Sensitivity Analysis I

73-220
Lecture 09

1
 Agenda
● Last two weeks – Typical linear programming
applications
● Sensitivity Analysis
– Objective function coefficient changes (Range of
optimality)
– Changes in RHS of constraints (Shadow or Dual
Price and Range of Feasibility)
» Non-binding Constraints
» Binding Constraints
● Interpretation of Excel sensitivity report
– Excel Solver – Sensitivity Report
● Next Class

2
 Sensitivity Analysis
● Sensitivity analysis (or postoptimality analysis) is
used to determine how the optimal solution is
affected by changes, within specified ranges, in:
– the objective function coefficients
– the right-hand side (RHS) values

● Sensitivity analysis is important to the manager

who must operate in a dynamic environment with
imprecise estimates of the coefficients.

● Sensitivity analysis allows the manager to ask

certain what-if questions about the problem.
3
 Impact of Possible Changes
● Change objective function coefficient
– May or may not change optimal solution (can be
assessed by reading the Excel sensitivity report)
● Change existing constraint
– RHS change: shift a constraint line
– LHS coefficient : change slope; may change size of
feasible region
● Add new constraint
– may decrease feasible region (if binding)
● Remove constraint
– may increase feasible region (if binding)

4
 LP Example
● Kelson makes 2 different types of baseball gloves: a
regular glove and a catcher’s mitt. The firm has 900
hours of production time available in its cutting and
sewing department, 300 hours available in its finishing
department, and 100 hours available in its packaging
and shipping department. The production time
requirements and the profit contribution for each
product are shown below. Assume that the company is
interested in maximizing the total profit contribution.
Model Cutting& Packaging& Profit/glove
Finishing
Sewing Shipping
Regular 1 (hr) 0.5 0.125 $5
Catcher 1.5 0.333 0.25 $8

5
LP Formulation - Verbal
3 Components
1) Decision variables
– number of regular gloves to be produced
– number of catcher’s mitts to be produced
2) Objective function
– maximize the total profit contribution.
3) Constraints
– cutting&sewing: 900 hours available
– finishing: 300 hours available
– packaging&shipping: 100 hours available

6
LP Formulation - Mathematical
1) Let x1 = number of regular gloves
x2 = number of catcher’s mitts

2) Max z = 5x1 + 8x2

3) s.t. 1x1 + 1.5x2 ≤ 900 (Cut&Sew)
0.5 x1 + 0.333x2 ≤ 300(Finishing)
0.125x1 + 0.25x2 ≤ 100 (Pack&Ship)
x1, x2 ≥ 0 (Nonnegativity)

7
Graphical Solution

C
900 Finish

600

400
Pack&Ship
(500, 150)
Cut&Sew
R
0 600 800 900

8
 Computer Solution
P ro b le m D a ta
G love M itt
P rofit 5 8
C ut& S ew 1 1.5 <= 900
F inishing 0.5 0.33 <= 300
P ack& S hip 0.125 0.25 <= 100

D e cisio n va ria b le s
# of 500 150

O b je ctive fu n ctio n
M ax 3700

C o n stra in ts
LH S T ype RHS
C ut& S ew 725 <= 900
F inishing 300 <= 300
P ack& S hip 100 <= 100

9
 Computer Sensitivity
To obtain the sensitivity report, highlight Sensitivity on the
right box when Solver Result pop-up window is available.
M icro so ft E xce l 1 1 .0 S e n sitivity R e p o rt
W o rksh e e t: [2 2 0 -L e ctu re 0 9 .xls]K e lso n
R e p o rt C re a te d : 9 /2 3 /2 0 0 5 1 0 :5 7 :4 2 A M

A djustable C ells
F in a l R e d u ce d O b je ctive A llo w a b le A llo w a b le
C e ll N am e V a lu e C o st C o e fficie n t In cre a se D e cre a se
$B $9 # of G love 500 0 5 7 1
$C $9 # of M itt 150 0 8 2 4.666666667

