Linear Programming

Sensitivity Analysis
What if there is uncertainly about one or
more values in the LP model?

Sensitivity analysis allows us to determine

how “sensitive” the optimal solution is to
changes in data values.

This includes analyzing changes in:

1. An Objective Function Coefficient (OFC)
2. A Right Hand Side (RHS) value of a
constraint
 Graphical Sensitivity Analysis

We can use the graph of an LP to see what

happens when:

1. An OFC changes, or
2. A RHS changes

Recall the Furniture problem

 Furniture Problem
Max 7T + 5C (profit)
Subject to the constraints:
3T + 4C < 2400 (carpentry hrs)
2T + 1C < 1000 (painting hrs)
C < 450 (max # chairs)
T > 100 (min # tables)
T, C > 0 (non-negativity)
 Objective Function
Coefficient (OFC) Changes
What if the profit contribution for tables
changed from $7 to $8 per table?

8
Max X7 T + 5 C (profit)
Clearly profit goes up, but would we want to
make more tables and less chairs?
(i.e. Does the optimal solution change?)
 Characteristics of OFC Changes
• There is no effect on the feasible region

• The slope of the level profit line changes

• If the slope changes enough, a different

corner point will become optimal
 C
Original
Objective Function Optimal Corner
7T + 5 C = $4040 500 (T=320, C=360)
Still optimal
Revised
400
Objective Function
8T + 5 C = $4360
300

200
Feasible

100
Region

0
0 100 200 300 400 500 T
 C
1000
What if the OFC
became higher? Both have new
Or lower? optimal corner
points
11T + 5C = $5500 600
Optimal Solution 450
(T=500, C=0)

3T + 5C = $2850
Optimal Solution Feasible
(T=200, C=450) Region
0
0 100 500 800 T
• There is a range for each OFC where the
current optimal corner point remains
optimal.

• If the OFC changes beyond that range a

new corner point becomes optimal.

• Excel’s Solver will calculate the OFC

range.
 Right Hand Side (RHS) Changes
What if painting hours available changed
from 1000 to 1300?
1300
X
2T + 1C < 1000 (painting hrs)

This increase in resources could allow us to

increase production and profit.
 Characteristics of RHS Changes
• The constraint line shifts, which could
change the feasible region

• Slope of constraint line does not change

• Corner point locations can change

• The optimal solution can change

 Old optimal
corner point
C (T=320,C=360)
500 Profit=$4040
Feasible region
400 becomes larger

300 New optimal

corner point
(T=560,C=180)
200

2T
Profit=$4820

2T
Original
+
1C

+1C
100 Feasible
=1

=1
00
0

300
Region
0

0 100 200 300 400 500 600 T

Effect on Objective Function Value
New profit = $4,820
Old profit = $4,040
Profit increase = $780 from 300 additional
painting hours

$2.60 in profit per hour of painting

• Each additional hour will increase profit by $2.60

• Each hour lost will decrease profit by $2.60
 Shadow Price
The change in the objective function
value per unit increase in the RHS of
the constraint.

Will painting hours be worth $2.60 per

hour regardless of how many hours
are available ?
Range of Shadow Price Validity
Beyond some RHS range the value of each
painting hour will change.

While the RHS stays within this range, the

shadow price does not change.

Excel will calculate this range as well as the

shadow price.
 Solver’s Sensitivity Report
When Excel Solver is used to find an optimal
solution, the option of generating the
“Sensitivity Report” is available.
 Constraint RHS Changes
If the change in the RHS value is within the
allowable range, then:
• The shadow price does not change
• The change in objective function value =
(shadow price) x (RHS change)

If the RHS change goes beyond the

allowable range, then the shadow price
will change.
 Anderson Electronics Example
Decision: How many of each of 4 products
to make?
Objective: Maximize profit
Decision Variables:
V = number of VCR’s
S = number of stereos
T = number of TV’s
D = number of DVD players
Max. 29V + 32S + 72T + 54D (in $ of profit)
Subject to the constraints:

3V + 4S + 4T + 3D < 4700 (elec. components)

2V + 2S + 4T + 3D < 4500 (non-elec. components)

V + S + 3T + 2D < 2500 (assembly hours)

V, S, T, D >= 0 (non-negativity)
 RHS Change Questions
• What if the supply of nonelectrical
components changes?

• What happens if the supply of electrical

components
– increased by 400 (to 5100)?
– increased by 4000 (to 8700)?
• What if we could buy an additional 400
elec. components for $1 more than usual?
Would we want to buy them?

• What if would could get an additional 250

hours of assembly time by paying $5 per
hour more than usual? Would this be
profitable?
Decision Variables that Equal 0
We are not currently making any VCR’s
(V=0) because they are not profitable
enough.

How much would profit need to increase

before we would want to begin making
VCR’s?
 Reduced Cost (Opportunity Cost)
of a Decision Variable
(marginal contribution to the objective function
value)
- (marginal value of resources used)
= Reduced Cost

marginal profit of a VCR = $29

- marginal value of resources = ?
Reduced Cost of a VCR = - $1.0
Reduced Cost is:

• The reduced cost value indicates how

much the objective function coefficient on
the corresponding variable must be
improved before the value of the variable
will be positive in the optimal solution..
 OFC Change Questions
• For what range of profit contributions for
DVD players will the current solution
remain optimal?

• What happens to profit if this value drops

to $50 per DVD player?
 Alternate Optimal Solutions

May be present when there are 0’s in

the Allowable Increase or Allowable
Decrease values for OFC values.
 Simultaneous Changes
All changes discussed up to this point have involved
only 1 change at a time.

What if several OFC’s change?

Or
What if several RHS’s change?
Note: They cannot be mixed

When more than one variable changes we turn to the

100% rule.
 The 100% Rule
1. For each increase (decrease) in an objective function
coefficient, calculate (and express as a percentage) the
ratio of the change in the coefficient to the maximum
possible increase (decrease) as determined by the limits
of the range of optimality.

2. Sum all these percent changes. If the total is less than

100 percent, the optimal solution will not change. If this
total is greater than or equal to 100%, the optimal
solution may change
 The 100% Rule
∑ (change / allowable change) < 1

RHS Example
• Electrical components decrease 500
500 / 950 = 0.5263
• Assembly hours increase 200
200 / 466.67 = 0.4285
0.9548
The sensitivity report can still be used
 Pricing New Variables
Suppose they are considering selling a new
product, Home Theater Systems (HTS)

Need to determine whether making HTS’s

would be sufficiently profitable

Producing HTS’s would take limited

resources away from other products
• To produce one HTS requires:
5 electrical components
4 nonelectrical components
4 hours of assembly time

• Can shadow prices be used to calculate

reduction in profit from other products?
(check 100% rule)
5/950 + 4/560 + 4/1325 = 0.015 < 1
 Required Profit Contribution per HTS
elec cpnts 5 x $ 2 = $10
nonelec cpnts 4 x $ 0 = $ 0
assembly hrs 4 x $24 = $96
$106
Shadow
Prices

Making 1 HTS will reduce profit (from other

products) by $106
• Need (HTS profit contribution) > $106
• Cost to produce each HTS:
elec cpnts 5 x $ 7 = $35
nonelec cpnts 4 x $ 5 = $20
assembly hrs 4 x $10 = $40
$95
(HTS profit contribution) = (selling price) - $95

So selling price must be at least $201

 Is HTS Sufficiently Profitable?
• Marketing estimates that selling price
should not exceed $175

• Producing one HTS will cause profit to fall

by $26 ($201 - $175)