Lecture 5

Introduction to Modeling for Decisions

BME
Institute of Engineering
Amrit Nakarmi
09 June 2013
Sensitivity Analysis
 After solving an LP model, a number of questions often
arise about the optimal solution to the LP model. In
particular, we might be interested in how sensitive the
optimal solution is to changes in various coefficient of the
LP model.
 Business rarely knows with certainty what costs will be
incurred or the exact amount of resources that will be
consumed or available in a given situation or time period.
 Thus, optimal solutions obtained using models that
assume all relevant factors are known might be viewed with
scepticism.

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Sensitivity Analysis
 Sensitivity analysis can help overcome this
scepticism and provide a better picture of how the
solution to a problem will change if different
factors in the model change.
 It can also help a number of practical managerial
questions that might arise about the solution to an
LP problem.
 It addresses many issues by revealing the
sensitivity of the solution to uncertainty or errors
in the model coefficients.

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Approaches to Sensitivity Analysis
Simplex method used in the Solver provides the following
information about:
 the range of values the objective functions coefficients
can assume without changing the optimal solution
 The impact on the optimal objective function value of
increases or decreases in the availability of various
constrained resources
 The impact on the optimal objective function value of
forcing changes in the values of certain decision
variables away from their optimal values
 The impact that changes in constraint coefficients will
have on the optimal solution to the problem
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Solver Reports
 Solver provide three reports
 Answer report
 Limits report
 Sensitivity report
 Answer report summarizes the original and final values to
the problem and is fairly self-explanatory. The final section
of this report provides information about constraints. A
constraint is binding if it satisfied as a strict equality in the
optimal solution. The constraint may be non-binding, if
LHS and RHS of constraint are not equal.

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Limits Report
 This report gives the optimal value of target cell and
then summarizes the the optimal values of the
adjustable cells or decision variables.
 Lower limits column indicate the smallest value the
each decision variable can take, while all other
variables are constant.

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Sensitivity Report

The information provided by this

report is useful for managers in
evaluating how sensitive the
optimal solution is to changes in
various coefficients in the model.

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Sensitivity Report
 The original objective function coefficients
associated with the adjustable cells (decision
variables) are listed in the Objective coefficient
column.
 The next two columns show allowable increases
and decreases in these values.
 For example, OF value of Aqua-spa or X1 can
increase by as much as $100 or decrease by as much
as $50 without changing the optimal solution,
assuming all other coefficients remain constant.

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Sensitivity Report
 Aqua-spa can take coefficients from $300 to $ 450,
without changing the optimal solution. Similarly with
Hydro-luxes, they can take values from $233.33 to $350
without changing the optimal solution.

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Sensitivity Report
 The shadow Price for a constraint shows the
amount by which the OF value changes given unit
increase in the RHS value of constraint, assuming
all other constraint coefficients remain constant.
 If the shadow price is positive, a unit increase in
the RHS value results in an increase in the optimal
OF value.
 If a shadow price is negative, a unit increase in the
RHS value results in a decrease in the optimal OF
value.

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Sensitivity Report
 The shadow price for labor constraint is 16.67. This
means that if the number of labor hours increased by
any amount in the range of 0 to 234 hours, optimal OF
value will increases by $16.67 for each additional labor
hour.
 The optimal OF value decreases by $16.67 for each
reduction of labor hour.

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Sensitivity Report

 Shadow prices are zero for non-binding

constraints, i.e., the optimal OF value
does not change, if we add one more
non-binding resource, because we have
extra of them.

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Sensitivity Report
 The reduced cost of each decision variable
(product) is equal to the per-unit amount the
variable will contribute to the OF value minus per-
unit value of resources it consumes.
 Reduced cost of aqua spa =350-200*1-16.67*9-
0*12 =0
 Reduced cost of Hydro-luxes =300-200*1-
16.67*6-0*16 =0.

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