Prescriptive Analytics

Presented by:
Dr Shahbaz Khan
Assistant Professor
Institute of Business Management
 Prescriptive Analytics

BBHC 0008
 Prescriptive Analytics
• Prescriptive analytics is a branch of data analytics that uses
mathematical algorithms and machine learning techniques to
identify the best course of action for a given situation.
• Prescriptive analytics uses a combination of historical data,
real-time data, and external data sources to identify the best
course of action for a specific business problem.
• This type of analytics is particularly useful for decision-
making in complex and rapidly changing environments.

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 Prescriptive Analytics
• In many cases, prescriptive analytics is solved as a separate
optimization problem.
• Prescriptive analytics assists users in finding the optimal
solution to a problem or in making the right choice/decision
among several alternatives.

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 Commercial Applications of
Prescriptive Analytics
• Prescriptive analytics has a wide range of commercial
applications across various industries. Some of the most common
commercial applications of prescriptive analytics are:
• Supply Chain Optimization
• Inventory Management
• Marketing Optimization
• Pricing Optimization
• Healthcare Optimization
• Energy Management
• Financial Planning
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 Prescriptive Analytics Tool
• The frequently used tools in prescriptive analytics are:
– linear programming,
– Integer programming,
– Multi-criteria decision-making models such as goal programming
and analytic hierarchy process,
– Non-linear programming, and meta-heuristics.

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 Linear programming
• Since its origins during World War II, linear programming is one
of the most frequently used techniques in prescriptive analytics.
• Problems such as resource allocation, product mix, revenue
management, and logistics optimisation are frequently solved
using linear programming.

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 Standard Form of LP
• Standard Maximization Problem
Maximize Z  C1 x1  C2 x2  ...  Cn xn
Subject
a 11 x1  a12 x2  ...  a1n xn  b1
a 21 x1  a22 x2  ...  a2 n xn  b2
...........................................
a m1 x1  am 2 x2  ...  amn xn  bm
x1 , x2 ,..., xn  0
 Example – Mumbai Perfumes

Mumbai Perfumes makes two types of perfumes called Chandan and

Chamelee. Both perfume use two main ingredients: (a) Methyl benzoate and
(b) Isobornyl cyclohexanol. Every 100 ml of Chandan requires 40 ml of
Methyl benzoate and 80 ml of Isobornyl cyclohexanol. Every 100 ml of
Chamelee requires 80 ml of Methyl benzoate and 20 ml of Isobornyl
cyclohexanol. The total quantity of ingredients used is more than the volume
of products produced due to production loss. The weekly availability of
Methyl benzoate and Isobornyl cyclohexanol are 2000 ml and 3200 ml,
respectively. The maximum capacity of Mumbai Perfumes is 4000 ml per
week. The revenue generated per 100 ml of Chandan is INR 2500 and per
100 ml of Chamelee generates revenue of INR 2800. Formulate the problem
as an LPP and solve it using graphical method.
Solution

Decision variables in this case are

X1 = Amount of Chandan in ml to be produced
X2 = Amount of Chamelee in ml to be produced
The objective function for the problem is
Maximize 25X1 + 28X2
The constraints are

Constraint for Methyl benzoate: Every 100 ml of

Chandan requires 40 ml of Methyl benzoate and every
100 ml of Chamelee requires 80 ml of Methyl benzoate.
Weekly availability of Methyl benzoate is 2000 ml. The
corresponding constraint is
• 0.4X1 + 0.8X2  2000
Constraint for Isobornyl cyclohexanol: Every 100 ml of
Chandan requires 80 ml of Isobornyl cyclohexanol and
every 100 ml of Chamelee requires 20 ml of Isobornyl
cyclohexanol. Weekly availability of Isobornyl
cyclohexanol is 3200 ml. The corresponding constraint
is
• 0.8X1 + 0.2X2  3200
• Production constraint
The maximum capacity is 4000 ml, that is
X1 + X2  4000
The linear programming formulation is
Maximize 25X1 + 28X2
subject to
0.4X1 + 0.8X2  2000
0.8X1 + 0.2X2  3200
X1 + X2  4000
X1  0 and X2  0
Graph describing feasible region, iso-profit line, and optimal solution.
Thank You!