Linear Programming: Sensitivity

Analysis and Interpretation of

Solution
CHAPTER 8
QUANTITATIVE TECHNIQUES IN BUSINESS
AC503
Sensitivity Analysis
Is the study of how changes in the coefficients of a linear
programming problem affect the optimal solution.
Sensitivity analysis answer questions such:
How will a change in an objective function coefficient affect the optimal
solution?
How will a change in a right-hand-side value for a constraint affect the
optimal solution.
Sensitivity Analysis (SA)
SA does not begin until the optimal solution to the original linear
programming problem has been obtained.
SA is also known as Posoptimality Analysis.
SA is important because real-world problems exist in a changing
environment, like changes in
Price of raw materials
Product demands
Production capacities
Stock prices
SA provides information needed to respond to such changes without
requiring a complete solution of a revised LP.
RMC Linear Program Model
Max 40F + 30S
Subject to (s.t.)
0.4F + 0.5S 20 --------- Material 1
0.2S 5 --------- Material 2
0.6F + 0.3S 21 --------- Material 3
F, S 0
The optimal solution, F = 25 tons and S = 20 tons, BASED on the profit
contribution of $40 for F and $30 for S.
Changes in Coefficient of the Objective
Function
Suppose that we later learn that a price reduction causes the profit
contribution for the fuel additive to fall from $40 to $30 per ton.
SA can be used to determine whether producing 25 tons of F and 20
tons of S is still best.
If it is, solving a new LP problem with 30F + 30S as the new objective
function is not necessary.
SA can also be used to determine which coefficients in an LP are
crucial.
 If SA shows that 25 tons of F and 20 tons of S will be optimal solution
as long as the profit contribution for the solvent base is between $20
to $50, management should feel comfortable with the $30 per ton
estimate and the recommended production quantities.
However, if SA shows that 25 F and 20 S will be optimal solution only
if the profit contribution for the solvent base is between $29.90 to
$30.20 per ton, management may want to review the accuracy of the
$30 per ton estimate.

Objective Function Coefficients

Now suppose RMC learns that a price reduction in the fuel additive
has reduced its profit contribution to $30 per ton.
The new objective function
Max 30F + 30S
Subject to (s.t.)
0.4F + 0.5S 20 --------- Material 1
0.2S 5 --------- Material 2
0.6F + 0.3S 21 --------- Material 3
F, S 0
Note:
Only the objective function has change and because the constraints
have not changes, the feasible region for the RMC problems remains
the same as the original problem.
The optimal solution is still F = 25 and S = 20 but with a change in
maximum profit down to only 1350
25(30) + 20(30) = 1,350
Take Note of the Difference!
Figure 8.1 Figure 8.2
Further Reduction of F profit contribution
from $30 to $20!
Lessons from Figure 8.1, 8.2 and 8.3
Changing one objective function coefficient changes the SLOPE of the
objective function line but leaves the feasible region unchanges.
If the change in the objective function coefficient is small, the
extreme point that provided the optimal solution to the original
problem may still provide the same solution (Figure 8.2)
If the change in the objective function coefficient is large enough, a
different extreme point will provide a new optimal solution. (Figure
8.3)
 The linear programming solution to the original RMC LP problems
provides the sensitivity analysis information about the objective
function coefficients.
You do not have to reformulate and resolve the LP to obtain the
sensitivity analysis information.
Figure 8.4
Simultaneous Changes
The sensitivity analysis information provided for the objective
function coefficient is based on the assumption that only one
objective function coefficient changes at a time and that all other
aspects of the original problem remain unchanged.
NOTE that an objective coefficient range is only applicable for changes
in a single objective coefficient.
In some cases, we may be interested in what happens if two or more
objective function coefficients change simultaneously
As we will demonstrate, some analysis of simultaneous changes is
possible with the help of 100 PERCENT RULE.
Table 8.1
Referring to the computer solution in Figure 8.4, we restate the
objective coefficient ranges for the RMC problem in Table 8.1.
Allowable Decrease and Increase Formula
Allowable Decrease = Current Value Lower Limit
Allowable Increase = Upper Limit - Current Value
Suppose
The profit contribution for the fuel additive is increased to $48 per
ton and the profit contribution for the solvent base is decreased to
$27 per ton.
Thus, the fuel additive has a $48 - $40 = $8 per ton increase.
From Table 8.1, we see that the allowable increase for the fuel
additive coefficient is $60 - $40 = $20.
Thus, the $8 increase in the fuel additive objective function
coefficient is 8/20 = 0.40 or 40%, of its allowable increase.
 Similarly, the solvent base has a $30 - $27 = $3 per ton decrease.
With an allowable decrease of $30 - $20 = $10, the $3 decrease in the
solvent base objective function coefficient is 3/10 = 0.30 or 30% of its
allowable decrease.
The sum percentage increase for the fuel additive and the percentage
decrease for the solvent base is 40% + 30% = 70%
100% RULE

