Sensitivity Analysis &

Interpretation of Results

Dr. Shraddha Mishra

 Introduction to 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 a manager who must operate in a

dynamic environment with imprecise estimates of the coefficients.
• Sensitivity analysis allows a manager to ask certain what-if questions
about the problem.
Example 1
• LP Formulation
Max 5x1 + 7x2

s.t. x1 < 6
2x1 + 3x2 < 19
x1 + x2 < 8

x1, x2 > 0
Example 1
• Graphical Solution
x2
x1 + x2 < 8
8 Max 5x1 + 7x2
7
6 x1 < 6
5
Optimal Solution:
4 x1 = 5, x2 = 3
3
2x1 + 3x2 < 19
2
1
x1
1 2 3 4 5 6 7 8 9 10
 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
• Changing Slope of Objective Function
x2
Coincides with
8 x1 + x2 < 8
7 constraint line
6 Objective function
5 5 line for 5x1 + 7x2
4 Coincides with
3 Feasible 2x1 + 3x2 < 19
4
2 Region constraint line
3
1
1 2
x1
1 2 3 4 5 6 7 8 9 10
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.
• Slope of an :
objective function

Max c1x1 + c2x2, is -c1/c2, and ,

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, 2x1 + 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

 Range of Optimality for c1 and c2

Variable Cells
Model Final Reduced Objective Allowable Allowable
Variable Name Value Cost Coefficient Increase Decrease
X1 X1 5.000 0.000 5.000 2.000 0.333
X2 X2 3.000 0.000 7.000 0.500 2.000

Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 1 5.000 0.000 6.000 1E+30 1.000
2 2 19.000 2.000 19.000 5.000 1.000
3 3 8.000 1.000 8.000 0.333 1.667
 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 shadow price.
• The range of feasibility is the range over which the shadow price is
applicable.
• As the RHS increases, other constraints will become binding and limit
the change in the value of the objective function.
 Shadow Price
• Graphically, a shadow 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 shadow price for a nonbinding constraint is 0.
• A negative shadow price indicates that the objective function will not
improve if the RHS is increased.
Example 1
• Shadow Prices

Constraint 1: Since x1 < 6 is not a binding constraint,

its shadow 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

shadow price = znew - zold = 48 - 46 = 2.

 Example 1
• Shadow 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 shadow price is znew - zold = 47 - 46 = 1.

Example 1
• Shadow Prices
Variable Cells
Model Final Reduced Objective Allowable Allowable
Variable Name Value Cost Coefficient Increase Decrease
X1 X1 5.000 0.000 5.000 2.000 0.333
X2 X2 3.000 0.000 7.000 0.500 2.000

Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 1 5.000 0.000 6.000 1E+30 1.000
2 2 19.000 2.000 19.000 5.000 1.000
3 3 8.000 1.000 8.000 0.333 1.667
 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
• Range of Feasibility

Variable Cells
Model Final Reduced Objective Allowable Allowable
Variable Name Value Cost Coefficient Increase Decrease
X1 X1 5.000 0.000 5.000 2.000 0.333
X2 X2 3.000 0.000 7.000 0.500 2.000

Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 1 5.000 0.000 6.000 1E+30 1.000
2 2 19.000 2.000 19.000 5.000 1.000
3 3 8.000 1.000 8.000 0.333 1.667
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 on the next slide.
 Example 2: Olympic Bike Co.

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.
• Partial Spreadsheet Showing Solution

A B C 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.
• Sensitivity Report

Variable Cells
Model Final Reduced Objective Allowable Allowable
Variable Name Value Cost Coefficient Increase Decrease
X1 Deluxe 15.000 0.000 10.000 12.500 2.500
X2 Profes. 17.500 0.000 15.000 5.000 8.333

Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 Alum. 100.000 3.125 100.000 60.000 46.667
2 Steel 80.000 1.250 80.000 70.000 30.000
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. Because 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.
• Range of Optimality

Variable Cells
Model Final Reduced Objective Allowable Allowable
Variable Name Value Cost Coefficient Increase Decrease
X1 Deluxe 15.000 0.000 10.000 12.500 2.500
X2 Profes. 17.500 0.000 15.000 5.000 8.333

Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 Alum. 100.000 3.125 100.000 60.000 46.667
2 Steel 80.000 1.250 80.000 70.000 30.000
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. Because 6 is outside
this range, the optimal solution would change.
Simultaneous Changes
• 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?
 Range of Optimality and 100% Rule

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.
Example 2: Olympic Bike Co.

• Range of Feasibility

Question

what is the maximum amount the company should pay

for 50 extra pounds of aluminum?
 Example 2: Olympic Bike Co.
• Range of Feasibility
Variable Cells
Model Final Reduced Objective Allowable Allowable
Variable Name Value Cost Coefficient Increase Decrease
X1 Deluxe 15.000 0.000 10.000 12.500 2.500
X2 Profes. 17.500 0.000 15.000 5.000 8.333

Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 Alum. 100.000 3.125 100.000 60.000 46.667
2 Steel 80.000 1.250 80.000 70.000 30.000
Example 2: Olympic Bike Co.
• Range of Feasibility

Answer

The shadow price provides the value of extra aluminum.

The shadow price for aluminum is $3.125 per pound and the
maximum allowable increase is 60 pounds. Because 50 is in this
range, the $3.125 is valid. Thus, the value of 50 additional pounds
is = 50($3.125) = $156.25.
Example 2: Olympic Bike Co.
(Revised)
Recall that Olympic Bike is introducing two new lightweight bicycle frames, the
Deluxe and the Professional, to be made from special aluminum and steel alloys. The
objective is to maximize total profit, subject to limits on the availability of aluminum and
steel.
Let us now introduce an additional constraint. The number of Deluxe frames
produced (x1) must be greater than or equal to the number of Professional frames
produced (x2) .

x1 > x2
Example 2: Olympic Bike Co.
(Revised)
 Model Formulation (continued)

Max 10x1 + 15x2 (Total Weekly Profit)

s.t. 2x1 + 4x2 < 100 (Aluminum Available)

3x1 + 2x2 < 80 (Steel Available)
x1 - x2 > 0 (Product Ratio)

x1, x2 > 0
Example 2: Olympic Bike Co.
(Revised)
 Sensitivity Report (Revised)

Variable Cells
Model Final Reduced Objective Allowable Allowable
Variable Name Value Cost Coefficient Increase Decrease
X1 Deluxe 16.000 0.000 10.000 12.500 10.000
X2 Profes. 16.000 0.000 15.000 1E+30 8.333

Constraints
Constraint Final Shadow Constraint Allowable Allowable
Number Name Value Price R.H. Side Increase Decrease
1 Alum. 96.000 0.000 100.000 1E+30 4.000
2 Steel 80.000 5.000 80.000 3.333 80.000
3 Ratio 0.000 -5.000 0.000 26.667 2.500
Example 2: Olympic Bike Co.
(Revised)
 Shadow Price for Constraint #3

The interpretation of the shadow price -5.00 is

correctly stated as follows:

“If we are forced to produce 1 more Deluxe frame

over and above the number of Professional frames
produced, total profits will decrease by $5.00.”
Thank you!