C onstraints
F in a l S hadow C o n stra in t A llo w a b le A llo w a b le
C e ll N am e V a lu e P rice R .H . S id e In cre a se D e cre a se
$B $16 C ut& S ew LH S 725 0 900 1E +30 175
$B $17 F inishing LH S 300 3 300 100 166.6666667
$B $18 P ack& S hip LH S 100 28 100 35 25

10
 Obj. Func. Coeff. Change
● If an objective function coefficient
changes, slope of objective function line
changes. At some threshold, another
corner point may become optimal.
● Question: How much can objective
coefficient change without changing
optimal corner point?
● This change is usually referred to as
Range of Optimality

11
 Range of Optimality
● A range of optimality of an objective
function coefficient is found by
determining an interval for the coefficient
in which the original optimal solution
remains optimal while keeping all other
data of the problem constant. (The value
of the objective function may change in
this range.)
● This range of optimality can be found in
the Solver sensitivity report.
12
 Range of Optimality– Computer output
M icro so ft E xce l 1 1 .0 S e n sitivity R e p o rt
W o rksh e e t: [2 2 0 -L e ctu re 0 9 .xls]K e lso n
R e p o rt C re a te d : 9 /2 3 /2 0 0 5 1 0 :5 7 :4 2 A M

A djustable C ells
F in a l R e d u ce d O b je ctive A llo w a b le A llo w a b le
C e ll N am e V a lu e C o st C o e fficie n t In cre a se D e cre a se
$B $9 # of G love 500 0 5 7 1
$C $9 # of M itt 150 0 8 2 4.666666667

If the change in the objective function coefficients is within

allowable limits, the current solution will remain optimal. The
new OFV can be calculated by substituting the optimal solution
in the new objective function.

13
 Reduced Cost
● The reduced cost for a decision variable whose value is
0 in the optimal solution is the amount the variable's
objective function coefficient would have to improve
(increase for maximization problems, decrease for
minimization problems) before this variable could
assume a positive value.
● The reduced cost for a decision variable with a positive
value is 0.
● If reduced cost is zero for a variable which takes the
value zero at optimality, this indicates that there are
alternate optimal solutions.

14
 Computer Output – Reduced Cost
M icro so ft E xce l 1 1 .0 S e n sitivity R e p o rt
W o rksh e e t: [2 2 0 -L e ctu re 0 9 .xls]K e lso n
R e p o rt C re a te d : 9 /2 3 /2 0 0 5 1 0 :5 7 :4 2 A M

A djustable C ells
F in a l R e d u ce d O b je ctive A llo w a b le A llo w a b le
C e ll N am e V a lu e C o st C o e fficie n t In cre a se D e cre a se
$B $9 # of G love 500 0 5 7 1
$C $9 # of M itt 150 0 8 2 4.666666667
Final value is non-zero for both variables, hence the reduced
cost is zero. The objective function coefficient for either
variable does not have to change before they assume non-zero
values.

15
 RHS Coefficient Changes
● When a right-hand-side value changes, the
constraint moves parallel to itself
● Question: How is the solution affected, if at all?
● Two cases:
– constraint is binding or active
– constraint is nonbinding or inactive
● Common terms
– Shadow price and dual price
– Range of feasibility

16
 Shadow Price (RHS coefficient)
● A shadow price for a right hand side value (or
resource limit) is the amount the objective function
will change per unit increase in the right hand side
value of a constraint.
● The shadow price is equal to the difference in the
values of the objective functions between the new
and original problems.
● The shadow price for a nonbinding constraint is 0.

17
 Shadow vs Dual Prices
● Shadow Price: Amount objective function
will change per unit increase in RHS
value of constraint
● Some s/w pkgs calculate a dual price
(defined differently)
– Amount objective function will improve per
unit increase in constraint RHS value
– so same for max, but opposite for min
– Our text takes this approach, and uses it in
all their examples

18
 Shadow Price: Non-binding constraint
Cutting Constraint: 1x1 + 1.5x2 ≤ 900
At optimality, LHS of the constraint is 725[x1=500 & x2=150].
This is not a binding constraint as LHS is not equal to RHS at
optimality.Hence shadow price for this constraint is zero.

