Sensitivity Analysis

Linear Programming is a mathematical technique that helps to optimize business

operations. One of the key advantages of linear programming is that it can identify
the optimal solution to a problem, given a set of constraints. However, in the real
world, parameters are rarely fixed, and small changes in the data can lead to big
differences in the outcome. Sensitivity analysis helps to address this issue by
showing how much the optimal solution changes when parameters are adjusted.
Assumptions of Linear programming
While solving a linear programming problem for optimal solution, we assume that:
(a) Technology is fixed,
(b) Fixed prices,
(c) Fixed levels of resources or requirements,
(d) The coefficients of variables in structural constraints (i.e. time required by a
product on a particular resource) are fixed,
(e) profit contribution of the product will not vary during the planning period.
The condition in the real world however, might be different from those that are
assumed by the model. It is, therefore, desirable to determine how sensitive the
optimal solution is to different types of changes in the problem data and parameters.

What is Sensitivity Analysis?

Sensitivity analysis is the study of how a change in the parameters of a mathematical
model affects the optimal solution. In the context of linear programming, sensitivity
analysis examines the impact of changes to the coefficients of the objective function,
the constraints, or both. This analysis can help decision-makers identify which
variables have the greatest impact on the solution and what changes need to be made
to the problem to reach a different optimal solution.
It involves the study of the effect of small changes to the problem data, such as the
objective function coefficients, right-hand side values, and constraint coefficients. It
allows decision-makers to evaluate the robustness of the optimal solution,
understand the trade-offs between variables, and assess the feasibility of the
problem.
In linear programming, sensitivity analysis can be performed graphically or
computationally. The graphical method involves drawing a line representing the
changes in the objective function coefficients, which intersects with the feasible
region. The computational method involves recalculating the optimal solution using
revised input data.
There are several types of sensitivity analysis, including:
 Objective function sensitivity: evaluating the impact of changes in the
objective function coefficients on the optimal solution.
 Right-hand side sensitivity: evaluating the impact of changes in the right-hand
side coefficients on the optimal solution.
 Constraint sensitivity: evaluating the impact of changes in the constraint
coefficients on the optimal solution.

Sensitivity analysis is an important tool that helps decision-makers understand the

impact of changes in the parameters of a mathematical model on the optimal
solution. It can help identify which variables have the greatest impact on the
solution, and what changes need to be made to reach a different optimal solution.
By understanding and interpreting the results of sensitivity analysis, decision-
makers can make more informed decisions and achieve better results.

Why we use sensitivity analysis

(a) Sensitivity analysis allow us to determine how "sensitive" the optimal solution is
to changes in data values.
(b) Sensitivity analysis is important to the manager who must operate in a dynamic
environment with imprecise estimates of the coefficients.
(c) Sensitivity analysis is used to determine how the optimal solution is affected by
changes, within specified ranges, in:
(i) the objective function coefficients (cj), which include:
• Coefficients of basic variables.
• Coefficients of non basic variables.
(ii) the right-hand side (RHS) values (bi), (i.e. resource or requirement levels).
 The above changes may results in one of the following three cases:
Case I. The optimal solution remains unchanged, that is the basic variables and their
values remain essentially unchanged.
Case II. The basic variables remain the same but their values are changed.
Case III. The basic solution changes completely.
 Post optimality analysis or Sensitivity Analysis
The solution to a LPP is determined by simplex method is a static solution, It means
that solution corresponds to:
1. Value of profit coefficients in the objective function, and
2. Availability of resources (i.e R.H.S of constraints)
But in reality, profit coefficients of variables may increase or decrease. Similarly,
availability of resources may also increase or decrease. In that case, the optimal
profit and optimal quantity (b values) of variables calculated as per Simplex
solution will change.
The objective of sensitivity analysis is to determine the new values of solution. If
possible, from the given simplex solution. This will be possible only if the changes
(increase/decrease) in the objective function or constraint capacities is in certain
limits. These will be two limits, lower limit (max. possible decrease) and upper
limit (max. possible increase). These two limits provide the range within which
the present simplex table remains optimal.
Hence, if the change in profit or change in capacity constraints is in the range,
we can find new values of the solution. If it is not in the range, we cannot find the
new values of the solution. Because the present simplex table will not remain
optimal any more.

