MGMT90141 Business Analysis and Decision

Making
Week 1 – Introduction to Business Analytics
and Linear Programming

Dr. William Ho

Professor of Operations Management

Department of Management and Marketing
Faculty of Business and Economics
The Spot 10.036
[email protected]
 Studying for MGMT90141

• 10 lectures and workshops + 1 revision + 1 class presentations

• 2 recommended textbooks
– Anderson, D.R., Sweeney, D.J., Williams, T.A., Camm, J.D.,
Cochran, J.J., and Fry, M.J. (2019), An Introduction to
Management Science: Quantitative Approaches to Decision
Making, 15th edition, South-Western Cengage Learning
– Anderson, D.R., Sweeney, D.J., Williams, T.A., Camm, J.D.,
and Cochran, J.J. (2020), Statistics for Business Economics,
14th edition, South-Western Cengage Learning

• LMS
– Lecture slides
– All subject related documents
 Studying for MGMT90141

• Each week
– Prepare for lecture and workshop:
• Read through equivalent book chapter(s)
– After lecture and workshop:
• Re-read, try problems for any part of lecture and
workshop which is not clear
• Try to apply the quantitative methods in real situations
• Discuss with your workshop lecturer if you found any
interesting and/or difficult subject-related matters

• Assessments
– A 2000 word group assignment, due Week 5 (15%)
– A 4000 word group assignment, due Week 11 (30%)
– A 10 minute oral presentation, due Week 12 (5%)
– A 3-hour open book online exam, end of semester (50%)
 Assignment 1 (2000 words) – Specifications

• The assignment is designed to allow you to demonstrate that you can

effectively collect, review, and analyze the relevant academic literatures
on a particular topic, which is same as the topic for your assignment 2.

• Each group has to select a company (manufacturing-based OR service-

based) with which you are familiar, select an optimization problem being
faced by the company (e.g., media selection at Telstra, employee
scheduling in HSBC, make-or-buy at Toyota, resource allocation at the
University of Melbourne, distribution network design at Pickfords, etc.),
and then collect and review 10 international journal articles, from the
past 10 years, applying mathematical modelling for the problem to be
studied.

• You should analyze the strengths of these applications and their “value-
add” to the decision making process, and also identify the knowledge
gaps and limitations, if any, and suggest for improvements.
 Assignment 1 – Expected Contents of Report

• Introduction – company background, description of the business

optimization problem, justification of selection, identification of the
company’s requirements or evaluation criteria, etc.

• Methodology – description of the method used to collect the journal

articles, such as databases, searching and filtering criteria, etc.

• Strengths – analysis of the strengths of the articles with respect to the

evaluation criteria.

• Weaknesses – analysis of the weaknesses of the articles with respect to

the evaluation criteria.

• Discussions and Conclusions – suggestions for improvement.

• References

• Appendices – including the minutes/notes of meetings.

 Assignment 1 – Marking Criteria

Criteria Possible
Mark
Identification and description of the problem to be 2
analyzed
Collection and discussion of relevant academic literatures 3

Analysis of the strengths of these applications and their 4

“value-add” to the decision making process

Identification of the knowledge gaps and limitations, if any, 4

and suggestion for improvements

Structure and presentation. Use of appropriate language, 2

spelling, grammar, and punctuation

Total 15
 Assignment 1 – Word Limits and Submission
Due

• Word limits – The total length of the report is a

maximum of 2,000 words (excluding figures,
tables, references, and appendices).

• Submission due – 5pm 22 August 2022

 Assignment 1 – Useful Online Sources

• http://ieeexplore.ieee.org/Xplore/home.jsp

• http://www.emeraldlibrary.com

• http://www.ingentaconnect.com

• http://www.sciencedirect.com

• http://www.scopus.com
 Assignment 1 – Useful References

• Ho W (2008) Integrated analytic hierarchy process and its

applications – A literature review. European Journal of
Operational Research, Vol. 186(1), pp. 211–228.

