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.

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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.

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 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:

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

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

Changes in the Objective Function

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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.

Changes in Right Hand Side

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:

 For one or more selected input parameters, the user specifies a Minimum and a
Maximum value.

 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.

 This results in a plot of safety factor versus the input parameter(s), and allows you to
determine the “sensitivity” of the safety factor, to changes in the input parameter(s).

 A steeply changing curve on a Sensitivity Plot, indicates that the safety factor is sensitive
to the value of the parameter.

 A relatively “flat” curve indicates that the safety factor is not sensitive to the value of the
parameter.

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 A sensitivity analysis indicates which input parameters may be critical to the assessment
of slope stability, and which input parameters are less important

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 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

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

optimal decision.

 Identifying critical values, thresholds, or breaking-even values where the optimal strategy
changes.

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

 Investigating sub-optimal solutions.

 Developing flexible recommendations that depend on the circumstances.

 Comparing the values of simple and complex decision strategies.

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

Communication

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

 Allowing decision makers to select assumptions.

 Conveying a lack of commitment to any single strategy.

 The decision maker might incorporate some other perspectives of the problem such as
cultural, political, psychological, etc., into the management scientist's recommendations.

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Increase Understanding or qualification of the system

 Estimating relationship between parameters and the output.

 Understanding relationship between input and output variables.

 Developing hypotheses testing.

Model development

 Testing the model for validity or accuracy.

 Searching for errors in the model

 Simplifying the model.

 Calibrating the model.

 Coping with poor or missing data.

 Prioritizing acquisition of information.

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 APPLICATIONS OF SENSITIVITY
ANALYSIS

Environmental

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.

Business

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:

 To identify critical assumptions or compare alternative model structures

 Guide future data collections
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 Detect important criteria
 Optimize the tolerance of manufactured parts in terms of the uncertainty in the
parameters
 Optimize resources allocation
 Model simplification or model lumping, etc.
 However there are also some problems associated with sensitivity analysis in the business
context:
 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.
 Often the assumptions upon which the analysis is based are made by using past
experience/data which may not hold in the future.
 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.

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 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:

 With controlling the problems, SA may help to identify critical regions in the space of the
input parameters.
 In screening exercises, SA may help to locate a few influential parameters in systems
with hundreds of uncertain inputs.
 Variance based SA techniques are useful to ascertain if a subset of input parameters may
account for (most of) the output variance.
 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?
 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.
 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.
 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.

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 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.
 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.
 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.
 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.

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 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.

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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.

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 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

Exterior Paint Interior Paint availability (tons)
Raw Material, M1 5 10 60
Raw Material, M2 4 4 40
Profit per ton 6 8

Construction of LP model

Decision Variables

X1 = Tons of produced daily of Oil paint.

X2 = Tons of produced daily of Plastic paint.

Objective Function

P max = 6X1 + 8X2

Subject To

5X1 + 10X2 ≤ 60
4X1 + 4X2 ≤ 40
X1 and X2 ≥ 0

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Graphical LP Solution

Line Side

5X1 + 10X2 = 60 5X1 + 10X2 < 60

Left hand side of the line
If X1= 0, we get X2 = 6
If X1= 0, we get X1 = 12

4X1 + 4X2 = 40 4X1 + 4X2 < 40

Left hand side of the line
If X1= 0, we get X2 = 10
If X2= 0, we get X1 = 10

Optimum Point / Extreme Point

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

• Objective Function
− P max = 6X1 + 8X2

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

− PA = 6(0) +8(0)=0
− PB = 6(10) +8(0)=60
− PC = 6(8) +8(2)=64 - Value is maximum
− PD = 6(0) +8(6)=48

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

Graphical Sensitivity Analysis

Changes in Objective function coefficients

P max = 6X1 + 8X2

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− 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.

− Rotating the objective function line anticlockwise increase the slope.

− Slope of constraint of material one (Line A) provide upper limit for the slop of objective
function line.

− Rotating the objective function line clockwise decrease the slope.

− Slope of constraint of material two (Line B) provide lower limit for the slop of objective
function line.

− Point C will remain optimal as long as,

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

c k wise
Clo

For the slope of constraint of For the slope of constraint of

material 2 (Line B) material 1 (Line A)

4X1 + 4X2 ≤ 40 5X1 + 10X2 ≤ 60

As we know that, As we know that,

Y= mX + C ( Slope intercept form ) Y= mX + C ( Slope intercept form )

4X1 + 4X2 ≤ 40 5X1 + 10X2 ≤ 60

4X1 + 4X2 = 40 5X1 + 10X2 = 60
4X2 = 40 – 4X1 10X2 = -5X1 + 60
X2 = – ( 4/4)X1 + (40/4) X2 = -(5/10) X1 + 6
X2 = – (1)X1 + 10 X2 = -(1/2)X1 + 6

Compeer it with Y= mX + C we get, Compeer it with Y= mX + C we get,

m = slope = -1 m = slope = -1/2

-1 ≤ Slope of objective function line ≤ -1/2

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For the slope of Objective Function

