Why Sensitivity Analysis

So far: find an optimium solution given certain constant parameters (costs, demand, etc) How well do we know these parameters?

Usually not very accurately - rough estimates

If the parameters change ... ... how much does the objective function change? ... how much do the optimal values of the decision variables change?
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Do our results remain valid?

Notes 4

General Optimization Problem

Minimize some cost or maximize benefit

Constraints:

Restrictions on supply of some resource Restriction on satisfying demand for some resource = Both supply restriction and demand requirement Variable-type constraints

Decision variable determine the levels of some activity Coefficients = per unit impact of activities
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Notes 4

Changing Constraints

Relaxing constraints:

Optimal value same or better Optimal value same or worse

Tightening constraints:

Original
Notes 4

Relaxed
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Tightened
3

Crude Oil Model

min 20 x1 15 x2
s.t. 0.3x1 0.4 x2 2.0 (gasoline) 0.4 x1 0.2 x2 1.5 (jet fuel) 0.2 x1 0.3x2 0.5 (lubricants) x1 9 x2 6 x1 , x2 2
Satisfy Demand

Supply Restriction

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Solution (LINDO) 1 LP OPTIMUM FOUND AT STEP

OBJECTIVE FUNCTION VALUE 1) 112.5000

VARIABLE X1 X2
ROW 2) 3) 4) 5) 6) 7) 8)

VALUE 2.000000 3.500000

SLACK OR SURPLUS 0.000000 0.000000 0.950000 7.000000 2.500000 0.000000 1.500000
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REDUCED COST 0.000000 0.000000

DUAL PRICES -37.500000 0.000000 0.000000 0.000000 0.000000 -18.750000 0.000000

Notes 4

160 140 120 100

Cost

Sensitivity

80 60 40 20 0
2 3 4 5 5 5 5 25 75 25 75 25 75 25 5 2. 3. 4. 2. 2. 3. 3. 4. 4. 5. 5. 5. 75 6

Plenty of this crude

Crude Supply
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RHS Coefficients
Constraint RHS RHS Type Increase Decrease Supply (<) Relax Tighten Demand (>) Tighten Relax

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LHS Coefficients
Constraint LHS LHS Type Increase Decrease Supply (<) Tighten Relax Demand (>) Relax Tighten

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New Constraints

Adding constraints tightens the feasible set

Removing constraints relaxes the feasible set

What about unmodeled constraints?

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Rate of Change
Supply
Optimal Value

Demand
Optimal Value

Maximize

RHS

RHS

Optimal Value

Optimal Value

Minimize

RHS
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RHS
10

Objective Function Changes

Model Coefficient Coefficient Form Increase Decrease Maximize Same or better Same or worse Minimze Same or worse Same or better

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Crude Oil: Changing x1 Coefficient

140 120

100

80

Cost
60 40 20 0 0 5 10 15 20 25 30 35 Coefficient

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Rate of Change
Maximize
Optimal Value

Minimize
Optimal Value

Coefficient.

Coefficient.

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New Activities

Adding activities

Optimal value same or better Optimal value same or worse

Removing activities

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Quantifying Effects

Now know the qualitative effects of

Changing RHS coefficients Changing LHS coefficients Changing objective function coefficients Adding/deleting constraints Adding/deleting activities

How much does the objective change? Quantitative change

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Notes 4

Back to Crude Oil Example

min 20 x1 15 x2
s.t. 0.3x1 0.4 x2 2.0 (gasoline) 0.4 x1 0.2 x2 1.5 (jet fuel) 0.2 x1 0.3x2 0.5 (lubricants) x1 9 x2 6 x1 , x2 2
Decreasing RHS will make objective better or no worse, but by how much?

