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Sensitivity Analysis as a Managerial Decision Making Tool

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  • Martina Bris

    (Faculty of Economics in Osijek)

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    Abstract

    Decision making is an integral part of operations management. It may be useful to a decision maker to have some indication of how sensitive an alternative choice might be to the changes in one or more of those values. Unfortunately, it is not possible to explore all the possible combinations of all the variables in a typical problem. In spite of this, there are some elements that a decision maker can use to assess the sensitivity of assumption probabilities. One of the tools useful for the analysis in some decision making problems is sensitivity analysis. It provides a range of feasibility over which the choice of alternative remains the same. Successful decision making consists of several steps, the first and most important being carefully defining the problem. Given that linear problems can be extensive and complex, they are solved by using sophisticated computer methods. This paper will present software solutions available for personal computers (Lindo, POM). For a manager taking the decision, however, a solution model is only part of the answer. Sensitivity analysis offers a better understanding of the problem, different effects of limitations and “what if“ questions. The insights obtained are frequently much more valuable that a specific numerical answer. One of the advantages of linear programming lies in the fact that it provides rich information on sensitivity analysis as a direct part of the solution.

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    Bibliographic Info

    Article provided by Faculty of Economics in Osijek, Croatia in its journal Interdisciplinary Management Research.

    Volume (Year): 3 (2007)
    Issue (Month): ()
    Pages: 287-296

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    Handle: RePEc:osi:journl:v:3:y:2007:p:287-296

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    Keywords: feasibility range; linear programming; Lindo; POM; optimum solution; optimum range; sensitivity analysis.;

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