Beruflich Dokumente
Kultur Dokumente
REVENUE MANAGEMENT
PROJECT
IE6560
PRESENTED TO: PROFESSOR EVRIM DALKIRAN
DONE BY:
Contents
Introduction .................................................................................................................................................. 2
Overview of the Project ............................................................................................................................ 2
Purpose of the Project .............................................................................................................................. 3
Literature Review .......................................................................................................................................... 3
Model versus Real Life Scenario ................................................................................................................... 7
Models Results ............................................................................................................................................. 8
For fall ....................................................................................................................................................... 8
For winter.................................................................................................................................................. 9
Optimal Revenue .................................................................................................................................... 10
Result Analysis ............................................................................................................................................ 10
Xij Constraints ......................................................................................................................................... 10
Fall Capacity Constraints ......................................................................................................................... 11
Winter Capacity ...................................................................................................................................... 12
Quality Constraints ................................................................................................................................. 13
Conclusion and Future Direction ................................................................................................................ 13
Appendix-A.................................................................................................................................................. 15
Appendix-B .................................................................................................................................................. 16
References .................................................................................................................................................. 18
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Introduction
Overview of the Project
Wayne State University Office of Housing & Residential Life is responsible for the
management of student housing in and around the main campus. The advantages for students
living on main campus housing provided by the WSU Office of Housing & Residential Life is
that it has close proximity to facilities like classes, libraries, recreational facilities, cafeterias,
student center, etc. These advantages have led to increasing Wayne State University student
community living on-campus, which proved to be having a positive impact in their life styles and
careers with both personal and academic success. With the increasing demand of students to live
on-campus, Wayne State University has increased its available housing options on-campus over
the past decade. There are a total of six housing options for the students to choose from as listed
below.
Chatsworth Apartments
Towers Residential Suites
De Roy Apartments
University Towers
Ghafari Hall
Atchison Hall
The Chatsworth Tower apartment is a historic building from 1929. It is a graceful 9-story
apartment building with turn-of-the-century elegance, which is located in the heart of campus on
Williams Mall. Chatsworth Tower offers three housing unit options to students: (a) studio units,
(b) one-bedroom units, and (c) two-bedroom units. The Towers Residential Suites is an 11-story
apartment building with views as far as the Ambassador Bridge. The Towers Residential Suites
offers mainly suite style rooms, containing up to four bedrooms attached to a shared living space.
There are only a limited number of single rooms in the Towers Residential Suites. The Deroy
apartments, was first built in 1972 and later renovated in 2010. It is a 15-story building located in
the heart of campus near the student center building and undergraduate library. This building
offers two housing unit options to students: (a) one-bedroom units and (b) two-bedroom units.
The University Tower apartment is the newest apartment building on-campus. It was opened in
1995, and comprises of a modern 11-story complex layout located approximately one block
south of Forest Avenue at the southern edge of main campus and just west of the School of
Medicine. The University Towers offers three housing unit options to students: (a) one-bedroom
units, (b) two-bedroom units, and (c) three-bedroom units. The Ghafari Hall opened in 2002,
provides housing for freshmen and upperclass students. The Ghafari Hall offers three housing
unit options to students: (a) one-bedroom units, (b) two-bedroom units, and (c) three-bedroom
units. The Atchison Hall opened in 2003 provides housing for freshmen and upperclass students.
The Atchison Hall also offers three housing unit options to students: (a) one-bedroom units, (b)
two-bedroom units, and (c) three-bedroom units.
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Literature Review
Revenue management is the art and science of selling the right product to the right customer at
the right time for the right price, through a combination of inventory controls and pricing (Cross
1997). Thus it is a network of decisions to be made regarding price allocation of each room type,
students allocations to rooms, and duration of the allocation. Optimal revenues are normally
obtained by looking at demand requirements and optimal prizing (Song et al. 2013). Hanwu and
Peng (2010) noted that the revenue of an economy hotel with a level k at branch b may be
maximized using Raeside and Windle (2000) suggested methodology.