For all objective function coefficients that are changed, sum

the percentages of the allowable increases and the allowable
decreases, If the sum of the percentages is less than or equal to 100%,
the optimal solution will not change.
Take Note:
That the 100 percent rule does not say that the optimal solution will
change if the sum of the percentages of the allowable increases and
the allowable decreases is greater than 100%.
All we can say is that if the sum of the percentages is greater than
100%, a different optimal solution may exist.
Thus, whenever the sum of the percentage changes is greater than
100%, the revised problem must be solved in order to determine the
new optimal solution.
Right-Hand Sides (RHS)
Changes in the value of the RHS affects the feasible region and the optimal
solution to a linear programming problem.
Lets take a change in Material 3 of RMC problem from 21 tons to 25.5 tons
(4.5 tons increase).
Revised RMC LP model is
Max 40F + 30S
Subject to (s.t.)
0.4F + 0.5S 20 ----------- Material 1
0.2S 5 ------------ Material 2
0.6F + 0.3S 25.5 --------- Material 3
F, S 0
Figure 8.5
New optimal solution
F = 37.5
S = 10
Maximum Profit (MP)
40(37.5) + 30(10)
= $1,800 New MP
= $1,600 Old MP
Take Note!
The additional 4.5 tons of material 3 increases profit by $1,800
1,600 = $200.
On a per ton bases, the additional 4.5 tons of material 3 increases the
value of the optimal solution at the rate of $200/4.5 = $44.44 per ton.
Dual Price (DP) or Shadow Price
DP is the improvement in the value of the optimal solution per unit
increase in the right-hand side of a constraint.
The DP for the material 3 constraint is $44.44 per ton.
It means that if we increase the right-hand side of material 3
constraint by 1 ton, the value of the optimal solution will improve by
$44.44.
Conversely, if we decrease the right-hand side of material 3 by 1 ton,
the value of the optimal solution will worsen by $44.44.
DP tells us what will happen to the value of the optimal solution if we
make a one-unit change in right-hand side of a constraint.
Figure 8.6
Note for Material 1 and 2
Material 1 DP is 33.33 the value of optimal solution is expected to
increase by this amount for every ton increase of material 3 .
Material 2 DP is 0 Take note Material 2 in Figure 8.6 has a slack of
1.000.
The DP of material 2 of $0.00 tells us that the additional tons of
material 2 will simply add the amount of slack for constraint 2 and will
not change the value of the optimal solution.
Take Note
The value of the DP may be applicable only for small increases in the
right-hand side.
As more and more resources are obtained and as the right-hand side
continues to increase, other constraints will become binding and limit
the change value of the optimal solution.
At some point the DP can no longer be used to determine the
improvement in the value of the optimal solution
Note for Material 3
For Material 3, the DP of $44.44 per ton applies as long as the right-
hand side of constraint 3 is between 18.75 tons and 30 tons.
This range tells us that for each additional ton of material 3 that RMC
could obtain, up to a total of 30 tons, the value of the optimal
solution would improve by $44.44 for each ton added. .
However, if more than 30 tons were made available, RMC cannot
expect the DP of $44.44 per ton to be applicable.
Simultaneous Change
What happens if two or more right-hand side sides change
simultaneously.
Some analysis of simultaneous changes is possible with the help of
the 100 PERCENT RULE.
Table 8.2
Allowable Decrease and Increase
Allowable Decrease = Current Value Lower Limit
Allowable Increase = Upper Limit Current Value
Suppose:
RMCs management decides to purchase an additional 0.5 tons of material 1
and an additional 4.5 tons of material 3.
Material 1 has an allowable increase of 1.5 tons, therefore the right-hand
side of material increased by 0.5/1.5 = 0.333 or 33.3%
Material 3 has an allowable increase of 9 tons, therefore the right-hand side
of material increased by 4.5/9 = 0.50 or 50%
The sum percentages for the two right-hand side is 33.33% + 50% = 83.33%
100% RULE

For all the right-hand sides that are changed, sum the percentages
of the allowable increases and the allowable decreases, If the sum of
the percentages is less than or equal to 100%, the dual price donot
change.
Note!
Using the 100% rule, the DP for Material 1 is still $33.33 per ton and
the DP for Material 2 is still $44.44 per ton.
The additional 0.5 ton of Material 1 and 4.5 of Material resulted to
0.5(33.33) + 4.5(44.44) = $216.65 increase in profit.