If cutting hours are reduced to 725 from 900, this constraint will still be
satisfied. Hence allowable decrease is 900-725=175.
Any further increase in cutting hours won’t change anything as we already
have a surplus of cutting hours. Hence allowable increase is infinite.

19
 Shadow Price –binding constraints
Finishing and Packing Constraints
0.5 x1 + 0.333x2 ≤ 300 Both these constraints are satisfied as
equalities at optimality and hence they
0.125x1 + 0.25x2 ≤ 100 have non-zero shadow prices.

If we can get an extra hour of finishing, the profit would increase by 3 units.
If we lose an hour of finishing, the profit would decrease by 3 units
However, if we get an extra hour of packing, profit would increase by 28
units.
Profit is more sensitive to changes in packing constraint than in finishing
constraint.

20
Range of Feasibility
● The range of feasibility for a change in the
right hand side value is the range of values
for this coefficient in which the original
shadow price remains the same.

21
 Range of Feasibility: Non-binding Constraints
M icro so ft E xce l 1 1 .0 S e n sitivity R e p o rt
W o rksh e e t: [2 2 0 -L e ctu re 0 9 .xls]K e lso n
R e p o rt C re a te d : 9 /2 3 /2 0 0 5 1 0 :5 7 :4 2 A M

A djustable C ells
F in a l R e d u ce d O b je ctive A llo w a b le A llo w a b le
C e ll N am e V a lu e C o st C o e fficie n t In cre a se D e cre a se
$B $9 # of G love 500 0 5 7 1
$C $9 # of M itt 150 0 8 2 4.666666667

C onstraints
F in a l S hadow C o n stra in t A llo w a b le A llo w a b le
C e ll N am e V a lu e P rice R .H . S id e In cre a se D e cre a se
$B $16 C ut& S ew LH S 725 0 900 1E +30 175
$B $17 F inishing LH S 300 3 300 100 166.6666667
$B $18 P ack& S hip LH S 100 28 100 35 25

If the RHS of a non-binding constraint is changed within allowable

limits, the optimal solution and OFV are unchanged.

22
 Range of Feasibility: Binding (Computer Solution)
M icro so ft E xce l 1 1 .0 S e n sitivity R e p o rt
W o rksh e e t: [2 2 0 -L e ctu re 0 9 .xls]K e lso n
R e p o rt C re a te d : 9 /2 3 /2 0 0 5 1 0 :5 7 :4 2 A M

A djustable C ells
F in a l R e d u ce d O b je ctive A llo w a b le A llo w a b le
C e ll N am e V a lu e C o st C o e fficie n t In cre a se D e cre a se
$B $9 # of G love 500 0 5 7 1
$C $9 # of M itt 150 0 8 2 4.666666667

C onstraints
F in a l S hadow C o n stra in t A llo w a b le A llo w a b le
C e ll N am e V a lu e P rice R .H . S id e In cre a se D e cre a se
$B $16 C ut& S ew LH S 725 0 900 1E +30 175
$B $17 F inishing LH S 300 3 300 100 166.6666667
$B $18 P ack& S hip LH S 100 28 100 35 25
As long as the change in RHS of the binding constraints is within the allowable
limits, the current binding constraints will remain binding. The new OFV will
change by an amount equal to shadow price multiplied by the change in RHS.
The new optimal solution can be determined only by re-solving.