We will start with the more concrete graphical solution to explain the basics of
sensitivity analysis.

Graphical Sensitivity Analysis

This section demonstrates the general idea of sensitivity analysis. Two cases will be
considered:
1. Sensitivity of the optimum solution to changes in the availability of the resources
(right-hand side of the constraints).
2. Sensitivity of the optimum solution to changes in unit profit or unit cost
(coefficients of the objective function).
We will consider the two cases separately, using examples of two-variable graphical
LPs.
TYPE 1 (Changes in the Right-Hand Side)
ABC& CO produces two products on two machines. A unit of product 1 requires 2
hours on machine 1 and 1 hour on machine 2. For product 2, a unit requires 1 hour
on machine 1 and 3 hours on machine 2. The revenues per unit of products 1 and 2
are $30 and $20, respectively. The total daily processing time available for each
machine is 8 hours.
Solution:
Letting x₁ and x2 represent the daily number of units of products 1 and 2,
respectively, the LP model is given as
illustrates the change in the optimum solution when changes are made in the
capacity of machine 1. If the daily capacity is increased from 8 hours to 9 hours, the
new optimum will occur at point G. The rate of change in optimum z resulting from
changing machine 1 capacity from 8 hours to 9 hours can be computed as follows:
The computed rate provides a direct link between the model input (resources) and
its output (total revenue) that represents the unit worth of a resource (in $/hr)-that
is, the change in the optimal objective value per unit change in the availability of the
resource (machine capacity). This means that a unit increase (decrease) in machine
1 capacity will increase (decrease) revenue by $14.00. Although unit worth of a
resource is an apt description of the rate of change of the objective function, the
technical name dual or shadow price is now standard in the LP literature and all
software packages and, hence, will be used throughout the book.
Looking at Figure, we can see that the dual price of $14.00/hr remains valid for
changes (increases or decreases) in machine 1 capacity that move its constraint
parallel to itself to any point on the line segment BF. This means that the range of
applicability of the given dual price can be computed as follows:

Minimum machine 1 capacity [at B=(0,2.67)] = 2X0+1X2.67 =2.67 hr

Maximum machine 1 capacity [at F=(8,0)]= 2X8+1X0=16hr

We can thus conclude that the dual price of $14.00/hr will remain valid for the range
2.67 hrs ≤ Machine 1 capacity ≤ 16 hrs

Changes outside this range will produce a different dual price (worth per unit). Using
similar computations, you can verify that the dual price for machine 2 capacity is
$2.00/hr and it remains valid for changes (increases or decreases) that move its
constraint parallel to itself to any point on the line segment DE, which yields the
following limits:

Minimum machine 2 capacity [at D=(4,0)]=X4+3X0=4~hr

Maximum machine 2 capacity [at E=(8,0)]=1X0+3X8=24~hr

The conclusion is that the dual price of $2.00/hr for machine 2 will remain applicable
for the range
4 hr ≤ Machine 2 capacity ≤ 24 hr

The computed limits for machine 1 and 2 are referred to as the feasibility ranges.
Question 1. If JOBCO can increase the capacity of both machines, which machine
should receive higher priority?
The dual prices for machines 1 and 2 are $14.00/hr and $2.00/hr. This means that
each additional hour of machine 1 will increase revenue by $14.00, as opposed to
only $2.00 for machine 2. Thus, priority should be given to machine 1.

Question 2. A suggestion is made to increase the capacities of machines 1 and 2 at

the additional cost of $10/hr. Is this advisable?
For machine 1, the additional net revenue per hour is 14.00 -10.00 = $4.00 and for
ma- chine 2, the net is $2.00 - $10.00 = -$8.00. Hence, only the capacity of machine
1 should be increased.

Question 3. If the capacity of machine 1 is increased from the present 8 hours to 13

hours, how will this increase impact the optimum revenue?
The dual price for machine 1 is $14.00 and is applicable in the range (2.67, 16) hr.
The pro-posed increase to 13 hours falls within the feasibility range. Hence, the
increase in revenue is $14.00(13-8) = $70.00, which means that the total revenue
will be increased to (current revenue + change in revenue) = 128 + 70 = $198.00.