SENSITIVITY ANALYSIS

Sensitivity Analysis
Analysis of how the changes in the
parameters of problem effect the optimal
solution
Financial model that determines how
target variables are affected based on
changes in other variables
Also called Post-Optimality Analysis
Commonly used by financial analysts and
economists
General LPP
Max z =c1x1+c2x2+c3x3
Subject to:
a11x1+a12x2+a13x3<=b1
a21x1+a22x2+a23x3<=b2
a31x1+a32x2+a33x3<=b3
where x1,x2,x3>=0
aij: Input-Output Coefficients
bi: Resource Values
cj: Objective Function Coefficients
Case Problem
Southern Sporting Goods Company makes basketballs and
footballs. Each product is produced from two resources- rubber
and leather. The resource requirements for each product and the
total resources available are as follows:
Resource Requirements per Unit
Product Rubber (lb.) Leather (ft.2)
Basketball 3 4
Football 2 5
Total resources
available 500 800

Each basketball produced results in a profit of $12, and

each football earns $16 in profit.
Analysis using simplex method
cj 12 16 0 0

cb B.V. x1 x2 s1 s2 Sol

0 s2 7/5 8/5 1 -2/5 180

16 x2 4/5 1 0 1/5 160

zj-cj 4/5 0 0 16/5

Problem Solving using Excel
Answer Report
Sensitivity Report
Managerial Implications
The key application of sensitivity analysis is to indicate the
sensitivity of simulation to uncertainties in the input values of
the model.
They help in decision making
Sensitivity analysis is a method for predicting the outcome of
a decision if a situation turns out to be different compared to
the key predictions.
It helps in assessing the riskiness of a strategy.
Helps in identifying how dependent the output is on a
particular input value. Analyses if the dependency in turn
helps in assessing the risk associated.
Helps in taking informed and appropriate decisions
Aids searching for errors in the model
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