Chapter 2

An Introduction to Linear Programming

 Linear Programming Problem

 Problem Formulation
 A Maximization Problem
 Graphical Solution Procedure
 Extreme Points and the Optimal Solution
 Computer Solutions
 A Minimization Problem
 Special Cases

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 Linear Programming (LP) Problem

 The maximization or minimization of some quantity is

the objective in all linear programming problems.
 All LP problems have constraints that limit the degree
to which the objective can be pursued.
 A feasible solution satisfies all the problem's
constraints.
 An optimal solution is a feasible solution that results in
the largest possible objective function value when
maximizing (or smallest when minimizing).
 A graphical solution method can be used to solve a
linear program with two variables.

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 Linear Programming (LP) Problem

 If both the objective function and the constraints are

linear, the problem is referred to as a linear
programming problem.
 Linear functions are functions in which each variable
appears in a separate term raised to the first power and
is multiplied by a constant (which could be 0).
 Linear constraints are linear functions that are restricted
to be "less than or equal to", "equal to", or "greater than
or equal to" a constant.

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 Problem Formulation

 Problem formulation or modeling is the process of

translating a verbal statement of a problem into a
mathematical statement.

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 Guidelines for Model Formulation

 Understand the problem thoroughly.

 Describe the objective.
 Describe each constraint.
 Define the decision variables.
 Write the objective in terms of the decision variables.
 Write the constraints in terms of the decision variables.

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 Example 1: A Maximization Problem

 LP Formulation

Max 5x1 + 7x2

s.t. x1 < 6
2x1 + 3x2 < 19
x1 + x2 < 8

x1, x2 > 0

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 Example 1: Graphical Solution

 Constraint #1 Graphed
x2

6
x1 < 6
5

2
(6, 0)
1

x1
1 2 3 4 5 6 7 8 9 10

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 Example 1: Graphical Solution

 Constraint #2 Graphed
x2

8
(0, 6 1/3)
7

4 2x1 + 3x2 < 19

3

2 (9 1/2, 0)
1

x1
1 2 3 4 5 6 7 8 9 10

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 Example 1: Graphical Solution

 Constraint #3 Graphed
x2
(0, 8)
8

7
x1 + x2 < 8
6

1
(8, 0)
x1
1 2 3 4 5 6 7 8 9 10

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 Example 1: Graphical Solution

 Combined-Constraint Graph
x2
x1 + x2 < 8
8

6 x1 < 6
5

3
2x1 + 3x2 < 19
2

x1
1 2 3 4 5 6 7 8 9 10

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 Example 1: Graphical Solution

 Feasible Solution Region

x2

3
Feasible
2
Region
1

x1
1 2 3 4 5 6 7 8 9 10

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 Example 1: Graphical Solution

 Objective Function Line

x2

7
(0, 5)
6 Objective Function
5 5x11 + 7x22 = 35
4

2
(7, 0)
1

x1
1 2 3 4 5 6 7 8 9 10

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 Example 1: Graphical Solution

 Optimal Solution
x2
Objective Function
8
5x11 + 7x22 = 46
7

6
Optimal Solution
(x11 = 5, x22 = 3)
5

x1
1 2 3 4 5 6 7 8 9 10

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 Summary of the Graphical Solution Procedure
for Maximization Problems
 Prepare a graph of the feasible solutions for each of the
constraints.
 Determine the feasible region that satisfies all the
constraints simultaneously..
 Draw an objective function line.
 Move parallel objective function lines toward larger
objective function values without entirely leaving the
feasible region.
 Any feasible solution on the objective function line with
the largest value is an optimal solution.

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 Extreme Points and the Optimal Solution

 The corners or vertices of the feasible region are

referred to as the extreme points.
 An optimal solution to an LP problem can be found at
an extreme point of the feasible region.
 When looking for the optimal solution, you do not have
to evaluate all feasible solution points.
 You have to consider only the extreme points of the
feasible region.

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 Example 1: Graphical Solution

 The Five Extreme Points

x2
8

7
5
6

3
4

2 Feasible 3
1
Region
1 2
1 2 3 4 5 6 7 8 9 10
x1

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 Computer Solutions

 Computer programs designed to solve LP problems are

now widely available.
 Most large LP problems can be solved with just a few
minutes of computer time.
 Small LP problems usually require only a few seconds.
 Linear programming solvers are now part of many
spreadsheet packages, such as Microsoft Excel.