Hanwu and Peng (2010) formulated revenue maximization over a booking time-period q as
the summation of the products of (a) average revenue gained by bookings and (b) the number
of accepted bookings (decision variables: accept or not),
Subjected to the constraints of
th
i. the number of rooms available on k levels at branch b,
ii. the number of rooms that branch b can provide,
iii. the total number of rooms that the city can provide,
iv. an assumption of no check-outs/stay-overs accumulated on day 0 initially,
th
v. the number of rooms available on k levels at branch b limited by extreme (lowend/high-end) conditions of non-negative bookings and maximum allowable
booking demand in time-period q, and
vi. the time-period q varying between 0 and total time T.
Refer to the Appendix-A section for the corresponding equations.
However, in the case of Wayne State Housing department, the prices of the rooms must be fixed
throughout the year and are allowed to change in a very small percentage from one year to
another. Thus the decision variables of this type of problems will be restricted to assigning
option j for student I with contract type n to room type m. Consequently, the formulation
was shifted from revenue management model to an assignment model for room allotments. In
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this context, the study by Mahar et al. (2013) provided further insights into model formulation of
Wayne State Housing department objective function of room allotment.
Mahr et al. (2013) formulated maximizing the proportions of application persons as
the summation of the products of (a) applicant priority based on the user inputs of person i
with a project j, and (b) the number of accepted persons i to a trip j (decision variables:
accept or not),
Subjected to the constraints of
i. the total number of people needed for the trip j,
ii. lower and upper limits of total no. of applicants from a country k to trip j,
iii. lower and upper limits of total no. of applicants with job k to trip j,
iv. lower and upper limits of total no. of applicants from employee type k to trip j,
v. lower and upper limits of available no. of applicants from a country k to trip j,
vi. lower and upper limits of available no. of applicants with job k to trip j,
vii. lower and upper limits of available no. of female applicants to trip j,
viii. lower and upper limits of available no. of applicants from region a and employee
type k to trip j,
ix. lower and upper limits of total no. of applicants from region k,
x. lower and upper limits of total no. of applicants from region a and employee type
k,
xi. lower and upper limits of available no. of applicants from employee type k,
xii. lower and upper limits of available no. of applicants from region k,
xiii. lower and upper limits of available no. of female applicants,
xiv. All non-negative constraints
Refer to the Appendix-B section for the corresponding equations.
Inspired from this formulation, the WSU housing department problem will assume that each
applicant will have 3 choices, and the decision is which choice to accept for student i. The
department has the freedom to reject the student if necessary. However, the difference between
the two formulation lies in the objective function, the ELILILY formulation aims to maximize
the volunteers satisfaction level, however in the WSU formulation the aim is to maximize the
revenue subject to a satisfaction constraint that assures a minimum level of student satisfaction.
The fundamental equations related to model formulation of Wayne State Housing allotment
developed on the basis of Mahr et al. (2013) equations are discussed in detail in the Methodology
section.
MODEL FORMULATION
Due to high demand for On-Campus housing every year in Wayne State University, the housing
department collaborated with Industrial Engineering department to help them maximize their
revenue using Deterministic Optimization.
The main objective of our model is to maximize the revenue of WSU Housing Department by
allocating the rooms to students according to semester and annual demand during FALL and
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WINTER intake. This is an Assignment INTEGER PROGRAMMING model and is solved for
20 students, 14 of which are applying in the fall and the rest 6 are applying in the winter.
Students have the option of choosing 3 housing Priorities according to annual or semester
contract type among the 13 housing options offered by the university. Below is the table showing
the available housing options and rates according to the contract type.
2013-14
Annual
Fall
2013
Winter
2014
$7,200
$5,666
$3,800
$3,033
$3,800
$3,033
$4,444
$2,322
$2,322
$5,618
$2,909
$2,909
$7,414
$3,807
$3,807
$6,234
$3,217
$3,217
$6,462
$3,331
$3,331
$7,962
$6,410
$7,600
$4,081
$3,305
$3,900
$4,081
$3,305
$3,900
These rooms are allotted to students according to the contract choice i.e. Annual or
Semester. We also have a student satisfaction parameter where a certain standard of overall
satisfaction for students has to be maintained.
