Program: Optimization and Decision

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, Swarm optimization (ants, wasps, etc.)
9. Decision Analysis: Decision Trees. Utility Theory.
10. Aplications in engineering and managment.
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
Joo Miguel da Costa Sousa / Alexandra Moutinho
Bibliography
Assessment Process
Exam (minimum grade: 9,5 / 20);
Project (minimum grade: 9,5 / 20):
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.
projects assignment: between 2 and 5 December;

projects deadline: 7 January;
Resume of 1 theoretical class / chapter:

presented and delivered the following class;
Work Assignments #1 and #2:

due the following class;
Final Grade = 0,5 * Exam + 0,2 * Project

+ 0.1 * Resume + 0.2*(WA#1+WA#2)/2.
Origins of Operations Research
INTRODUCTION
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).
Roots of operations research
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.
Two main factors for rapid growth of OR:

1. Large progress in improving the OR techniques
during the war.

2. The computer revolution: a large amount of

computation is required to deal with OR problems.
Nature of Operations Research
OR is applied to conduct and coordinate operations

(i.e., the activities) within an organization.
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:
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.
mathematics, statistics and probability theory, economics,

business administration, computer science, engineering
and physical sciences, behavioral sciences and the special
techniques of OR.
Formulate the problem, including gathering data; construct

a model; conduct experiments; validate the model.
OR is also concerned with management and decision
making.
9
Impact of Operations Research
10
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).
During the 80s, the PC and related OR software brought

the use of OR to a much larger number of people. Today
Nature of Operations Research
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.
11
Organization
Application
Year of pub.
Annual savings
The Netherlands
Rijkwaterstaat
Develop national water

management policy, including mix
facilities, operating procedures and
pricing.
1985
$15 million
Citgo Petroleum
Corporation
Optimize refinery oper., supply,

distribution and marketing of
products.
1987
$70 million
San Francisco Police Optimally schedule and deploy

Dept.
police patrol officers.
1989
$11 million
China
Optimally select and schedule

massive projects for meeting the
countrys future energy needs.
1995
$425 million
Samsung
Electronics
Develop methods of reducing manufacturing times and inventory levels.
2001
$200 million more

revenue
Continental Airlines
Optimize reassignment of crews to

flights when a disruption occurs.
2003
$40 million
12
Algorithms and Courseware

Algorithm a systematic solution procedure for
solving a particular type of problem.
OR Courseware of Hilliers book and CD-ROM.

OPERATIONS RESEARCH
MODELING APPROACH
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.
13
Phases of an OR study
1. Defining the problem
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.
15
1. Defining the problem
16
1. Gathering relevant data
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.
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.
17
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.
18
1. Example: Police Department
2. Formulating a model
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).
19
2. Formulating a model
21
3. Deriving solutions
20
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.
22
3. Sensitivity analysis
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.
3. Deriving solutions from the 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.
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.
23
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.
24
4. Testing the model
4. Examples
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.
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.
25
5. Preparing to apply the model
26
6. Implementation
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).
In the Netherlands Rijkwaterstaat study, model

validation had three main parts:
27
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.
28
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.
29

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Program

1. Introduction to optimization. Introduction to Operations

Joo Miguel da Costa Sousa / Alexandra Moutinho

F. Hillier and G. Lieberman. Introduction to Operations

J. Kennedy, R. C. Eberhart and Y. Shi. Swarm Intelligence.

projects assignment: between 2 and 5 December;

Resume of 1 theoretical class / chapter:

Work Assignments #1 and #2:

Final Grade = 0,5 * Exam + 0,2 * Project

Origins of Operations Research

As the complexity and specialization in an

Joo Miguel da Costa Sousa / Alexandra Moutinho

Roots of operations research

Roots of operations research

Military services early in World War II.

After the WW II, it became apparent that problems

Two main factors for rapid growth of OR:

2. The computer revolution: a large amount of

Nature of Operations Research

OR is applied to conduct and coordinate operations

OR attempts to find a best (optimal) solution;

Applied to many areas: manufacturing, transportation,

OR uses techniques resembling the way research is

mathematics, statistics and probability theory, economics,

Formulate the problem, including gathering data; construct

Joo Miguel da Costa Sousa / Alexandra Moutinho

Impact of Operations Research

Impact of Operations Research

Improvement of efficiency in numerous organizations

During the 80s, the PC and related OR software brought

Joo Miguel da Costa Sousa / Alexandra Moutinho

Nature of Operations Research

Joo Miguel da Costa Sousa / Alexandra Moutinho

An example is the development of the simplex method (G.

Develop national water

Optimize refinery oper., supply,

San Francisco Police Optimally schedule and deploy

Optimally select and schedule

Develop methods of reducing manufacturing times and inventory levels.

$200 million more

Optimize reassignment of crews to

Joo Miguel da Costa Sousa / Alexandra Moutinho

Algorithms and Courseware

OR Tutor teach the algorithms

We will mostly use Excel and MATLAB (optimization

1. Defining the problem

1. Define the problem and gather relevant data.

1. Defining the problem

Joo Miguel da Costa Sousa / Alexandra Moutinho

1. Gathering relevant data

For profit making organizations, objective can be the

Practical problems are initially described in a vague,

Data is needed to understand the problem and as

Joo Miguel da Costa Sousa / Alexandra Moutinho

1. Example: Police Department

Recall the San Francisco PD problem.

Develop a (computer-based) procedure for deriving

Joo Miguel da Costa Sousa / Alexandra Moutinho

OR seeks for optimal solutions, but time or cost

Joo Miguel da Costa Sousa / Alexandra Moutinho

3. Deriving solutions from the model

Linear programming model is often used. It can be

Mathematical models are idealized representations.