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 Example 2: A Minimization Problem

 LP Formulation

Min 5x1 + 2x2

s.t. 2x1 + 5x2 > 10

4x1 - x2 > 12
x1 + x2 > 4

x1, x2 > 0

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 Example 2: Graphical Solution
 Graph the Constraints
Constraint 1: When x1 = 0, then x2 = 2; when x2 = 0,
then x1 = 5. Connect (5,0) and (0,2). The ">" side is
above this line.
Constraint 2: When x2 = 0, then x1 = 3. But setting x1 to
0 will yield x2 = -12, which is not on the graph.
Thus, to get a second point on this line, set x1 to any
number larger than 3 and solve for x2: when x1 = 5,
then x2 = 8. Connect (3,0) and (5,8). The ">" side is
to the right.
Constraint 3: When x1 = 0, then x2 = 4; when x2 = 0,
then x1 = 4. Connect (4,0) and (0,4). The ">" side is
above this line.

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 Example 2: Graphical Solution

 Constraints Graphed
x22 Feasible Region

4x11 - x22 > 12

5

4 x11 + x22 > 4

3
2x11 + 5x22 > 10
2

1
x11
11 22 33 44 55 66

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 Example 2: Graphical Solution

 Graph the Objective Function

Set the objective function equal to an arbitrary
constant (say 20) and graph it. For 5x1 + 2x2 = 20, when
x1 = 0, then x2 = 10; when x2= 0, then x1 = 4. Connect
(4,0) and (0,10).
 Move the Objective Function Line Toward Optimality
Move it in the direction which lowers its value
(down), since we are minimizing, until it touches the
last point of the feasible region, determined by the last
two constraints.

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 Example 2: Graphical Solution

 Objective Function Graphed

x22 Min z = 5x11 + 2x22

4x11 - x22 > 12

5

4 x11 + x22 > 4

3
2x11 + 5x22 > 10
2

1
x11
1 2 3 4 5 6

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 Example 2: Graphical Solution

 Solve for the Extreme Point at the Intersection of the

Two Binding Constraints
4x1 - x2 = 12
x1+ x2 = 4
Adding these two equations gives:
5x1 = 16 or x1 = 16/5.
Substituting this into x1 + x2 = 4 gives: x2 = 4/5

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 Example 2: Graphical Solution

 Solve for the Optimal Value of the Objective Function

Solve for z = 5x1 + 2x2 = 5(16/5) + 2(4/5) = 88/5.
Thus the optimal solution is
x1 = 16/5; x2 = 4/5; z = 88/5

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 Example 2: Graphical Solution

 Optimal Solution
x22 Min z = 5x11 + 2x22

4x11 - x22 > 12

5

4 x11 + x22 > 4

3 2x11 + 5x22 > 10

2
Optimal: x11 = 16/5
1 x22 = 4/5
x11
1 2 3 4 5 6

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 Feasible Region

 The feasible region for a two-variable linear

programming problem can be nonexistent, a single
point, a line, a polygon, or an unbounded area.
 Any linear program falls in one of three categories:
•is infeasible
•has a unique optimal solution or alternate optimal
solutions
•has an objective function that can be increased
without bound
 A feasible region may be unbounded and yet there may
be optimal solutions. This is common in minimization
problems and is possible in maximization problems.

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 Special Cases

 Alternative Optimal Solutions

In the graphical method, if the objective function line is
parallel to a boundary constraint in the direction of
optimization, there are alternate optimal solutions, with
all points on this line segment being optimal.
 Infeasibility
A linear program which is overconstrained so that no
point satisfies all the constraints is said to be infeasible.
 Unboundedness
(See example on upcoming slide.)