• Ho W, Xu X, Dey PK (2010) Multi-criteria decision making

approaches for supplier evaluation and selection: A literature
review. European Journal of Operational Research, Vol.
202(1), pp. 16–24.

• Ho W, Zheng T, Yildiz H, Talluri S (2015) Supply chain risk

management: A literature review. International Journal of
Production Research, Vol. 53, pp. 5031–5069.
 Assignment 2 (4000 words) – Specifications

• The assignment is designed to allow you to demonstrate

that you can effectively analyze the business optimization
problems, apply the mathematical modelling approaches
such as LP and IP to formulate the problems, use the Excel
Solver to obtain the optimal solutions, generate the
sensitivity analysis report, and suggest courses of action to
the focal company.

• Each group has to base on the same company and

optimization problem selected for the assignment 1, and
then apply the LP or IP to formulate the optimization
problem with primary or notional data.
 Assignment 2 – Expected Contents of Report

• Introduction – company background, description of the business

optimization problem, justification of selection, etc.

• Literature review – summary of the findings from the assignment 1.

• Methodology – description and illustration of the mathematical modelling

approach for the problem.

• Implementation – formulation of the problem by using the mathematical

modelling approach, application of the Excel Solver to optimize the
mathematical model, and execution of the sensitivity analysis.

• Discussions and Conclusions – suggestions for courses of action to the

selected company as well as the evaluation of the mathematical
modelling approach.

• References

• Appendices – including the minutes/notes of meetings.

 Assignment 2 – Marking Criteria

Criteria Possible Mark

Identification and description of the problem to be analyzed 3

Summary of literature review 2

Description and application of the mathematical modelling 16

approach to analyze and solve the problem

Suggestions for courses of action to the company, and 7

critical evaluation of the mathematical modelling approach

Structure and presentation. Use of appropriate language, 2

spelling, grammar, and punctuation

Oral presentation 5

Total 35
 Assignment 2 – Word Limits and Submission
Due

• Word limits – The total length of the report is a

maximum of 4,000 words (excluding figures,
tables, references, and appendices).

• Submission due – 5pm 10 October 2022

 Examination

• Part one (25%): 1 compulsory question

• Part two (75%): 3 out of 4 questions

• All questions are equally weighted

 Objectives of Lecture

• To explain what is business analytics

• To introduce the linear programming elements,

formulation, and solution approaches

• To differentiate between the minimization and

maximization linear programming problems

• To recognize the sensitivity analysis of the linear

programming models
 Business Analytics – Introduction

• The use of data, information technology, statistical

analysis, quantitative methods, and mathematical or
computer-based models to help managers gain
improved insight about their business operations
and make better, fact-based decisions

• Supported by various tools such as Microsoft Excel

and various Excel add-ins, commercial statistical
software packages such as SAS or SPSS, and more
complex business intelligence suites that integrate
data with analytical software.
 Business Analytics – Elements

• Descriptive: categorize, characterize, consolidate and classify

data to convert it into useful information for the purposes of
understanding and analysing past and current business
performance and make informed decisions.

• Predictive: analyze past performance in an effort to predict the

future by examining historical data, detecting patterns or
relationships in these data, and then extrapolating these
relationships forward in time.

• Prescriptive: use optimization to identify the best alternatives to

minimize or maximize a single or multiple objective. The
mathematical and statistical techniques of predictive analytics
can also be combined with optimization to make decisions that
take into consideration the uncertainty in the data.
 Linear Programming – Introduction

• In the world of management science or operations research,

programming refers to modelling and solving a problem
mathematically.

• LP is widely used mathematical technique designed to help

managers plan and make the decisions necessary to allocate
resources.

• Many business decisions involve trying to make the most

effective use of an organization’s resources. Resources
typically include machinery, labour, money, time, and raw
materials. These resources may be used to produce products
or services.
 Linear Programming – Elements

• A set of decision variables: which are used to stand

for the quantity of each product or service to be
produced.