DECISION VARIABLES
Xij
Room Type (m)
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I = 1,2,3,4.18,19,20
J = 1,2,3,4
1 = Single Occupancy Towers
2 = Single Occupancy Atchison
3 = Single Occupancy Ghafari
4 = Single Occupancy Deroy
5 = Single Occupancy within suites(Towers)
6 = Double Occupancy Towers
7 = Double Occupancy Atchison
8 = Double Occupancy Ghafari
9 = Double Occupancy within suites(Towers)
10= Triple Occupancy Atchison
Rmn
Eijmn
Satisfaction rate Qij
CONSTRAINTS
Fall Capacity
15
4
<= Nm- 20
=15 =1 3
=1 =1 =1
20
Winter Capacity
=15 =1 =2
15
Fall Satisfaction
rate
4
<= Nm- 15
=1 =1 2
>= 0.75
=1
20
Winter
Satisfaction rate
>=0.75
=15
Decision
Constraint
=1
=1
OBJECTIVE FUNCTION :
Eijmn
This parameter is the most complicated input to our system. In short it is a mathematical way to
input the students choices to our formulation, so that the solver will know all of the students
preferences. For example if student 1 has its first priority as room type 3 and contract type 4
parameter E1134=1 and all of the rest E11mn parameters for all ms and ns will be equal to
zero. Thus for each student we will have 156 Es accounting for all 3 options and room type plus
contract type combinations.
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Rmn
As there are 13 types of housing options available, the rates are determined by housing
department according to semester or annual contract. The rates chart is listed above.
Rmn denotes the room rate (m) for contract type (n) offered by the department.
Qij
Wayne State University prides itself on its high level of student satisfaction
In all aspects of services. University housing is under no exception in terms of student
satisfaction in allocation of rooms. Satisfaction rate is given on a scale of 0 to 1 where it is 1
when student is assigned to his first choice, 0.7 when assigned to his second choice, 0.5 if
assigned to his third choice and 0 if no choice is allotted. Housing department aim is to maintain
a minimum standard of 0.75 on an average scale.
from year to year. Therefore, the assignment for the current winter semester are the same as that
of the previous winter. The Model will be solved for a time period equal to 1 year, and will be
applied to the rest of the years on a cycle basis.
This simplification has caused us an inaccuracy problem especially when it comes to estimating
the room capacity for each type of rooms. The data we obtained from the housing department
concerning the number of available rooms, can be applied to the real demand which exceeds
2000 students. Therefore, in order to make these parameters applicable to this projects model,
we need to multiply them by a reducing factor= 20/2000=0.01, and the round up to an integer
value.
Models Results
Solving the excel model of this assignment problem had generated the results listed in the table
below.
For fall
Student
1
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Name
x11
x12
x13
x14
x21
x22
x23
x24
x31
x32
x33
x34
x41
x42
x43
x44
x51
x52
x53
x54
x61
x62
x63
x64
x71
x72
Final Value
0
0
1
0
0
0
1
0
1
0
0
0
1
0
0
0
1
0
0
0
1
0
0
0
1
0
x73
x74
x81
x82
x83
x84
x91
x92
x93
x94
x101
x102
x103
x104
x111
x112
x113
x114
x121
x122
x123
x124
x131
x132
x133
x134
x141
x142
x143
x144
10
11
12
13
14
0
0
1
0
0
0
1
0
0
0
1
0
0
0
0
0
0
1
1
0
0
0
1
0
0
0
0
0
0
1
Two student from fall applicants 11 and 14 were rejected, as for the rest most of them were given
their first priority, students 3,4,5,6,7,8,9,10,12,13. And only students 1 and 2 were given their 3rd
choice.
