Managerial Decision Making

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Sensitivity analysis using the report of the solver

The sensitivity report provides information relating to changing the objective of the function for a variable, forcing a variable which is currently zero to be non zero or changing the right hand side of a constraint. For this case, the analysis has been done by evaluating the effect of changing a single on each determinant variable.

For this case the changing variables are the number of impressions per media type. A single increment in newspaper advertisements causes the spending to change by a magnitude of 100 and population to change by 1000. A unit-change in the number of impression on radio changes the spending by a magnitude of 175 and the population changes by 2000. This is double the magnitude effect on newspaper. A unit change in the number of impressions on TV causes the spending to change by a magnitude of 750 and the audience changes by a magnitude of 85000. This equates to 7.5 times on the newspaper’s spending but 85 times its audience.

Conclusion

This tool is very resourceful while the decision maker is evaluating alternatives on the basis of optimizing a parameter. In this case, we aimed at minimizing the cost. It can also apply in maximizing profits, minimizing risks, identifying the most reasonable interest rates amongst other decisions in management.

References

Ananthan, B. R., Appannaiah, H. R., & Reddy, P. N. (2010). Business management. Mumbai [India: Himalaya Pub. House.

Burrow, J. (2002). Business management. Australia: South-Western/Thomson Learning.

Dantzig, G. B., & Thapa, M. N. (1997). Linear programming. New York: Springer.

Vanderbei, R. J. (2008). Linear programming: Foundations and extensions. New York: Springer.

Wall, L., Christiansen, T., & Orwant, J. (2000). Programming Perl. Beijing: O'Reilly.