 7
X1, X2, X30S1, 0S2, 0S3, 0S4, 0S5> 0
iii. Develop initial simplex table
Initial simplex tableau
25,000 10,000 15,000 0 0 0 0 0

X1 X2 Q
Cj X3 S1 S2 S3 S4 S5

0 S1 15000 4000 6000 1 0 0 0 0 100,000

0 S2 0 1 0 0 1 0 0 0 1
0 S3 0 0 0 0 0 1 0 0 1
0 S4 0 3 0 0 0 0 4 0 1

0 S5 0 0 0 0 0 0 0 0 7
Zj 0 0 0 0 0 0 0 0
Cj - Zj 25,000 10,000 15,000 0 0 0 0 0

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3. In Southern Region there are a group of three Zones (communal farming communities).
Overall planning for this group is done in its Coordinating Technical Office. This office
currently is planning agricultural production for the coming year. The agricultural output
of each zone is limited by both the amount of available irrigable land and the quantity of
water allocated for irrigation by the Water Commissioner (a national government
official). These data are given in the following table.
TABLE 1 Resource data for the Southern Confederation of the Three Zones
Zone Usable Land (Acres) Water Allocation (Acre Feet)
1 400 600
2 600 800
3 300 375
The crops suited for this region include sugar beets, cotton, and sorghum, and these are the
three being considered for the upcoming season. These crops differ primarily in their
expected net return per acre and their consumption of water. In addition, the Ministry of
Agriculture has set a maximum quota for the total acreage that can be devoted to each of
these crops by the Southern Region of Three Zones, as shown in Table 2 below.
TABLE 2. Crop data for the Southern region of Three Zones
Crop Maximum Quota Water Consumption Net Return
(Acres) (Acre Feet/Acre) ($/Acre)
Sugar beets 600 3 1,000
Cotton 500 2 750
Sorghum 325 1 250

Because of the limited water available for irrigation, the Southern region of three zones will
not be able to use all its irrigable land for planting crops in the upcoming season. To ensure
equity between the three zones, it has been agreed that every zone will plant the same
proportion of its available irrigable land. For example, if zone 1 plants 200 of its available
400 acres, then zone 2 must plant 300 of its 600 acres, while zone 3 plants 150 acres of its
300 acres. However, any combination of the crops may be grown at any of the zones. The job
facing the Coordinating Technical Office is to plan how many acres to devote to each crop at

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the respective zone while satisfying the given restrictions. The objective is to maximize the
total net return to the Southern region of three zones as a whole.

i. Develop the problem as LP?

Allocation (Acre Feet)
Crop 1 2 3
Sugar beets X1 X2 X3
Cotton X4 X5 X6
Cotton X7 X8 X9
1st. The decision variables of the problem is:
- X1: Sugar beets
- X2: Cotton
- X3: Cotton
2nd. the objective function of the problem is
Z - Max = 1,000X1+750X2+250X3
3rd. The resource constraints of the problem:
Usable land for each (Acres):
- X1+X4+X7<400….(Zone 1)
- X2+X5+X8<600….(Zone 2)
- X3+X6+X9<300….(Zone 3)
Water Allocation (Acre Feet)
- 3X1+2X4+X7<600….(Zone 1)
- 3X2+3X5+X8<800….(Zone 2)
- 3X3+2X6+X9<375….(Zone 3)
ii. Standardize the LPPmodel:
Usable land for each (Acres):
- X1+X4+X7+S1=400
- X2+X5+X8+S2=600
- X3+X6+X9+S3=300

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 Water Allocation (Acre Feet)
- 3X1+2X4+X7+S4=600
- 3X2+3X5+X8+S5=800
- 3X3+2X6+X9+S6=375
Maximum Quota (Acres)
- X1+X2+X3+S7=600
- X4+X5+X6+S8=500
- X7+X8+X9+S9=325
Water Consumption (Acre Feet/Acre)
- 3(X1+X4+X7)- 2 (X2+X5+X8)=0
- (X2+X5+X8)- 2 (X3+X6+X9)=0
- 4(X3+X6+X9)- 3 (X1+X4+X7)=0
4. Using graphic approach (Extreme Corner point),
- Find the optimal solution for (a) below
- If there exist multiple solution for (b) below taking the same constraints, determine at
least 4 integer multiple solutions
Z Min a) 1500x+2400y
b) 1600x+2400y
Subjected to:
4x+Y>24
2x+3y>42
X+4y>36
X<14
y<14
X, y>0
i. Find the optimal solution for (a) below
1st: Formulation of mathematical modeling of LPP: it already formulated
Z Min a) 1500x+2400y
Subjected to:
4x+Y>24 …I
2x+3y>42 …II
X+4y>36 …III
X<14 …IV