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 Example: Infeasible Problem

 Solve graphically for the optimal solution:

Max 2x1 + 6x2

s.t. 4x1 + 3x2 < 12

2x1 + x2 > 8

x1, x2 > 0

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 Example: Infeasible Problem

 There are no points that satisfy both constraints, hence

this problem has no feasible region, and no optimal
solution.
x2

8 2x1 + x2 > 8

4x1 + 3x2 < 12

4

x1
3 4
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 Example: Unbounded Problem

 Solve graphically for the optimal solution:

Max 3x1 + 4x2

s.t. x1 + x2 > 5
3x1 + x2 > 8

x1, x2 > 0

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 Example: Unbounded Problem

 The feasible region is unbounded and the objective

function line can be moved parallel to itself without
bound so that z can be increased infinitely.
x2

3x1 + x2 > 8
8
Max 3x1 + 4x2

5
x1 + x2 > 5

x1
2.67 5
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 Chapter 3
Linear Programming: Sensitivity Analysis
and Interpretation of Solution
 Introduction to Sensitivity Analysis
 Graphical Sensitivity Analysis
 Sensitivity Analysis: Computer Solution
 Simultaneous Changes

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 Sensitivity Analysis

 Sensitivity analysis (or post-optimality analysis) is used

to determine how the optimal solution is affected by
changes, within specified ranges, in:
•the objective function coefficients
•the right-hand side (RHS) values
 Sensitivity analysis is important to the manager who
must operate in a dynamic environment with imprecise
estimates of the coefficients.
 Sensitivity analysis allows him to ask certain what-if
questions about the problem.

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 Example 1

 LP Formulation

Max 5x1 + 7x2

s.t. x1 < 6
2x1 + 3x2 < 19
x1 + x2 < 8

x1, x2 > 0

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 Example 1

 Graphical Solution
x2
8
x1 + x2 < 8
Max 5x1 + 7x2
7

6
x1 < 6
5
Optimal:
4
x1 = 5, x2 = 3, z = 46
3

2
2x1 + 3x2 < 19
1

1 2 3 4 5 6 7 8 9 10
x1

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 Objective Function Coefficients

 Let us consider how changes in the objective function

coefficients might affect the optimal solution.
 The range of optimality for each coefficient provides the
range of values over which the current solution will
remain optimal.
 Managers should focus on those objective coefficients
that have a narrow range of optimality and coefficients
near the endpoints of the range.

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 Example 1

 Changing Slope of Objective Function

x2
8

5 5
4

3
Feasible 4
2
Region 3
1
1 2
1 2 3 4 5 6 7 8 9 10
x1

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 Range of Optimality

 Graphically, the limits of a range of optimality are

found by changing the slope of the objective function
line within the limits of the slopes of the binding
constraint lines.
 The slope of an objective function line, Max c1x1 + c2x2, is
-c1/c2, and the slope of a constraint, a1x1 + a2x2 = b, is -
a1/a2.

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 Example 1

 Range of Optimality for c1

The slope of the objective function line is -c1/c2.
The slope of the first binding constraint, x1 + x2 = 8, is -1
and the slope of the second binding constraint, 2 x1 + 3x2
= 19, is -2/3.
Find the range of values for c1 (with c2 staying 7)
such that the objective function line slope lies between
that of the two binding constraints:
-1 < -c1/7 < -2/3
Multiplying through by -7 (and reversing the
inequalities):
14/3 < c1 < 7

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 Example 1

 Range of Optimality for c2

Find the range of values for c2 ( with c1 staying 5)
such that the objective function line slope lies between
that of the two binding constraints:
-1 < -5/c2 < -2/3

Multiplying by -1: 1 > 5/c2 > 2/3

Inverting, 1 < c2/5 < 3/2

Multiplying by 5: 5 < c2 < 15/2

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 Right-Hand Sides

 Let us consider how a change in the right-hand side for

a constraint might affect the feasible region and perhaps
cause a change in the optimal solution.
 The improvement in the value of the optimal solution
per unit increase in the right-hand side is called the
dual price.
 The range of feasibility is the range over which the dual
price is applicable.
 As the RHS increases, other constraints will become
binding and limit the change in the value of the
objective function.

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 Dual Price

 Graphically, a dual price is determined by adding +1 to

the right hand side value in question and then resolving
for the optimal solution in terms of the same two
binding constraints.
 The dual price is equal to the difference in the values of
the objective functions between the new and original
problems.
 The dual price for a nonbinding constraint is 0.
 A negative dual price indicates that the objective
function will not improve if the RHS is increased.