Thus the rejection ratio for fall was 2/14 which is interpreted in real life as, from every 14
students applying the department will be rejecting 2. This ratio may defer in real cases depending
on the choices of the students.
For winter
Student
Name
Value
15
x151
x152
x153
x154
x161
1
0
0
0
0
16
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17
18
19
20
x162
x163
x164
x171
x172
x173
x174
x181
x182
x183
x184
x191
x192
x193
x194
x201
x202
x203
x204
0
1
0
0
0
0
1
1
0
0
0
1
0
0
0
1
0
0
0
One winter applicant was rejected which is students 17, students 15,18,19, and 20 were assigned
to their 1st priority, and finally only student 16 was given his 3rd priority
Thus the rejection ratio for fall was 1/6 which is a realistic ratio, since most of the room
capacities will be already taken by annual fall applicants which are more numerous than those
applying in the winter.
Optimal Revenue
And the optimal revenue is 73401 dollars annually. Therefore, if the department follows this
formulation its estimated revenue will be 100*73401= 7340100 dollars, assuming 2000 students
apply annually.
Result Analysis
After generating the answer report in excel, we were able to observe the status of all constraints
to which the objective function is subjected. These information are listed in the table below.
Xij Constraints
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Name
Cell Value
Formula
Status
Slack
1
1
1
1
2
1
1
1
1
1
1
1
1
$AD$678=1
$Z$678=1
$AH$678=1
$AL$678=1
$AP$507<=$AR$507
$BB$678=1
$BF$678=1
$AP$678=1
$BJ$678=1
$V$678=1
$BR$678=1
$F$678=1
$AT$678=1
Binding
Binding
Binding
Binding
Binding
Binding
Binding
Binding
Binding
Binding
Binding
Binding
Binding
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
1
$R$678=1
$AX$678=1
$BZ$678=1
$BV$678=1
$B$678=1
$J$678=1
$BN$678=1
$N$678=1
Binding
Binding
Binding
Binding
Binding
Binding
Binding
Binding
0
0
0
0
0
0
0
0
Xij constraints are all binding since the housing department is forced to take exactly 1 decision
for each applicant.
Cell Value
2
1
1
1
1
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Formula
$AP$507<=$AR$507
$AP$511<=$AR$511
$AP$515<=$AR$515
$AP$519<=$AR$519
$AP$523<=$AR$523
Status
Binding
Binding
Binding
Binding
Not
Binding
$AP$527<=$AR$527 Not
Binding
$AP$531<=$AR$531 Binding
Slack
0
0
0
0
1
2
0
1
0
$AP$535<=$AR$535 Not
Binding
$AP$547<=$AR$547 Binding
$AP$555<=$AR$555 Not
Binding
$AP$551<=$AR$551 Not
Binding
$AP$543<=$AR$543 Not
Binding
$AP$539<=$AR$539 Binding
1
0
1
5
1
0
In the fall capacity constraints, its shown that room types 1, 2, 3, 4, 7, 9, 11 and 13 are binding
which means that they are fully booked for the fall semester. Therefore, according to our results,
the binding constraints represent the most desirable and profitable room options. So, if the
housing department has the choice to increase the capacity of certain room types, it must go with
the above mention options.
Extra capacity was still found in room types 5, 6, 8, 10, and 12, which is not the real life scenario
since the demand will greatly surplus the capacity. Thus rarely will we get empty capacity in any
room.