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 y<14 …V
x, y>0
2nd. Convert constraints inequalities into equalities:
4x+Y=24 …I
2x+3y=42 …II
X+4y=36 …III
X=14 …IV
y<14 …V
x, y>0
3rd. Draw the graph by intercepts:
2x+3y>42 y
2x+3y=42
If x=0,
2x+3y=42
2(0) +3y=42
2(0) +3y=42 24_(0,24)
y=42/3 IV
y=14
The coordinates (0, 14)
If y=0, 18 _ I
2x+3y=42
2x+3(0)=42 A (2.5,14) (14,14)
x=42/2 B V
x=21 (0, 14) E (3, 12)
Constraint III 12 _
X+4y>36 Feasible
X+4y=36 region multiple solution line
If x=0, (0,9) (double lined)
 x+4y=36
 y=36/4 6_ C (14, 5.5)
 y=9
The coordinates (0, 9) D
If y=0, (12,6) II III x
x+4(0) =36 (0, 0)
x =36 (6,0) (14,0) (21,0) (36,0)
The coordinates (36, 0) 6 12 18 24 36
4th. Identify the feasible area of the solution which satisfies all constrains.
5th. Identify the corner points in the feasible region:
6th. Identify the optimal point
1 2 3 4 5
Corner constraints Coordinates Objective functions
Points intersected x y 1500x+2400y
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A I&V 2.5 14 37,350
B IV&V 14 14 54,600
C III&IV 14 5.5 34,200
D II&III 12 6 32,400
E I&II 3 12 33,300

7th. Interpret the result

The minimum value of the objective function is 32,400. Therefore, the optimum solution is
found at the corner point D, where constraint II&III are intersected. Hence, optimal solution:
x =12, y = 6.

5. Innis consulting group Investments manages funds for a number of companies and
wealthy clients. The investment strategy is tailored to each client’s needs. For a new
client, Innis has been authorized to invest up to $1.2 million in two investment funds: a
stock fund and a money market fund. Each unit of the stock fund costs $50 and provides
an annual rate of return of $5 per dollar invested; each unit of the money market fund
costs $100 and provides an annual rate of return of $4 for each dollar invested. The client
wants to minimize risk subject to the requirement that the annual income from the
investment be at least $60,000. According to Innis’s risk measurement system, each unit
invested in the stock fund has a risk index of 8, and each unit invested in the money
market fund has a risk index of 3; the higher risk index associated with the stock fund
simply indicates that it is the riskier investment. Innis’s client also specified that at least
$3000 be invested in the money market fund.
a. Determine how many units of each fund Innis should purchase for the client to minimize
the total risk index for the portfolio.
1st. The decision variables:
- The cells highlighted in Orange color) are the number of units invested in Stock Fund
and Money Market Fund
2nd. the objective function:
- The cells highlighted in Yellow color) is to minimize the Total Risk Total Risk = 8*
number of units invested in Stock Fund + 3 * number of units invested in Money
Market Fund
3rd. The Constraints are:
- Total amount invested should be less than or equal to the total fund available

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 - Total return generated should be more than or equal to the total income required
- Amount invested in money market fund should be more than or equal to $300,000
4th. Optimal Solution:
- Stock Fund = 4000 units
- Money Market Fund = 10000 units
- Optimal Total Risk = 62000
b. How much annual income will this investment strategy generate?
- The investment strategy generates $60,000
c. Please refer to the following calculation snapshots:
- The decision variables (cells highlighted in Orange color) are the number of units
invested in Stock Fund and Money Market Fund
- The objective function (cells highlighted in Yellow color) is to maximize the Total
Return
- Total return = 10% * number of units invested in Stock Fund * 50 + 4% * number of
units invested in Money Market Fund * 10
d. Suppose the client desires to maximize annual return. How should the funds be invested?
- Stock Fund = 18000 units
- Money Market Fund = 3000 units
- Optimal Total Return = $102,000Total Risk = 153000
e. Please refer to the following sensitivity report (This is for the initial solution, minimizing the
total risk):
- Objective coefficient ranges are as follows:
- Stock Fund units = (8 - 4.25) to Infinity = 3.75 to Infinity
- Money Market Fund units = -Infinity to (3 + 3.4) = -Infinity to 6.4
f. Annual Income earned by the portfolio = $60,00
g. Rate of Return on the Portfolio = 60000 / 1200000 * 100 = 5%
h. Dual Value (or Shadow Price) for the funds available constraint is -0.056
i. Marginal Rate of return on extra funds added to the portfolio is Shadow price for return =
2.17
j. Allowable increase for the objective coefficient (risk index) for the stock fund is 1E+30 =
infinity. This means that the given optimal solution is valid for any value of increase in
the risk index of stock fund.
Hence, even if the risk index of stock fund increases from 8 to 12, the given optimal
solution will not change.

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k. Allowable increase for the objective coefficient (risk index) for the money market fund is
3.4. This means that the given optimal solution is valid for a value of up to 6.4 risk index
of money market fund.
Hence, if the risk index of money market fund increases from 3 to 3.5 will not change the
given optimal solution.
l. Because both the increases are well within the allowable increase range, the optimal
solution will not change. I.e. it will still remain 4000 units of stock fund and 10000 units
of money market fund.
(Note: The objective function will change as the risk index or coefficient has changed, but
the decision variable values remain unchanged.)

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