OPTIMIZAO E DECISO OPTIMIZATION AND DECISION

Joo Miguel da Costa Sousa Alexandra Moutinho

Instituto Superior Tcnico, Dep. Engenharia Mecnica Seco de Sistemas, Grupo de Controlo Automao e Robtica Pav. Eng. Mecnica III, 1049001 Lisboa, Portugal Tel.: (+351)218417471/7, e-mail:{j.sousa,moutinho}@dem.ist.utl.pt

Program
1. Introduction to optimization. Introduction to Operations Research. 2. Linear Programming: Simplex. Duality Theory and Sensitivity Analysis. 3. Transportation and Assignment Problems 4. Network Optimization Models 5. Dynamic Programming 6. Integer Programming 7. Nonlinear Programming:Quadratic Programming. Convex Programming. 8. Metaheuristics: Tabu search, Simulated annealing, Genetic Algorithms, Ant Colony Optimization. 9. Game Theory NEW! 10. Decision Analysis: Decision Trees. Utility Theory.
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Bibliography
F. Hillier and G. Lieberman. Introduction to Operations Research, 8th Edition. McGrawHill, 2005.
http://highered.mcgraw-hill.com/sites/0073017795/information_center_view0/

J. Kennedy, R. C. Eberhart and Y. Shi. Swarm Intelligence. Morgan Kaufmann Publishers, 2002. Marco Dorigo and Thomas Sttzle. Ant Colony Optimization. The MIT Press. July 2004. R. Fletcher. Practical Methods of Optimization, 2nd Edition, John Wiley, 2000. J. Nocedal and S.Wright. Numerical Optimization. Springer, 1999. Michael Pinedo. Scheduling. Theory, Algorithms and Systems, 2nd Edition, Prentice Hall, 2002.
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Assessment Process
Exam (minimum grade: 9,5 / 20); Project (minimum grade: 9,5 / 20):
project assignment: 5 November; project deadline: 11 December; oral presentation: between 14 and 18 December.

Final Grade = 0,7 * Exam + 0,3 * Project Requested effort (see Planning).

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INTRODUCTION

Origins of Operations Research

As the complexity and specialization in an organization increase, it becomes more and more difficult to allocate available resources to the various activities in a way that is most effective for the organization as a whole. This kind of problems and the need to find a way to solve them provided the environment for the emergence of operations research (OR).

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Roots of operations research

Military services early in World War II.
Urgent need to allocate scarce resources to operations and activities in an effective manner. Scientists were asked to do research on (military) operations. Examples: Effective methods of using radars to win the Air Battle of Britain Better management of convoy and antisubmarine operations to win the Battle of North Atlantic.

After the WW II, it became apparent that problems caused by increasing complexity and specialization in organizations required the same tools.
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Roots of operations research

Two main factors for rapid growth of OR: 1. Large progress in improving the OR techniques during the war.
An example is the development of the simplex method (G. Dantzig, 1947) for solving linear programming problems. Many standard OR tools were developed before the 50s.

2. The computer revolution: a large amount of computation is required to deal with OR problems.
During the 80s, the PC and related OR software brought the use of OR to a much larger number of people. Today
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Nature of Operations Research

OR is applied to conduct and coordinate operations (i.e., the activities) within an organization.
Applied to many areas: manufacturing, transportation, construction, telecommunications, financial planning, health care, military, public services, etc, etc.

OR uses techniques resembling the way research is conducted in many scientific fields.
Formulate the problem, including gathering data; construct a model; conduct experiments; validate the model. OR is also concerned with management and decision making.
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Nature of Operations Research

OR attempts to find a best (optimal) solution; search for optimality is an important theme in OR. As OR requires many and broad aspects, it is usually necessary to use a team approach, including areas such as:
mathematics, statistics and probability theory, economics, business administration, computer science, engineering and physical sciences, behavioral sciences and the special techniques of OR.

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Impact of Operations Research

Improvement of efficiency in numerous organizations around the world, and improving economy. IFORS (International Federation of Operations Research Societies) and INFORMS (Institute for Operations Research and the Management Sciences). INFORMS has many journals, including Interfaces. Next table presents some examples of award-winning applications reported in Interfaces (to see more details see page 4 of Hilliers book).
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Impact of Operations Research

Organization The Netherlands Rijkwaterstaat Application Develop national water management policy, including mix facilities, operating procedures and pricing. Optimize refinery oper., supply, distribution and marketing of products. Year of pub. 1985 Annual savings $15 million

Citgo Petroleum Corporation

1987

$70 million

San Francisco Police Optimally schedule and deploy Dept. police patrol officers. China Optimally select and schedule massive projects for meeting the countrys future energy needs. Develop methods of reducing manufacturing times and inventory levels. Optimize reassignment of crews to flights when a disruption occurs.

1989 1995

$11 million $425 million

Samsung Electronics Continental Airlines

2001 2003

$200 million more revenue $40 million

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Algorithms and Courseware

Algorithm a systematic solution procedure for solving a particular type of problem. OR Courseware of Hilliers book and CD-ROM.
OR Tutor teach the algorithms IOR Tutorial (implemented in Java) Excel Solver or Premium Solver for Education LINDO and modeling language LINGO CPLEX and modeling system MPL elite state-of-the-art software package for large and challenging OR problems.

