BU275 Lecture Notes - Lecture 4: Sensitivity Analysis, Shadow Price, Conserved Sequence
Document Summary
The importance of what if analysis to managers: Parameters of model is the data needed to determine precisely all the number that should go into the data cells for the spreadsheet formulation of the linear programming model. Sensitive parameters are those parameters where extra care is needed to refine their estimates because even small changes in their values can change the optimal solution. Sensitivity analysis involves checking how sensitive the optimal solution is to the value of each parameter. What if analysis leave signposts that indicate whether a resulting change in a parameter of the model changes the optimal solution if conditions change after the study have been completed. What if analysis provides valuable guidance to management regarding the impact of altering these policy decisions when certain parameters of the model represent managerial policy decisions. The effect of changes in one objective function coefficient: Parameter cell is the data cell containing a parameter that will be systemically varied.