23
Tightening or Relaxing Constraints
● Tightening a constraint means to make
it more restrictive; i.e. decreasing the
RHS of a ≤ constraint, or increasing the
RHS of a ≥ constraint
– compresses feasible region
– may make solution worse
● Relaxing a constraint means to make it
less restrictive
– expands feasible region
– may make solution better

24
Multiple changes - 100% Rule

● Simultaneous changes in coefficients

(Obj. Func. OR RHS)will not change
decision variables in optimal solution as
long as sum of percentages of change
divided by corresponding maximum
allowable change in range of optimality
for each coefficient does not exceed 100%

25
 Kelson’s example re-visited
1. What if the profit contribution of a regular glove is $7 instead of
$5? What if it is $4?
• We can get 10 more hours in the Finishing Department. Does
this increase our profit? If yes, by how much? If not, why not?
• What is the maximum amount we should pay for obtaining an
extra hour in Cutting and Sewing?
• If we can get 3 more hours in Packing&Shipping or 20 hours in
Finishing, which is better?
• If the profit of a regular glove is increased to $6 and the profit of
a catcher’s mitt is reduced to $7, what is the optimal solution
and OFV?
• If the available hours in cutting and sewing is reduced by 50
hours and the available hours in finishing is increased by 50
hours, what happens to the optimal solution and OFV?

26
 Kelson’s example contd.
. 7. If management decides to impose a new constraint that at least a total of
600 gloves(includes both types of gloves) should be made, what is the new optimal
solution and OFV?

. 8. If there is a new constraint which says that number of regular gloves

produced should be at least 4 times as many as catcher’s mitts, what is the new
optimal solution and OFV?
9. If management wants to introduce a new product – baseball bats
which yields a profit of $10 per bat, what is the new optimal solution and
OFV? Each baseball bat requires 2 hours in cutting, 2 hours in finishing
and 15 minutes in packing and finishing.

10. If we can have as many hours of finishing as we want at no

extra cost, what is the new optimal solution and OFV?

27
 Course Planning
The dean of Western College of Business must plan the
School’s course offerings for the fall semester. Student
demands make it necessary to offer at least 30 undergraduate
and 20 graduate courses in the term. Faculty contracts also
dictate that at least 60 courses be offered in total. Each
undergraduate course taught costs the college an average of
$2500 in faculty wages and each graduate course costs $3000.
How many undergraduate and graduate courses should be
taught so that the total faculty salaries are kept to a minimum?

• Model it as a linear programming model and solve graphically.

• The Excel sensitivity report for this problem is provided on the
slide. Answer associated sensitivity questions on slide #30.

28
 Sensitivity Report for the Course
Planning Problem
M icro so ft E xce l 1 0 .0 S e n sitivity R e p o rt
W o rksh e e t: [2 2 0 -L e ctu re 0 9 .xls]C o u rse P la n n in g
R e p o rt C re a te d : 1 0 /6 /2 0 0 5 1 1 :4 5 :5 4 A M

Adjustable Cells
F in a l R e d u ce d O b je ctive A llo w a b le A llo w a b le
C e ll N am e V a lu e C o st C o e fficie n t In cre a se D e cre a se
$B$9 # of courses Undergrad 40 0 2500 500 2500
$C$9 # of courses Graduate 20 0 3000 1E+30 500

Constraints
F in a l S hadow C o n stra in t A llo w a b le A llo w a b le
C e ll N am e V a lu e P rice R .H . S id e In cre a se D e cre a se
$B$16 Undergrad req LHS 40 0 30 10 1E+30
$B$17 Graduate req LHS 20 500 20 10 20
$B$18 Total courses LHS 60 2500 60 1E+30 10

29
 Interpretation of Results
1. If the cost of an under-graduate course increases to $3000,
what is the new optimal solution and OFV?
3. If the cost of undergraduate course decreases to $2000,
what is the new optimal solution and OFV?
5. If the cost of undergraduate course increases by $250 and
the cost of a graduate course increases by $500, what is the
new optimal solution and OFV?
8. If there has to be at least 33 under graduate courses and 15
graduate courses, what is the new optimal solution and
OFV?
11. If the total number of courses is at least 50, what is the
new optimal solution and OFV?

30
 Next Class
● Homework:
– Solve the course planning question given in
this lecture note.
» Graphically
» Based on the sensitivity report on the slide,
answer the sensitivity analysis questions

● Sensitivity Analysis contd.

31