QM3 Week 1 Chapter 2

QM3 Skills
Mathematical programming:
Sensitivity analysis
Week 1, chapter 2
2020-2021
09/09/2023 1
Sensitivity analysis. WHAT is it?
Max
• WHAT is it? Sensitivity analysis measures what

happens to an optimal solution and its value, in
case of small changes in single coefficients:
– an objective coefficient ,
– an RHS coefficient ,
– an LHS coefficient
2
Sensitivity analysis.
WHY, and HOW do it?
• WHY do it? When solving an LP problem we
assume that values of all model coefficients are
known exactly. Such accuracy rarely exists.
• HOW do it? The simplex method provides the

means to perform sensitivity analysis through its
sensitivity report.
3
Spreadsheet Case Production Planning
Case Production Planning

Products
A B
Variables 40 70
Objective 4000 3000 370000
Constraints Coefficients LHS Operator RHS
Demand Alpha 1 40 <= 60
Demand Beta 1 70 <= 90
Oven hrs 10 10 1100 <= 1100
Distribution hrs 50 20 3400 <= 3400
4
Solver reports
5
Sensitivity report
Microsoft Excel 14.0 Sensitivity Report
Worksheet: [QM2 math week 5 Production Planning.xlsx]Case Production Planning
Report Created: 27-2-2018 10:33:05
Variable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$3 Variables A 40 0 4000 3500 1000
$C$3 Variables B 70 0 3000 1000 1400
Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$D$6 Demand Alpha LHS 40 0 60 1E+30 20
$D$7 Demand Beta LHS 70 0 90 1E+30 20
$D$8 Oven hrs LHS 1100 233,33333 1100 120 300
$D$9 Distribution hrs LHS 3400 33,33333 3400 600 600
6
Products
A B
Variables 40 70
Objective 4000 3000 370000
Oven hrs 10 10 1100 <= 1100
What will happen if the objective coefficient of A is

increased by a small amount, say from 4000 to 4001?
7
Products
A B
Variables 40 70
Objective 4001 3000 370040
Oven hrs 10 10 1100 <= 1100
The optimal solution does not change.

The optimal objective value changes a little: 1*40.
Next question: how much can we increase the coefficient
8
such that the optimal solution does not change?
Geometry of changes in
objective coefficients (OCs)
Compare:
B
 4000  4000 A + 3000 B
100  
 3000  with
5000 A + 3000 B
50
50 A 9
Compare:
B
 4000  4000 A + 3000 B
100  
 3000  with
5000 A + 3000 B
 5000 
 
 3000 
50
50 A 10
Compare:
B
 4000  4000 A + 3000 B
100  
 3000  with
5000 A + 3000 B
 5000 
 
 3000  Level curve of the objective
50 turns around the optimal point.
Question: How much can the

level curve turn without
changing the optimal solution?
50 A 11
Sensitivity report
Report Created: 27-2-2018 10:33:05
Variable Cells
$B$3 Variables A 40 0 4000 3500 1000
$C$3 Variables B 70 0 3000 1000 1400
Constraints
$D$8 Oven hrs LHS 1100 233,33333 1100 120 300
Products
A B
Variables 40 70
Objective 4000 3000 370000
Oven hrs 10 10 1100 <= 1100
What will happen if the RHS of the oven constraint is

increased by a small amount, say from 1100 to 1101?13
Products
A B
Variables 39,93 70,17
Objective 4000 3000 370233,33
Oven hrs 10 10 1101 <= 1101
The optimal solution changes slightly. The objective changes

a little: 1*233,33. The binding constraints do not change.
14
Shadow price constraint oven hours
Products
A B
Objective 4000 3000 370233,33
Oven hrs 10 10 1101 <= 1101
Increase of RHS with one unit increases

the profit with 233,33 (the shadow price)
15
Changes in the Right-hand sides
Report Created: 27-2-2018 10:33:05
Variable Cells
$B$3 Variables A 40 0 4000 3500 1000
$C$3 Variables B 70 0 3000 1000 1400
Constraints
$D$8 Oven hrs LHS 1100 233,33333 1100 120 300
16
Shadow price constraint distribution hrs
Products
A B
Objective 4000 3000 370033,33
Oven hrs 10 10 1100 <= 1100

the profit with 33,33 (the shadow price) 17
Shadow price constraint demand alpha
Products
A B
Variables 40 70
Objective 4000 3000 370000
Oven hrs 10 10 1100 <= 1100

the profit with 0 (the shadow price) 18
Report Created: 27-2-2018 10:33:05
Variable Cells
$B$3 Variables A 40 0 4000 3500 1000
$C$3 Variables B 70 0 3000 1000 1400
Constraints
$D$8 Oven hrs LHS 1100 233,33333 1100 120 300
Changes in Constraint RHS Values
The shadow price of a constraint indicates the

amount the objective function value increases
given
a unit increase in the RHS value
of the constraint, assuming all other coefficients

remain constant.
As a consequence:
shadow prices for nonbinding constraints are always zero. 20
Right-hand sides (RHS)
B
100
50
10A + 10B ≤ 1100
50 A
21
Compare the constraints
B
100
10A + 10B ≤ 1100
and
10A + 10B ≤ 1150 10A + 10B ≤ 1150
50
10A + 10B ≤ 1100
50 A
Compare the constraints
B
100
10A + 10B ≤ 1100
and
10A + 10B ≤ 1150 10A + 10B ≤ 1150
If the RHS of a -constraint increases