We will mostly use Excel and MATLAB (optimization toolbox) for solving optimization problems.
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OPERATIONS RESEARCH MODELING APPROACH

Phases of an OR study
1. Define the problem and gather relevant data. 2. Formulate a mathematical model for the problem. 3. Develop a computer algorithm for deriving solutions to the problem from the model. 4. Test the model and refine it as needed. 5. Prepare the ongoing application of the model as prescribed by management. 6. Implement. Usually some cycles are necessary.
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1. Defining the problem

Practical problems are initially described in a vague, imprecise way. OR teams work in an advisory capacity: they dont only solve the problem, they also advise management. To be completely sure about the appropriate objectives (together with the management) is an important aspect. Objectives should be as specific as possible, but consistent with high-level objectives of the organization.
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1. Defining the problem

For profit making organizations, objective can be the long-run profit maximization (including R&D). In practice, this is not enough, and must be combined with other objectives, such as: improve worker morale or increase company prestige. Five parties affected by a firm: owners, employees, customers, suppliers and government (nation). Besides making profit, a company has broader social responsibilities that must also be recognized.
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1. Gathering relevant data

Data is needed to understand the problem and as input for the mathematical model. Often it is necessary to install a management information system to deal with the necessary data. Much of the data is quite soft (rough estimates). Biggest data problem: too many data is available (gigabytes or terabytes). Data mining is often required to deal with the data.

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1. Example: Police Department

Recall the San Francisco PD problem. New system provided annual savings of $11 million, annual increase of $3 million in traffic citation revenues, and 20% improvement of response times. Appropriate objectives found for this study:
1. Maintain a high level of citizen safety (establish desired level of protection). 2. Maintain a high level of officer morale (balance workload equitable amongst officers). 3. Maintain the cost of operation (minimizing number of officers to satisfy objectives 1 and 2).
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2. Formulating a model
Mathematical models are idealized representations. Decision variables: x1, x2,, xn. Objective (cost) function: J = f (x1, x2,, xn). Constraints: example; x1 + 3x2 x1 x5 20 Constants in the objective function and constraints are called parameters. Determining values for the parameters is crucial. These values are based on data and can be uncertain. Thus, a sensitivity analysis is necessary.
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2. Formulating a model
Linear programming model is often used. It can be applied to very different problems. Models are an abstract idealization of the problem. Models must be tractable (capable of being solved). To assure high correlation between predictions of the model and real world data, testing and model validation must be performed. Measure of performance combining the multiple objectives is needed.
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3. Deriving solutions from the model

Develop a (computer-based) procedure for deriving solutions to the problem from the model. Sometimes, one of the standard algorithms is applied using readily available software packages. Search for an optimal (best) solution for the model. Herbert Simon (Nobel Laureate) points out that satisficing (= satisfactory and optimizing) is much more prevalent than optimizing in practice.

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3. Deriving solutions
OR seeks for optimal solutions, but time or cost restrictions may demand for heuristic procedures to find good suboptimal solutions. Recently, efficient and effective meta-heuristics have been developed for designing heuristics for particular types of problems. One solution is commonly not enough, so postoptimal analysis is needed to find alternative solutions. Post-optimal analysis demands for sensitivity analysis.
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3. Sensitivity analysis
Sensitive parameter:
For a mathematical model with specified values for all its parameters, the models sensitive parameters are the parameters whose value cannot be changed without changing the optimal solution.

Post-optimality analysis involves obtaining several solutions that contain improved approximations. This cycle is repeated until the improvements in the succeeding solutions become too small to warrant continuation.
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4. Testing the model

Developing a large mathematical model is analogous to developing a large computer program:
First version of computer program contain many bugs that are corrected by thoroughly testing the program. First version of mathematical program contain many flaws and some parameters have not been estimated correctly. Small bugs can remain in the program or model.

This process of testing and improving a model is known as model validation. Revision of a complete model must include an outsider.
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4. Examples
In the Netherlands Rijkwaterstaat study, model validation had three main parts:
Checking results of the 50 models for changes in parameters. Retrospective tests (use of historical data to reconstruct the past) were done. Careful technical review of model, methodology and results by experts unaffiliated with the project.

In the Citgo Petroleum Corp. study, model of refinery operations was tested using input and output data for a series of months to fix the model inputs.
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5. Preparing to apply the model

When model is ready, install a well documented system for applying it as prescribed by management. Inputs for the model can be obtained from databases or information systems. If interactivity is needed, a decision support system is installed to help managers in their decision making. DSS can take months (or longer) to be implemented. Example: Continental Airlines developed the decision support system CrewSolver (it was running on September 11, 2001).
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6. Implementation
Phases:
OR team gives management an explanation of the system. These two parties share the responsibility for developing procedures to put the system in operation. Personal involved is indoctrinated, and system is initiated.

Feedback when system is in use is essential to evaluate model. Documentation is crucial to ensure reproducibility. Crucial for studies of controversial public policies.
Example: studies for localization of future Lisbon airport.
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Discussion
This discipline focuses on constructing and solving mathematical models, but these are only part of the overall process of an optimization study. Optimization is deeply intertwined with the use of computers. There are many exceptions to the rules prescribed: OR requires considerable ingenuity and innovation.

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