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 Relevant Cost and Sunk Cost

 A resource cost is a relevant cost if the amount paid for

it is dependent upon the amount of the resource used
by the decision variables.
 Relevant costs are reflected in the objective function
coefficients.
 A resource cost is a sunk cost if it must be paid
regardless of the amount of the resource actually used
by the decision variables.
 Sunk resource costs are not reflected in the objective
function coefficients.

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 A Cautionary Note
on the Interpretation of Dual Prices
 Resource cost is sunk
The dual price is the maximum amount you should be
willing to pay for one additional unit of the resource.
 Resource cost is relevant
The dual price is the maximum premium over the
normal cost that you should be willing to pay for one
unit of the resource.

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 Example 1

 Dual Prices
Constraint 1: Since x1 < 6 is not a binding constraint,
its dual price is 0.
Constraint 2: Change the RHS value of the second
constraint to 20 and resolve for the optimal point
determined by the last two constraints:
2x1 + 3x2 = 20 and x1 + x2 = 8.
The solution is x1 = 4, x2 = 4, z = 48. Hence, the
dual price = znew - zold = 48 - 46 = 2.

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 Example 1

 Dual Prices
Constraint 3: Change the RHS value of the third
constraint to 9 and resolve for the optimal point
determined by the last two constraints: 2x1 + 3x2 =
19 and x1 + x2 = 9.
The solution is: x1 = 8, x2 = 1, z = 47.
The dual price is znew - zold = 47 - 46 = 1.

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 Range of Feasibility

 The range of feasibility for a change in the right hand

side value is the range of values for this coefficient in
which the original dual price remains constant.
 Graphically, the range of feasibility is determined by
finding the values of a right hand side coefficient such
that the same two lines that determined the original
optimal solution continue to determine the optimal
solution for the problem.

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 Example 2: Olympic Bike Co.

Olympic Bike is introducing two new lightweight

bicycle frames, the Deluxe and the Professional, to be
made from special aluminum and steel alloys. The
anticipated unit profits are $10 for the Deluxe and $15 for
the Professional. The number of pounds of each alloy
needed per frame is summarized below. A supplier
delivers 100 pounds of the aluminum alloy and 80
pounds of the steel alloy weekly.
Aluminum Alloy Steel Alloy
Deluxe 2 3
Professional 4 2
How many Deluxe and Professional frames
should Olympic produce each week?

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 Example 2: Olympic Bike Co.

 Model Formulation
•Verbal Statement of the Objective Function
Maximize total weekly profit.
•Verbal Statement of the Constraints
Total weekly usage of aluminum alloy < 100 pounds.
Total weekly usage of steel alloy < 80 pounds.
•Definition of the Decision Variables
x1 = number of Deluxe frames produced weekly.
x2 = number of Professional frames produced weekly.

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 Example 2: Olympic Bike Co.

 Model Formulation (continued)

Max 10x1 + 15x2 (Total Weekly Profit)

s.t. 2x1 + 4x2 < 100 (Aluminum Available)

3x1 + 2x2 < 80 (Steel Available)

x1, x2 > 0

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 Example 2: Olympic Bike Co.

 Optimal Solution

According to the output:

x1 (Deluxe frames) = 15
x2 (Professional frames) = 17.5
Objective function value = $412.50

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 Chapter 4
Linear Programming Applications
 Blending Problem
 Portfolio Planning Problem
 Product Mix Problem
 Transportation Problem
 Data Envelopment Analysis

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 Blending Problem

Frederick's Feed Company receives four raw

grains from which it blends its dry pet food. The pet
food advertises that each 8-ounce can meets the
minimum daily requirements for vitamin C, protein
and iron. The cost of each raw grain as well as the
vitamin C, protein, and iron units per pound of each
grain are summarized on the next slide.
Frederick's is interested in producing the 8-ounce
mixture at minimum cost while meeting the minimum
daily requirements of 6 units of vitamin C, 5 units of
protein, and 5 units of iron.