• An objective function: which measures the extent to

which alternative feasible decisions achieve the aim
being pursued.

• A set of constraints: which define in mathematical

terms the values of the decision variables that are
feasible.
 Linear Programming – General Form

Max or Min c 1x 1 + c 2x 2 + … + c nx n

Subject to: a11x1 + a12x2 + … + a1nxn ≤ b1

a21x1 + a22x2 + … + a2nxn ≤ b2
………………………………………

am1x1 + am2x2 + … + amnxn ≤ bm

All x1, …, xn ≥ 0.

c1, …, cn: Objective function coefficients

a11, …, amn: Technical coefficients
b1, …, bm: Right-hand-sides (RHS)
x1, …, xn: Decision variables
 Linear Programming – Assumptions

• Deterministic model

– All ci, aij, bj (for i = 1, …, n; j = 1, …, m) are known with certainty.

• Implications of linearity

– Divisibility: All variables are continuous. For example, we could

produce whole tons of products or proportions of tons.

– Proportionality: Value of the function is in direct proportion to the

values of the decision variables. For example, if we increase the
cost per unit shipped by 10%, then we will increase the total cost
of the shipments by 10% .
 Linear Programming – Maximization

The Shader Electronics Company produces two products: (1) the Shader x-
pod, a portable music player, and (2) the Shader BlueBerry, an internet-
connected colour telephone. The production process for each product is
similar in that both require a certain number of hours of electronic work and
a certain number of labour-hours in the assembly department. Each x-pod
takes 4 hours of electronic work and 2 hours in the assembly shop. Each
BlueBerry requires 3 hours in electronics and 1 hour in assembly. During
the current production period, 240 hours of electronic time are available,
and 100 hours of assembly department time are available. Each x-pod sold
yields a profit of $7; each BlueBerry produced can be sold for a $5 profit.

Shader’s problem is to determine the best possible combination of x-pods

and BlueBerrys to manufacture to reach the maximum profit.
 Linear Programming – Formulation

Step 1: Fully understand the managerial or optimization problem

being faced

Hours required to produce one unit

Department x-pods BlueBerrys Available hours

Electronic 4 3 240

Assembly 2 1 100

Profit per unit $7 $5

How many x-pods and BlueBerrys should Shader manufacture

to reach the maximum profit, while not exceeding the limited
amount of electronic and assembly time?
 Linear Programming – Formulation

Step 2: Define the decision variables

x1 = number of x-pods to be produced

x2 = number of BlueBerrys to be produced

Step 3: Identify the objective function

Maximize profit or z = 7x1 + 5x2

Step 4: Identify the constraints

4x1 + 3x2 ≤ 240 (Electronic department resource constraint)

2x1 + 1x2 ≤ 100 (Assembly department resource constraint)
x1 and x2 ≥ 0 (Non-negativity)
 Linear Programming – Formulation

Maximize profit or z = 7x1 + 5x2

Subject to 4x1 + 3x2 ≤ 240

2x1 + 1x2 ≤ 100
x1 and x2 ≥ 0

This is a linear programming model:

• Objective function is linear
• All functions on left-hand side of the constraints are linear
 Linear Programming – Solution

• Graphical Solution Method:

– Plot the solution on a two-dimensional graph

• Simplex Method:
– It is the basis of most LP optimization software. It works
by finding corner point solutions, evaluating the objective
function at each, and stopping when no more improvement
to the objective function value (z) is possible.

• Optimization Software:
– such as Lindo, SAS etc.

• MS Excel:
– Solver add-in is needed.
 Linear Programming – Lindo

• A free (limited) version can be downloaded from http://www.lindo.com

• Once the software is running, the first window is untitled. You should
enter your model in this window and then save, naming the file as
you wish.

