Linear Programming: Sensitivity Analysis

and Interpretation of Solution

• Introduction to Sensitivity Analysis

• Graphical Sensitivity Analysis
• Sensitivity Analysis: Computer Solution
• Simultaneous Changes
Standard Computer Output
Software packages such as The Management Scientist and
Microsoft Excel provide the following LP information:
• Information about the objective function:
– its optimal value
– coefficient ranges (ranges of optimality)
• Information about the decision variables:
– their optimal values
– their reduced costs
• Information about the constraints:
– the amount of slack or surplus
– the dual prices
– right-hand side ranges (ranges of feasibility)
Standard Computer Output
• We have discussed:
– objective function value
– values of the decision variables
– reduced costs
– slack/surplus
• We will discuss:
– changes in the coefficients of the objective function
– changes in the right-hand side value of a constraint
Sensitivity Analysis
• Sensitivity analysis (or post-optimality 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 him to ask certain what-if
questions about the problem.
Example 1
• LP Formulation

Max 5x1 + 7x2

s.t. x1 < 6
2x1 + 3x2 < 19
x1 + x 2 < 8
x1, x2 > 0
Example 1
x2
• Graphical Solution
8
x +x < 8
1 2
7 Max 5x1 + 7x2
6

5
x1 < 6
4
Optimal:
3 x1 = 5, x2 = 3, z = 46
2
2x1 + 3x2 < 19
1

1 2 3 4 5 6 7 8 9 10
x1
Objective Function Coefficients
• Let us consider how changes in the objective
function coefficients might affect the optimal
solution.
• The range of optimality for each coefficient provides
the range of values over which the current solution
will remain optimal.
• Managers should focus on those objective
coefficients that have a narrow range of optimality
and coefficients near the endpoints of the range.
Example 1
x2
• Changing Slope of Objective Function
8

5 5
4

3
Feasible 4
2
Region 33
1

1 2
1 2 3 4 5 6 7 8 9 10 x1
Range of Optimality
• Graphically, the limits of a range of optimality
are found by changing the slope of the
objective function line within the limits of the
slopes of the binding constraint lines.
• The slope of an objective function line, Max
c1x1 + c2x2, is -c1/c2, and the slope of a
constraint, a1x1 + a2x2 = b, is -a1/a2.
Example 1
• Range of Optimality for c1
The slope of the objective function line is -c1/c2. The slope
of the first binding constraint, x1 + x2 = 8, is -1 and the slope
of the second binding constraint, x1 + 3x2 = 19, is -2/3.
Find the range of values for c1 (with c2 staying 7) such that
the objective function line slope lies between that of the
two binding constraints:
-1 < -c1/7 < -2/3
Multiplying through by -7 (and reversing the inequalities):
14/3 < c1 < 7
Example 1
• Range of Optimality for c2
Find the range of values for c2 ( with c1 staying 5)
such that the objective function line slope lies
between that of the two binding constraints:
-1 < -5/c2 < -2/3
Multiplying by -1: 1 > 5/c2 > 2/3
Inverting, 1 < c2/5 < 3/2
Multiplying by 5: 5 < c2 < 15/2
Example 1
Adjustable Cells
• Range of Optimality for c1 and c2
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$8 X1 5.0 0.0 5 2 0.333333333
$C$8 X2 3.0 0.0 7 0.5 2

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$13 #1 5 0 6 1E+30 1
$B$14 #2 19 2 19 5 1
$B$15 #3 8 1 8 0.333333333 1.666666667
Right-Hand Sides
• Let us consider how a change in the right-hand side for a
constraint might affect the feasible region and perhaps
cause a change in the optimal solution.
• The improvement in the value of the optimal solution per
unit increase in the right-hand side is called the dual price.
• The range of feasibility is the range over which the dual
price is applicable.
• As the RHS increases, other constraints will become
binding and limit the change in the value of the objective
function.
Dual Price
• Graphically, a dual price is determined by adding +1 to
the right hand side value in question and then
resolving for the optimal solution in terms of the same
two binding constraints.
• The dual price is equal to the difference in the values
of the objective functions between the new and
original problems.
• The dual price for a nonbinding constraint is 0.
• A negative dual price indicates that the objective
function will not improve if the RHS is increased.
Relevant Cost and Sunk Cost
• A resource cost is a relevant cost if the amount
paid for it is dependent upon the amount of the
resource used by the decision variables.
• Relevant costs are reflected in the objective
function coefficients.
• A resource cost is a sunk cost if it must be paid
regardless of the amount of the resource
actually used by the decision variables.
• Sunk resource costs are not reflected in the
objective function coefficients.
A Cautionary Note
on the Interpretation of Dual Prices