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 Blending Problem

Vitamin C Protein Iron

Grain Units/lb Units/lb Units/lb Cost/lb

1 9 12 0 .75
2 16 10 14 .90
3 8 10 15 .80
4 10 8 7 .70

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 Blending Problem

 Define the decision variables

xj = the pounds of grain j (j = 1,2,3,4)

used in the 8-ounce mixture

 Define the objective function

Minimize the total cost for an 8-ounce mixture:

MIN .75x1 + .90x2 + .80x3 + .70x4

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 Blending Problem

 Define the constraints

Total weight of the mix is 8-ounces (.5 pounds):
(1) x1 + x2 + x3 + x4 = .5
Total amount of Vitamin C in the mix is at least 6 units:
(2) 9x1 + 16x2 + 8x3 + 10x4 > 6
Total amount of protein in the mix is at least 5 units:
(3) 12x1 + 10x2 + 10x3 + 8x4 > 5
Total amount of iron in the mix is at least 5 units:
(4) 14x2 + 15x3 + 7x4 > 5
Nonnegativity of variables: xj > 0 for all j

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 Blending Problem

 Sulution

Thus, the optimal blend is about .10 lb. of grain 1, .21 lb.
of grain 2, .09 lb. of grain 3, and .10 lb. of grain 4. The
mixture costs Frederick’s 40.6 cents.

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 Portfolio Planning Problem

Winslow Savings has $20 million available for

investment. It wishes to invest over the next four
months in such a way that it will maximize the total
interest earned over the four month period as well as
have at least $10 million available at the start of the fifth
month for a high rise building venture in which it will
be participating.

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 Portfolio Planning Problem

For the time being, Winslow wishes to invest

only in 2-month government bonds (earning 2% over
the 2-month period) and 3-month construction loans
(earning 6% over the 3-month period). Each of these is
available each month for investment. Funds not
invested in these two investments are liquid and earn
3/4 of 1% per month when invested locally.

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 Portfolio Planning Problem

Formulate a linear program that will help

Winslow Savings determine how to invest over the next
four months if at no time does it wish to have more
than $8 million in either government bonds or
construction loans.

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 Portfolio Planning Problem

 Define the decision variables

gj = amount of new investment in

government bonds in month j
cj = amount of new investment in
construction loans in month j
lj = amount invested locally in month j,
where j = 1,2,3,4

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 Portfolio Planning Problem

 Define the objective function

Maximize total interest earned over the 4-month period.

MAX (interest rate on investment)(amount invested)
MAX .02g1 + .02g2 + .02g3 + .02g4
+ .06c1 + .06c2 + .06c3 + .06c4
+ .0075l1 + .0075l2 + .0075l3 + .0075l4

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 Portfolio Planning Problem

 Define the constraints

Month 1's total investment limited to $20 million:

(1) g1 + c1 + l1 = 20,000,000

Month 2's total investment limited to principle and

interest invested locally in Month 1:
(2) g2 + c2 + l2 = 1.0075l1
or g2 + c2 - 1.0075l1 + l2 = 0

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 Portfolio Planning Problem

 Define the constraints (continued)

Month 3's total investment amount limited to principle

and interest invested in government bonds in Month 1
and locally invested in Month 2:
(3) g3 + c3 + l3 = 1.02g1 + 1.0075l2
or - 1.02g1 + g3 + c3 - 1.0075l2 + l3 = 0

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 Portfolio Planning Problem

 Define the constraints (continued)

Month 4's total investment limited to principle and

interest invested in construction loans in Month 1,
goverment bonds in Month 2, and locally invested in
Month 3:
(4) g4 + c4 + l4 = 1.06c1 + 1.02g2 + 1.0075l3
or - 1.02g2 + g4 - 1.06c1 + c4 - 1.0075l3 + l4 = 0

$10 million must be available at start of Month 5:

(5) 1.06c2 + 1.02g3 + 1.0075l4 > 10,000,000

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 Portfolio Planning Problem

 Define the constraints (continued)

No more than $8 million in government bonds at any

time:
(6) g1 < 8,000,000
(7) g1 + g2 < 8,000,000
(8) g2 + g3 < 8,000,000
(9) g3 + g4 < 8,000,000

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 Portfolio Planning Problem

 Define the constraints (continued)

No more than $8 million in construction loans at any

time:
(10) c1 < 8,000,000
(11) c1 + c2 < 8,000,000
(12) c1 + c2 + c3 < 8,000,000
(13) c2 + c3 + c4 < 8,000,000

Nonnegativity: gj, cj, lj > 0 for j = 1,2,3,4

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 Problem: Floataway Tours

Floataway Tours has $420,000 that may be used

to purchase new rental boats for hire during the
summer. The boats can be purchased from two
different manufacturers. Floataway Tours would like
to purchase at least 50 boats and would like to
purchase the same number from Sleekboat as from
Racer to maintain goodwill. At the same time,
Floataway Tours wishes to have a total seating capacity
of at least 200.
Pertinent data concerning the boats are
summarized on the next slide. Formulate this problem
as a linear program.