• For the Shader problem the input file is:

 Linear Programming – Lindo

• When this has been saved, proceed as follows:

– Click “Debug” in “Solve” submenu to debug any errors
– When no more errors, click “Solve” in “Solve” submenu
– Answer “No” to the question: “Do Range (Sensitivity) Analysis?”
– To view the solution, Click “Solution” in “Reports” submenu
 Linear Programming – Excel

• Steps for installing Solver add-in in Excel

- Click the “File” tab, and then click “Options”.
- Click “Add-Ins”, and then in the “Manage” box, select “Excel
Add-ins”.
- Click “Go”.
- In the “Add-Ins available” box, select the “Solver Add-In”
check box, and then click “OK”.
- After you load the Solver add-in, the “Solver” command is
available in the “Analysis” group on the “Data” tab.

• Tip
- If “Solver Add-In” is not listed in the “Add-Ins available” box,
click “Browse” to locate the add-in.
- If you get prompted that the Solver add-in is not currently
installed on your computer, click “Yes” to install it.
 Linear Programming – Excel

• Data Input

=SUMPRODUCT(B7:C7,B12:C12)

=SUMPRODUCT(B4:C4,B12:C12) =SUMPRODUCT(B5:C5,B12:C12)
 Linear Programming – Excel

• Parameters setting
(Data > Solver)
Enter the cell address for
the objective function
value.
Specify the location of
the values for the
variables. Solver will put
the optimal values here.

Click “Add” to add the

constraints to Solver.

Check this box to make

the variables non-
negative.
Click and select “Simplex
LP” from the menu that
appears.
Check “Solve” to solve
the LP.
 Linear Programming – Excel

• Optimal solution generation

 Linear Programming – Sensitivity Analysis

• Changes in the objective function coefficients

- Reduced cost: how much the objective function coefficient of each
decision variable would have to improve before that variable could
assume a positive value in the optimal solution.

- Allowable increase and decrease: what are the limits that the
objective function coefficients can be adjusted without affecting the
optimality of the current solution.

• Changes in the constraints or right-hand-side (RHS) values

- Shadow price or dual prices (in Lindo): how much objective function
value can be improved if the RHS value of a constraint is increased
by one unit.

- Allowable increase and decrease: what are the limits that RHS
value of a constraint can be adjusted without affecting the validity of
the shadow price.
 Linear Programming – Sensitivity Analysis

• For Lindo, in the “Reports” submenu, click “Solution”.

• In the “Reports” submenu, click “Range”.
 Linear Programming – Sensitivity Analysis

• In the “Solver Report” window, select “Sensitivity” Report, and then click “OK”.
• Select “Sensitivity Report 1” worksheet.
 Linear Programming – Minimization

As part of a quality improvement initiative, Consolidated Electronics

employees complete a 3-day training program on teaming and a 2-day
training program on problem solving. The manager of quality improvement
has requested that at least 8 training programs on teaming and at least 10
training programs on problem solving be offered during the next 3 months.
In addition, senior-level management has specified that at least 25 training
programs must be offered during this period. Consolidated Electronics uses
a consultant to teach the training programs. During the next 3 months, the
consultant has 84 days of training time available. Each training program on
teaming costs $10,000 and each training program on problem solving costs
$8,000.

Consolidated Electronics’s problem is to determine the number of training

programs on teaming and the number of training programs on problem
solving that should be offered in order to minimize the total cost.
 Linear Programming – Formulation

Step 1: Fully understand the managerial or optimization problem

being faced

Number of training programs to be offered

Teaming Problem solving

Consultant 3 days 2 days 84 days

Manager 1 1 - 8 programs

Manager 2 - 1 10 programs

Senior-level 1 1 25 programs

Cost per program $10,000 $8,000

How many training programs on teaming and problem solving to offer to

reach the minimum total cost, while not exceeding the available time of
the consultant and meeting the minimum training requirements?
 Linear Programming – Formulation