• Resource cost is sunk

The dual price is the maximum amount you
should be willing to pay for one additional unit
of the resource.
• Resource cost is relevant
The dual price is the maximum premium over
the normal cost that you should be willing to
pay for one unit of the resource.
Example 1
• Dual Prices
Constraint 1: Since x1 < 6 is not a binding
constraint, its dual price is 0.
Constraint 2: Change the RHS value of the second
constraint to 20 and resolve for the optimal point
determined by the last two constraints: 2x1 + 3x2
= 20 and x1 + x2 = 8.
The solution is x1 = 4, x2 = 4, z = 48. Hence, the
dual price = znew - zold = 48 - 46 = 2.
Example 1
• Dual Prices
Constraint 3: Change the RHS value of the
third constraint to 9 and resolve for the
optimal point determined by the last two
constraints: 2x1 + 3x2 = 19 and x1 + x2 = 9.
The solution is: x1 = 8, x2 = 1, z = 47.
The dual price is znew - zold = 47 - 46 = 1.
Example 1
•Adjustable
Dual Cells
Prices
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$8 X1 5.0 0.0 5 2 0.33333333
$C$8 X2 3.0 0.0 7 0.5 2

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$13 #1 5 0 6 1E+30 1
$B$14 #2 19 2 19 5 1
$B$15 #3 8 1 8 0.33333333 1.66666667
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 dual price remains
constant.
• Graphically, the range of feasibility is determined
by finding the values of a right hand side
coefficient such that the same two lines that
determined the original optimal solution continue
to determine the optimal solution for the problem.
Example 1
•Adjustable
Range of Feasibility
Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$8 X1 5.0 0.0 5 2 0.33333333
$C$8 X2 3.0 0.0 7 0.5 2

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$13 #1 5 0 6 1E+30 1
$B$14 #2 19 2 19 5 1
$B$15 #3 8 1 8 0.33333333 1.66666667
Example 2: Olympic Bike Co.
Olympic Bike is introducing two new lightweight bicycle
frames, the Deluxe and the Professional, to be made from
special aluminum and steel alloys. The anticipated unit
profits are $10 for the Deluxe and $15 for the Professional.
The number of pounds of each alloy needed per frame is
summarized below. A supplier delivers 100 pounds of the
aluminum alloy and 80 pounds of the steel alloy weekly.
Aluminum Alloy Steel Alloy
Deluxe 2 3
Professional 4 2
How many Deluxe and Professional frames should
Olympic produce each week?
Example 2: Olympic Bike Co.
• Model Formulation
– Verbal Statement of the Objective Function
Maximize total weekly profit.
– Verbal Statement of the Constraints
Total weekly usage of aluminum alloy < 100 pounds.
Total weekly usage of steel alloy < 80 pounds.
– Definition of the Decision Variables
x1 = number of Deluxe frames produced weekly.
x2 = number of Professional frames produced weekly.
Example 2: Olympic Bike Co.
• Model Formulation (continued)

Max 10x1 + 15x2 (Total Weekly Profit)

s.t. 2x1 + 4x2 < 100 (Aluminum
Available)
3x1 + 2x2 < 80 (Steel Available)
x1, x2 > 0
Example 2: Olympic Bike Co.
• PartialASpreadsheet
B ShowingC Problem Data
D
1 Material Requirements Amount
2 Material Deluxe Profess. Available
3 Aluminum 2 4 100
4 Steel 3 2 80
Example 2: Olympic Bike Co.
• PartialASpreadsheet
B ShowingC Solution D
6 Decision Variables
7 Deluxe Professional
8 Bikes Made 15 17.500
9
10 Maximized Total Profit 412.500
11
12 Constraints Amount Used Amount Avail.
13 Aluminum 100 <= 100
14 Steel 80 <= 80
Example 2: Olympic Bike Co.
• Optimal Solution
According to the output:
x1 (Deluxe frames) = 15
x2 (Professional frames) = 17.5
Objective function value = $412.50
Example 2: Olympic Bike Co.
• Range of Optimality
Question
Suppose the profit on deluxe frames is
increased to $20. Is the above solution still
optimal? What is the value of the objective
function when this unit profit is increased to
$20?
Example 2: Olympic Bike Co.
•Adjustable
Sensitivity
Cells Report
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$8 Deluxe 15 0 10 12.5 2.5
$C$8 Profess. 17.500 0.000 15 5 8.333333333