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 Problem: Floataway Tours

 Data

Maximum Expected
Boat Builder Cost Seating Daily Profit
Speedhawk Sleekboat $6000 3 $ 70
Silverbird Sleekboat $7000 5 $ 80
Catman Racer $5000 2 $ 50
Classy Racer $9000 6 $110

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 Problem: Floataway Tours

 Define the decision variables

x1 = number of Speedhawks ordered
x2 = number of Silverbirds ordered
x3 = number of Catmans ordered
x4 = number of Classys ordered
 Define the objective function
Maximize total expected daily profit:
Max: (Expected daily profit per unit)
x (Number of units)
Max: 70x1 + 80x2 + 50x3 + 110x4

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 Problem: Floataway Tours

 Define the constraints

(1) Spend no more than $420,000:
6000x1 + 7000x2 + 5000x3 + 9000x4 < 420,000
(2) Purchase at least 50 boats:
x1 + x2 + x3 + x4 > 50
(3) Number of boats from Sleekboat equals number
of boats from Racer:
x1 + x2 = x3 + x4 or x1 + x2 - x3 - x4 = 0

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 Problem: Floataway Tours

 Define the constraints (continued)

(4) Capacity at least 200:
3x1 + 5x2 + 2x3 + 6x4 > 200

Nonnegativity of variables:
xj > 0, for j = 1,2,3,4

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 Problem: Floataway Tours

 Complete Formulation

Max 70x1 + 80x2 + 50x3 + 110x4

s.t.
6000x1 + 7000x2 + 5000x3 + 9000x4 < 420,000
x1 + x2 + x3 + x4 > 50
x1 + x2 - x3 - x4 = 0
3x1 + 5x2 + 2x3 + 6x4 > 200

x1, x2, x3, x4 > 0

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 Problem: Floataway Tours

 Solution Summary
•Purchase 28 Speedhawks from Sleekboat.
•Purchase 28 Classy’s from Racer.
•Total expected daily profit is $5,040.00.
•The minimum number of boats was exceeded by 6
(surplus for constraint #2).
•The minimum seating capacity was exceeded by 52
(surplus for constraint #4).

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 Problem: U.S. Navy

The Navy has 9,000 pounds of material in

Albany, Georgia which it wishes to ship to three
installations: San Diego, Norfolk, and Pensacola. They
require 4,000, 2,500, and 2,500 pounds, respectively.
Government regulations require equal distribution of
shipping among the three carriers.
The shipping costs per pound for truck, railroad,
and airplane transit are shown on the next slide.
Formulate and solve a linear program to determine the
shipping arrangements (mode, destination, and
quantity) that will minimize the total shipping cost.

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 Problem: U.S. Navy

 Data

Destination
Mode San Diego Norfolk
Pensacola
Truck $12 $6 $5
Railroad 20 11 9
Airplane 30 26 28

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 Problem: U.S. Navy

 Define the Decision Variables

We want to determine the pounds of material, xij , to

be shipped by mode i to destination j. The following
table summarizes the decision variables:

San Diego Norfolk Pensacola

Truck x11 x12 x13
Railroad x21 x22 x23
Airplane x31 x32 x33

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 Problem: U.S. Navy

 Define the Objective Function

Minimize the total shipping cost.
Min: (shipping cost per pound for each mode per
destination pairing) x (number of pounds shipped by
mode per destination pairing).
Min: 12x11 + 6x12 + 5x13 + 20x21 + 11x22 + 9x23
+ 30x31 + 26x32 + 28x33