Step 2: Define the decision variables

x1 = number of training programs on teaming to be offered

x2 = number of training programs on problem solving to be offered

Step 3: Identify the objective function

Minimize total cost or z = 10000x1 + 8000x2

Step 4: Identify the constraints

3x1 + 2x2 ≤ 84 (Consultant availability constraint)

x1 ≥ 8 (Manager requirement 1 constraint)
x2 ≥ 10 (Manager requirement 2 constraint)
x1 + x2 ≥ 25 (Senior-level management requirement constraint)
x1 and x2 ≥ 0 (Non-negativity)
 Linear Programming – Formulation

Minimize total cost or z = 10000x1 + 8000x2

Subject to 3x1 + 2x2 ≤ 84

x1 ≥ 8
x2 ≥ 10
x1 + x2 ≥ 25
x1 and x2 ≥ 0
Linear Programming – Lindo Solution
 Linear Programming – Excel Solution

• Data Input

=SUMPRODUCT(B9:C9,B14:C14)

=SUMPRODUCT(B4:C4,B14:C14)
=B14
=C14
=B14+C14
 Linear Programming – Excel Solution

• Parameters setting
 Linear Programming – Excel Solution

• Optimal solution generation

 Linear Programming – Excel Solution

• Sensitivity analysis
 Workshop

Failsafe Electronics Corporation primarily manufactures four highly

technical products, which it supplies to aerospace firms that hold NASA
contracts. Each of the products must pass through the following
departments before they are shipped: wiring, drilling, assembly, and
inspection. The time requirements in each department (in hours) for each
unit produced and its corresponding profit value are summarized below:

Department
Product Wiring Drilling Assembly Inspection Unit Profit
XJ201 0.5 3 2 0.5 $9
XM897 1.5 1 4 1 $12
TR29 1.5 2 1 0.5 $15
BR788 1 3 2 0.5 $11
 Workshop

The production time available in each department each month and the
minimum monthly production requirement to fulfill contracts are as follows:

Department Capacity (hours) Product Minimum

production level
Wiring 1,500 XJ201 150
Drilling 2,350 XM897 100
Assembly 2,600 TR29 200
Inspection 1,200 BR788 400

Failsafe Electronics Corporation’s problem is to determine the production

quantities of the four highly technical products in order to maximize the total
profit.

Formulate a LP model for this problem, and solve it using the Excel Solver.
 Workshop – Suggested Solutions

x1 = number of units of XJ201 produced

x2 = number of units of XM897 produced
x3 = number of units of TR29 produced
x4 = number of units of BR788 produced

Maximize total profit or z = 9x1 + 12x2 + 15x3 + 11x4

Subject to
0.5x1 + 1.5x2 + 1.5x3 + x4 ≤ 1500 (Wiring availability constraint)
3x1 + x2 + 2x3 + 3x4 ≤ 2350 (Drilling availability constraint)
2x1 + 4x2 + x3 + 2x4 ≤ 2600 (Assembly availability constraint)
0.5x1 + x2 + 0.5x3 + 0.5x4 ≤ 1200 (Inspection availability constraint)
x1 ≥ 150 (XJ201 requirement constraint)
x2 ≥ 100 (XM897 requirement constraint)
x3 ≥ 200 (TR29 requirement constraint)
x4 ≥ 400 (BR788 requirement constraint)
x1, x2, x3, x4 ≥ 0 (Non-negativity)
Workshop – Suggested Solutions
 Summary of Lecture

• Explained what is business analytics

• Introduced the linear programming elements,

formulation, and solution approaches

• Differentiated between the minimization and

maximization linear programming problems

• Recognized the sensitivity analysis of the linear

programming models
 Announcements

1) Readings
– Chapters 2 and 3 (An Introduction to
Management Science: Quantitative
Approaches to Decision Making)

2) Useful websites
– http://www.theorsociety.com/
– https://www.informs.org/
– http://ifors.org/web/
© Copyright The University of Melbourne 2013