The difference between the managerial and mathematical interpretation of sensitivity analysis results in linear programming

The difference between the managerial and mathematical interpretation of sensitivity analysis... This paper shows that managerial questions are not answered satisfactorily with the mathematical interpretation of sensitivity analysis when the solution of a linear programing model is degenerate. Most of the commercially available software packages provide sensitivity results about the optimality of a basis and not about the optimality of the values of the decision variables. The misunderstanding of the shadow price and the validity range information provided by a simplex based computer program may lead to wrong decision with considerable financial losses and strategic consequences. The paper classifies the most important types of sensitivity information, graphically illustrates degeneracy, and demonstrates its effect on sensitivity analysis. A production planning example is provided to show the possibility of faulty production management decisions when sensitivity results are not understood correctly. Finally the recommendations for the users of linear programing models and for software developers are provided. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Production Economics Elsevier

The difference between the managerial and mathematical interpretation of sensitivity analysis results in linear programming

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Publisher
Elsevier
Copyright
Copyright © 2000 Elsevier Science B.V.
ISSN
0925-5273
eISSN
1873-7579
D.O.I.
10.1016/S0925-5273(99)00036-5
Publisher site
See Article on Publisher Site

Abstract

This paper shows that managerial questions are not answered satisfactorily with the mathematical interpretation of sensitivity analysis when the solution of a linear programing model is degenerate. Most of the commercially available software packages provide sensitivity results about the optimality of a basis and not about the optimality of the values of the decision variables. The misunderstanding of the shadow price and the validity range information provided by a simplex based computer program may lead to wrong decision with considerable financial losses and strategic consequences. The paper classifies the most important types of sensitivity information, graphically illustrates degeneracy, and demonstrates its effect on sensitivity analysis. A production planning example is provided to show the possibility of faulty production management decisions when sensitivity results are not understood correctly. Finally the recommendations for the users of linear programing models and for software developers are provided.

Journal

International Journal of Production EconomicsElsevier

Published: May 15, 2000

References

  • Degeneracy and the (mis)interpretation of sensitivity analysis in linear programming
    Evans, J.R.; Baker, N.R.
  • The tolerance approach to sensitivity analysis in linear programming
    Wendell, R.E.

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