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 Problem: U.S. Navy

 Define the Constraints

Equal use of transportation modes:
(1) x11 + x12 + x13 = 3000
(2) x21 + x22 + x23 = 3000
(3) x31 + x32 + x33 = 3000
Destination material requirements:
(4) x11 + x21 + x31 = 4000
(5) x12 + x22 + x32 = 2500
(6) x13 + x23 + x33 = 2500
Nonnegativity of variables:
xij > 0, i = 1,2,3 and j = 1,2,3
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 Problem: U.S. Navy

 Solution Summary
•San Diego will receive 1000 lbs. by truck
and 3000 lbs. by airplane.
•Norfolk will receive 2000 lbs. by truck
and 500 lbs. by railroad.
•Pensacola will receive 2500 lbs. by railroad.
•The total shipping cost will be $142,000.

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 Data Envelopment Analysis

 Data envelopment analysis (DEA) is an LP application

used to determine the relative operating efficiency of
units with the same goals and objectives.
 DEA creates a fictitious composite unit made up of an
optimal weighted average (W1, W2,…) of existing units.
 An individual unit, k, can be compared by determining
E, the fraction of unit k’s input resources required by
the optimal composite unit.
 If E < 1, unit k is less efficient than the composite unit
and be deemed relatively inefficient.
 If E = 1, there is no evidence that unit k is inefficient, but
one cannot conclude that k is absolutely efficient.

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 Data Envelopment Analysis

 The DEA Model

MIN E
s.t. Weighted outputs > Unit k’s output
(for each measured output)
Weighted inputs < E [Unit k’s input]
(for each measured input)
Sum of weights = 1
E, weights > 0

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 DEA Example: Roosevelt High

The Langley County School District is trying to

determine the relative efficiency of its three high
schools. In particular, it wants to evaluate Roosevelt
High School.
The district is evaluating performances on SAT
scores, the number of seniors finishing high school, and
the number of students who enter college as a function
of the number of teachers teaching senior classes, the
prorated budget for senior instruction, and the number
of students in the senior class.

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 DEA Example: Roosevelt High

 Input

Roosevelt Lincoln
Washington
Senior Faculty 37 25 23
Budget ($100,000's) 6.4 5.0 4.7
Senior Enrollments 850 700 600

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 DEA Example: Roosevelt High

 Output

Roosevelt Lincoln
Washington
Average SAT Score 800 830 900
High School Graduates 450 500 400
College Admissions 140 250 370

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 DEA Example: Roosevelt High

 Decision Variables

E = Fraction of Roosevelt's input resources required by

the composite high school
w1 = Weight applied to Roosevelt's input/output
resources by the composite high school
w2 = Weight applied to Lincoln’s input/output
resources by the composite high school
w3 = Weight applied to Washington's input/output
resources by the composite high school

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 DEA Example: Roosevelt High

 Objective Function

Minimize the fraction of Roosevelt High School's input

resources required by the composite high school:

MIN E

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 DEA Example: Roosevelt High

 Constraints
Sum of the Weights is 1:
(1) w1 + w2 + w3 = 1

Output Constraints:
Since w1 = 1 is possible, each output of the composite
school must be at least as great as that of Roosevelt:
(2) 800w1 + 830w2 + 900w3 > 800 (SAT Scores)
(3) 450w1 + 500w2 + 400w3 > 450 (Graduates)
(4) 140w1 + 250w2 + 370w3 > 140 (College Admissions)

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 DEA Example: Roosevelt High

 Constraints
Input Constraints:
The input resources available to the composite school is
a fractional multiple, E, of the resources available to
Roosevelt. Since the composite high school cannot use
more input than that available to it, the input
constraints are:
(5) 37w1 + 25w2 + 23w3 < 37E (Faculty)
(6) 6.4w1 + 5.0w2 + 4.7w3 < 6.4E (Budget)
(7) 850w1 + 700w2 + 600w3 < 850E (Seniors)
Nonnegativity of variables:
E, w1, w2, w3 > 0

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 DEA Example: Roosevelt High

 Conclusion
The output shows that the composite school is
made up of equal weights of Lincoln and Washington.
Roosevelt is 76.5% efficient compared to this composite
school when measured by college admissions (because
of the 0 slack on this constraint (#4)). It is less than
76.5% efficient when using measures of SAT scores and
high school graduates (there is positive slack in
constraints 2 and 3.)

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