How much are we willing to pay to have one more barrel available?
Notes 4 IE 312 16

Answer using the Dual

max 2v1 1.5v2 0.5v3 9v4 6v5 s.t. 0.3v1 0.4v2 0.2v3 1v4 20 0.4v1 0.2v2 0.3v3 1v5 15 v1 , v2 , v3 0 v4 , v5 0

Notes 4

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LINDO Solution
LP OPTIMUM FOUND AT STEP 4
OBJECTIVE FUNCTION VALUE

1)
VARIABLE V1 V2 V3 V4 V5

92.50000
VALUE 20.000000 35.000000 0.000000 0.000000 0.000000 REDUCED COST 0.000000 0.000000 0.950000 0.000000 0.000000

Notes 4

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Interpretation

Our cost will be reduced by $20 or $ 35, respectively, if the demand for gasoline or jet fuel is one unit less. Smaller demand for lubricants has no effect on the objective We are not willing to pay anything for availability of more crude!
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Notes 4

What is the Dual?

The primal is the original optimization problem The dual is an LP defined on the same input parameters but characterizing the sensitivities of the primal There is one dual variable for each main constraint
Primal < constraint > constraint = constraint vi 0 vi 0 Minimize objective Unrestricted vi 0 Maximize objective vi 0 Unrestricted

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Interpretation

The dual variables provide implicit prices for marginal units of the resource modeled by the constraint

Zero unless active How much we are willing to pay for more of a resource (supply constraint) How much we benefit from not having to satisfy a requirement (demand constraint)
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Notes 4

What to Optimize?

Implicit marginal value (minimization primal) or price (maximization primal) is

a
All activities i

i, j

vj

Maximize value or minimize price!

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Dual Constraints

For each activity xj in a minimization primal there is a main dual constraint

a
i

i, j i

v cj

For a maximization primal, each xj 0 has a main dual constraint ai , j vi c j

i
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Notes 4

Optimal Solution

If primal has optimal solution

c x b v
j * j j

* i i

Either the primal optimal makes a main inequality active or the corresponding dual is zero Either a nonnegative primal variable has optimal value xj = 0 or the corresponding dual price vj must make the j-th dual constraint active
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Notes 4

Dual of a Min Primal

max s.t.
i

b v a
i i, j i

i i

v cj

for all activities j for all primal ' s i for all primal ' s i for all primal ' s i

vi 0 vi 0 vi URS

Notes 4

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Dual of a Max Primal

min s.t.
i

b v a
i i, j i

i i

v cj

for all activities j for all primal ' s i for all primal ' s i for all primal ' s i

vi 0 vi 0 vi URS

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Top Brass
max 12 x1 9 x2 x1 1000 (brass footballs) s.t. x2 1500 (brasssoccerballs) x1 x2 1750 (brass plaques) 4 x1 2 x2 4800 (feet of wood) x1 , x2 0
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Graphical Solution
4 x1 2 x2 4800

2000

x1 1000
x2 1500

1500

Optimal Solution
1000
x1 0 x1 x2 1750

500

x2 0

500

1000

1500

2000

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Dual
min 1000v1 1500v2 1750v3 4800v4 v1 v3 4v4 12 s.t. v2 v3 2v4 9 v1 , v2 , v3 , v4 0

Notes 4

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Lindo Solution
OBJECTIVE FUNCTION VALUE
1) 17700.00

VARIABLE V1 V2 V3 V4

VALUE 0.000000 0.000000 6.000000 1.500000

REDUCED COST 350.000000 400.000000 0.000000 0.000000

Notes 4

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Interpretation

We are willing to pay up to $6/each for additional brass Our objective is sensitive to these plaques estimates! We are willing to pay up to $1.5/foot for more wood We dont need any more brass footballs or soccer balls
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Notes 4

Formulating Duals
max 6 x1 x2 13x3 s.t. 3 x1 x2 2 x3 7 5 x1 x2 6 x2 x3 2 x1 0 x2 0
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Formulating Duals
min s.t. 7 x1 44 x3 2 x1 4 x2 x3 15 x1 4 x2 5 5 x1 x2 3 x3 11 x1 0 x2 0
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