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$13 Aluminum 100 3.125 100 60 46.66666667
$B$14 Steel 80 1.25 80 70 30
Example 2: Olympic Bike Co.
• Range of Optimality
Answer
The output states that the solution remains optimal as
long as the objective function coefficient of x1 is
between 7.5 and 22.5. Since 20 is within this range, the
optimal solution will not change. The optimal profit will
change: 20x1 + 15x2 = 20(15) + 15(17.5) = $562.50.
Example 2: Olympic Bike Co.

• Range of Optimality
Question
If the unit profit on deluxe frames were $6
instead of $10, would the optimal solution
change?
Example 2: Olympic Bike Co.
•Adjustable
RangeCells
of Optimality
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$8 Deluxe 15 0 10 12.5 2.5
$C$8 Profess. 17.500 0.000 15 5 8.33333333

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$13 Aluminum 100 3.125 100 60 46.66666667
$B$14 Steel 80 1.25 80 70 30
Example 2: Olympic Bike Co.
• Range of Optimality
Answer
The output states that the solution remains
optimal as long as the objective function
coefficient of x1 is between 7.5 and 22.5.
Since 6 is outside this range, the optimal
solution would change.
Range of Optimality and 100% Rule
• The 100% rule states that simultaneous
changes in objective function coefficients will
not change the optimal solution as long as the
sum of the percentages of the change divided
by the corresponding maximum allowable
change in the range of optimality for each
coefficient does not exceed 100%.
Example 2: Olympic Bike Co.
• Range of Optimality and 100% Rule
Question
If simultaneously the profit on Deluxe frames was raised to $16
and the profit on Professional frames was raised to $17, would
the current solution be optimal?
Answer
If c1 = 16, the amount c1 changed is 16 - 10 = 6 . The maximum
allowable increase is 22.5 - 10 = 12.5, so this is a 6/12.5 = 48%
change. If c2 = 17, the amount that c2 changed is 17 - 15 = 2.
The maximum allowable increase is 20 - 15 = 5 so this is a 2/5 =
40% change. The sum of the change percentages is 88%. Since
this does not exceed 100%, the optimal solution would not
change.
Range of Feasibility and 100% Rule
• The 100% rule states that simultaneous
changes in right-hand sides will not change
the dual prices as long as the sum of the
percentages of the changes divided by the
corresponding maximum allowable change in
the range of feasibility for each right-hand side
does not exceed 100%.
Example 2: Olympic Bike Co.
• Range of Feasibility and Sunk Costs
Question
Given that aluminum is a sunk cost, what is
the maximum amount the company should
pay for 50 extra pounds of aluminum?
Example 2: Olympic Bike Co.

•Adjustable
RangeCells
of Feasibility and Sunk Costs
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$8 Deluxe 15 0 10 12.5 2.5
$C$8 Profess. 17.500 0.000 15 5 8.33333333

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$B$13 Aluminum 100 3.125 100 60 46.66666667
$B$14 Steel 80 1.25 80 70 30
Example 2: Olympic Bike Co.
• Range of Feasibility and Sunk Costs
Answer
Since the cost for aluminum is a sunk cost, the shadow
price provides the value of extra aluminum. The
shadow price for aluminum is the same as its dual
price (for a maximization problem). The shadow price
for aluminum is $3.125 per pound and the maximum
allowable increase is 60 pounds. Since 50 is in this
range, then the $3.125 is valid. Thus, the value of 50
additional pounds is = 50($3.125) = $156.25.
Example 2: Olympic Bike Co.
• Range of Feasibility and Relevant Costs
Question
If aluminum were a relevant cost, what is the maximum
amount the company should pay for 50 extra pounds of
aluminum?
Answer
If aluminum were a relevant cost, the shadow price would be
the amount above the normal price of aluminum the
company would be willing to pay. Thus if initially aluminum
cost $4 per pound, then additional units in the range of
feasibility would be worth $4 + $3.125 = $7.125 per pound.
Example 3

• Consider the following linear program:

Min 6x1 + 9x2 ($ cost)

s.t. x1 + 2x2 < 8

10x1 + 7.5x2 > 30
x2 > 2

x 1, x 2 > 0
Example 3

• The Management Scientist Output

OBJECTIVE FUNCTION VALUE = 27.000

Variable Value Reduced Cost
x1 1.500 0.000
x2 2.000 0.000
Constraint Slack/Surplus Dual Price
1 2.500 0.000
2 0.000 -0.600
3 0.000 -4.500
Example 3

• The Management Scientist Output (continued)

OBJECTIVE COEFFICIENT RANGES

Variable Lower Limit Current Value Upper Limit
x1 0.000 6.000 12.000
x2 4.500 9.000 No Limit
RIGHTHAND SIDE RANGES
Constraint Lower Limit Current Value Upper Limit
1 5.500 8.000 No Limit
2 15.000 30.000 55.000
3 0.000 2.000 4.000
Example 3
• Optimal Solution
According to the output:
x1 = 1.5
x2 = 2.0
Objective function value = 27.00
Example 3
• Range of Optimality
Question
Suppose the unit cost of x1 is decreased to
$4. Is the current solution still optimal? What
is the value of the objective function when
this unit cost is decreased to $4?
Example 3
• The Management Scientist Output

OBJECTIVE COEFFICIENT RANGES

Variable Lower Limit Current Value Upper Limit
x1 0.000 6.000 12.000
x2 4.500 9.000 No Limit
RIGHTHAND SIDE RANGES
Constraint Lower Limit Current Value Upper Limit
1 5.500 8.000 No Limit
2 15.000 30.000 55.000
3 0.000 2.000 4.000
Example 3
• Range of Optimality
Answer
The output states that the solution remains
optimal as long as the objective function
coefficient of x1 is between 0 and 12. Since 4 is
within this range, the optimal solution will not
change. However, the optimal total cost will be
affected: 6x1 + 9x2 = 4(1.5) + 9(2.0) = $24.00.
Example 3
• Range of Optimality
Question
How much can the unit cost of x2 be
decreased without concern for the optimal
solution changing?
Example 3
• The Management Scientist Output

OBJECTIVE COEFFICIENT RANGES

Variable Lower Limit Current Value Upper Limit
x1 0.000 6.000 12.000
x2 4.500 9.000 No Limit
RIGHTHAND SIDE RANGES
Constraint Lower Limit Current Value Upper Limit
1 5.500 8.000 No Limit
2 15.000 30.000 55.000
3 0.000 2.000 4.000
Example 3
• Range of Optimality
Answer
The output states that the solution remains
optimal as long as the objective function
coefficient of x2 does not fall below 4.5.
Example 3
• Range of Optimality and 100% Rule
Question
If simultaneously the cost of x1 was raised
to $7.5 and the cost of x2 was reduced to $6,
would the current solution remain optimal?
Example 3
• Range of Optimality and 100% Rule
Answer
If c1 = 7.5, the amount c1 changed is 7.5 - 6 = 1.5. The
maximum allowable increase is 12 - 6 = 6, so this is a
1.5/6 = 25% change. If c2 = 6, the amount that c2
changed is 9 - 6 = 3. The maximum allowable
decrease is 9 - 4.5 = 4.5, so this is a 3/4.5 = 66.7%
change. The sum of the change percentages is 25% +
66.7% = 91.7%. Since this does not exceed 100% the
optimal solution would not change.
Example 3
• Range of Feasibility
Question
If the right-hand side of constraint 3 is
increased by 1, what will be the effect on the
optimal solution?
Example 3
• The Management Scientist Output

OBJECTIVE COEFFICIENT RANGES

Variable Lower Limit Current Value Upper Limit
x1 0.000 6.000 12.000
x2 4.500 9.000 No Limit
RIGHTHAND SIDE RANGES
Constraint Lower Limit Current Value Upper Limit
1 5.500 8.000 No Limit
2 15.000 30.000 55.000
3 0.000 2.000 4.000
Example 3
• Range of Feasibility
Answer
A dual price represents the improvement in the objective
function value per unit increase in the right-hand side. A
negative dual price indicates a deterioration (negative
improvement) in the objective, which in this problem
means an increase in total cost because we're minimizing.
Since the right-hand side remains within the range of
feasibility, there is no change in the optimal solution.
However, the objective function value increases by $4.50.
End of Chapter 3