General form of objective function

P = CX1 X1 + CX2 X2

As we know that,
Y= mX + C ( Slope intercept form )

X2 = -(cx1/cx2) + P/cx2

Slope = m = - (cx1/cx2)
-1 ≤ -(cx1/cx2) ≤ -1/2

-1 ≤ -(cx1/cx2) ≤ -1/2

Put the value of Cx2 from objective function

-1 ≤ -(cx1/8) ≤ -1/2

For the LHS For the RHS

-1 ≤ -(cx1/8) -(cx1/8) ≤ -1/2

-8 ≤-cx1 -cx1 ≤ -8/-2
8 ≥ cx1 -cx1 ≤ -4
Cx1 ≥ 4

Range of 1st coefficient: 8 ≥ CX1 ≥ 4

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 -1 ≤ -(cx1/cx2) ≤ -1/2

Put the value of Cx1 from objective function

-1 ≤ -(6/cx2) ≤ -1/2

For the RHS For the LHS

-1 ≤ -(6/cx2) -(6/cx2) ≤ -1/2

-CX2 ≤ -6 -12 ≤ -CX2
CX2 ≥ 6 12 ≥ CX2

Range of 2nd coefficient : 12 ≥ CX2 ≥ 6

Right Hand Side of the Constraints

5X1 + 10X2 ≤ 60
4X1 + 4X2 ≤ 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 (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.

End points B(10,0) & E(0, 10) delineate the feasibility range for M1 and points D (0,6) & F(12,0)
delineate the feasibility range for M2.

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 F (12,0)

Feasibility ranges of Constraints

Feasibility range for constraint 1 Feasibility range for constraint 2

5X1 + 10X2 ≤ 60 4X1 + 4X2 ≤ 40

B = (10, 0) D = (0,6)
E = (0,10) F = (12,0)

At point B At point F
5(10) + 10(0) = 50 4(12) + 4(0) = 48

At point E At point D
5(0) + 10(10) = 100 4(0) + 4(6) = 24

Feasibility range of constraint 1 Feasibility range of constraint 2

50 <= M1 <= 100 24 <= M2 <= 48

Feasibility ranges of Constraints

RHS Increase by 6 tons

Constraint 1 Constraint 2
5X1 + 10X2 ≤ 66 4X1 + 4X2 ≤ 46
5X1 + 10X2 = 66 4X1 + 4X2 = 46

If X1 = 0, we get X2 = 6.6 If X1= 0, we get X2 = 11.5

If X2= 0, we get X1 = 13.2 If X2= 0, we get X1 = 11.5

By constructing this constraint on By constructing this constraint on

graph we get new optimum point at graph we get new optimum point at
(8,3) (10,2.5)
C(8,3) C(10,2.5)
The new value of objective function The new value of objective function
is is

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P = 6X1 + 8X2 P = 6X1 + 8X2
6(6.8) + 8(3.3) = 67.2 6(0.5) + 8(11) = 91

Compeer it with old value of Compeer it with old value of

Objective function 72-67.2=4.8 Objective function 91-64=27

Increased profit occur at the rate of Increased profit occur at the rate of
4.8/6=0.8 per ton of material 1 27/6=4.5 per ton of material 2

C` (6.8,3.3)
C` (0.5,11)

Worth per unit of Raw Materiel

Change in Objective function between two extreme points

Worth =
Change in constraints between two extreme points

Change in Obj. function for M1 Change in Obj. function for M2

B = (10, 0) D = (0,6)
E = (0,10) F = (12,0)

P = 6x1 + 8x2 P = 6x1 + 8x2

For B point For point D

6(10) + 8(0) = 60 6(0) + 8(6) = 48

For E point For point F

6(0) + 8(10)= 80 6(12) , 8(0) = 72

Change in Obj. function Change in Obj. function

80-60 = 20 72-48 = 24

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 Change in Constraints for M1 Change in Constraints for M2
5X1 + 10X2 ≤ 60 4X1 + 4X2 ≤ 40

B = (10, 0) D = (0,6)
E = (0,10) F = (12,0)

At point B At point F
5(10) + 10(0) = 50 4(12) + 4(0) = 48

At point E At point D
5(0) + 10(10) = 100 4(0) + 4(6) = 24

Change in Constraints Change in Constraints

100-50 = 50 48-24 = 24

Worth per unit for material 1 Worth per unit for material 2

W = Δ in P from B to E /Δ in M1 from B to E W = Δ in P from D to F) / Δ in M1 from D to F

W = (80 – 60) / (100 – 50) W = (72 – 48) / (48-24)

W = 20 / 50 W = 24/24

Worth ( Material 1 )= 2 / 5 Worth ( Material 1 ) = 1

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 CONCLUSION

Graphical LP Solution

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

Graphical Sensitivity Analysis

- 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. 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 2nd coefficient: 12 ≥ CX2 ≥ 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.

Right Hand Side of the Constraints

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.

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 SUMMERY

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.

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