50
the feasible region grows.
10A + 10B ≤ 1100 Question: How much can the RHS

change without changing the set of
binding constraints?
50 A
23
Report Created: 27-2-2018 10:33:05
Variable Cells
$B$3 Variables A 40 0 4000 3500 1000
$C$3 Variables B 70 0 3000 1000 1400
Constraints
$D$8 Oven hrs LHS 1100 233,33333 1100 120 300
24
Overview: What happens in
case of small single changes?
• Small changes in Objective Coefficients:
– Optimal solution remains the same.
– Objective value changes with (increase of
objective coefficient) (value variable).
• Small changes in Right-Hand Sides:
– Optimal solution changes “along the line” of
the binding constraints.
– Objective value changes with (increase of
RHS) (Shadow price)
25
Reduced costs (bad name)
Consider a new product C that
– uses 5 hours of oven capacity per unit
– uses 10 hours of distribution capacity per unit
– has a revenue of 1300 per unit
Is it profitable to produce C or not?
• Per unit cost:

– 5 hours of oven capacity * 233,3
– 10 hours of distribution capacity * 33,3
– Total costs: 5*233,3 + 10*33,3 = 1500
– Revenue: 1300
– So the value of the optimal solution will DECREASE with 200

if a unit of C is produced: the reduced cost of C 26
An additional product C
A B C
Variables 40 70 0
Objective 4000 3000 1300 370000
Oven hrs 10 10 5 1100 <= 1100
Distribution hrs 50 20 10 3400 <= 3400
27
New sensitivity report
Adjustable Cells
$B$3 Variables A 40 0 4000 3500 1000
$C$3 Variables B 70 0 3000 1000 400
$D$3 Variables C 0 -200 1300 200 1E+30
Constraints
$E$6 Demand Alpha LHS 40 0 60 1E+30 20
$E$7 Demand Beta LHS 70 0 90 1E+30 20
$E$8 Oven hrs LHS 1100 233,33333 1100 120 300
$E$9 Distribution hrs LHS 3400 33,33333 3400 600 600
28
Relation Reduced Cost and
Shadow Price (1)
The reduced cost for a product is its per-unit
(marginal) profit: per-unit revenue minus the per-
unit cost of the resources it consumes (using the
shadow prices).
Red.Cost  Obj .Coeff -  ShadowPric e * (units used)

constraint s
Short hand:
𝑅𝐶=𝑂𝐶− ∑ 𝑆𝑃 ∗𝑢𝑛𝑖𝑡𝑠
𝑐𝑜𝑛𝑠𝑡𝑟𝑎𝑖𝑛𝑡𝑠 29
Relation Reduced Cost and
Shadow Price (2)
𝑅𝐶=𝑂𝐶− ∑ 𝑆𝑃 ∗ 𝑢𝑛𝑖𝑡𝑠
𝑐𝑜𝑛𝑠𝑡𝑟𝑎𝑖𝑛𝑡𝑠
Profit = Revenue – Costs
A: 0 = 4000 – (10 * 233,3 + 50 * 33,3)

B: 0 = 3000 – (10 * 233,3 + 20 * 33,3)
C: – 200 = 1300 – ( 5 * 233,3 + 10 * 33,3)
In the optimal solution the reduced costs are:

= 0 for variables with value > 0
< 0 for variables with value = 0
30
Changes in Constraint Coefficients
• Suppose product C requires only 4 hours of oven

capacity rather than 5. Is it now profitable to
produce any?
– Revenue: 1300
– Cost: 4 * 233,33 + 10 * 33,33 = 1266,67
– Revenue – Cost = $33,33 = Yes!
• What is the amount of hours used in the oven (X)

at which C becomes profitable?
– Revenue – Cost = 0 = 1300 – X * 233,33 + 10 * 33,33
– So, X = 4,15
31
The Blue Ridge Hot Tubs Example...
X1: number of aqua-spas produced
X2: number of hydro-luxes produced
MAX: 350X1 + 300X2 } profit
S.T.: 1X1 + 1X2 <= 200 } pumps
9X1 + 6X2 <= 1566 } labor
12X1 + 16X2 <= 2880 } tubing
X1, X2 >= 0 } nonnegativity
See file Blue Ridge Hot Tubs.xlsm

32

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QM3 Skills

• WHAT is it? Sensitivity analysis measures what

• HOW do it? The simplex method provides the

Case Production Planning

What will happen if the objective coefficient of A is

The optimal solution does not change.

Question: How much can the

What will happen if the RHS of the oven constraint is

The optimal solution changes slightly. The objective changes

Increase of RHS with one unit increases

Increase of RHS with one unit increases

Increase of RHS with one unit increases

The shadow price of a constraint indicates the

of the constraint, assuming all other coefficients

10A + 10B ≤ 1100

10A + 10B ≤ 1100

If the RHS of a -constraint increases

10A + 10B ≤ 1100 Question: How much can the RHS

• Per unit cost:

– So the value of the optimal solution will DECREASE with 200

Red.Cost  Obj .Coeff -  ShadowPric e * (units used)

A: 0 = 4000 – (10 * 233,3 + 50 * 33,3)

In the optimal solution the reduced costs are:

• Suppose product C requires only 4 hours of oven

• What is the amount of hours used in the oven (X)

See file Blue Ridge Hot Tubs.xlsm

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