Winter Capacity
Name
Cell Value
Formula
Status
Slack
1
1
0
1
1
0
0
2
0
0
3
0
1
$AT$507<=$AV$507
$AT$519<=$AV$519
$AT$511<=$AV$511
$AT$515<=$AV$515
$AT$523<=$AV$523
$AT$527<=$AV$527
$AT$539<=$AV$539
$AT$531<=$AV$531
$AT$543<=$AV$543
$AT$535<=$AV$535
$AT$551<=$AV$551
$AT$555<=$AV$555
$AT$547<=$AV$547
Not Binding
Binding
Not Binding
Binding
Not Binding
Not Binding
Not Binding
Not Binding
Not Binding
Not Binding
Not Binding
Not Binding
Binding
1
0
1
0
1
4
1
1
1
1
4
1
0
As for the winter capacity, room types 3, 4 and 11 are the only fully booked rooms and the rest
have extra empty rooms that are not use. We notice that we have more vacancies in the winter
and thus the housing department must suggest certain offers to attract more students for the
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winter semester, contract types 3 and 4 seeking certain types of rooms that are not currently
occupied by the fall annual students, which are usually much lower than those applying in the
fall semester. Another way to improve this situation, is to accept more students for annual fall
contract type to compensate for the low demand in the winter.
The results we attained are bit exaggerated as compared to real life case, since usually the
number of applying students greatly surpluses the room capacity, so we will rarely end up with
room types that remained unoccupied. This is due to the reduction in the number of students to
only 14 students in the fall and 6 in the winter.
Quality Constraints
Name
Fall Quality Constraint R22
Cell Value
0.785714286
Formula
$G$672>=$I$672
0.75
$G$674>=$I$674
Status
Not
Binding
Not
Binding
Slack
0.185714286
0.15
As shown above both satisfaction rates are very good and higher than our suggested standards.
However, still the satisfaction rate is higher in the fall semester, since the rejection ratio is lower
than the winter. In real life examples this is the case, since students applying in the winter will
have less vacancies due to fall annual applicants.
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15%, while the student satisfaction for first choice room selection is over 70%, and all campus
rooms would be completely occupied.
Looking towards the future, we would like to be allowed to use actual revenue data as well as
student applicant data from the WSU Office of Housing & Residential Life to more accurately
develop our LP model to reflect the data. In addition, we are planning to suggest on the
department a student tool whose aim is to allow applying student to optimize his choice between
the different options of campus rooms based on cost, location, roommate preference, dorm
amenities, etc. As a preliminary design for the above mention linear program, our team has
formulated it as follows:
Decision variables are binary variables and are as follows:
Xij
Yij
Zij
Kij
The table below defines the constant factors required for this model:
aij
cij
qij
rij
tij
Q
T
R
Minimize Z= ij aij*(Xij+Yij)+cij*(Zij+Kij)
ij qij*(Xij+Yij+Zij+Kij)>= Q
ij rij*(Xij+Yij+Zij+Kij)<= R
ij Xij+Yij+Zij=1
ij Xij+Yij+Kij=1
Also, we would like to allow for a second round of room option selection. What we mean, if
the students first, second, or third option was not selected, instead of rejecting the student from
campus housing as our current model suggest, we would provide the student with the remaining
available room options to choose from. The student would then select from the remaining
available room options (outside of their first three choices) or decline campus housing. This
option not only allows the student to remain in campus housing but also increases the profit for
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rooms that are less desirable. After obtaining this data and adjusting our LP model to reflect the
changes, we believe our model will maximize WSUs housing revenue and substantially increase
housing satisfaction amongst student applicants.
Appendix-A
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Appendix-B
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References
1. Jingpu Song, Qingda Yuan, and Shuang Chen. Carlson Rezidor Hotel Group Maximizes
Revenue Through Improved Demand Management and Price Optimization. Interfaces,
Vol. 43, No. 1, 2013, pp. 2136.
2. Ma Hanwu and Zhang Peng. The Research of Economy Hotel in One City Room Allocation
and Global Optimization Based on Revenue Management. 2010 7th International
Conference on Service Systems and Service Management (ICSSSM), 28-30 June 2010, pp. 1
6, Tokyo, Print ISBN: 978-1-4244-6485-2, INSPEC Accession Number: 11447610, Digital
Object Identifier : 10.1109/ICSSSM.2010.5530181
3. Raeside R, and Windle D. Quantitative aspects of yield management. In: Ingold, et al.,
editors, Yield management: strategies for service industries, 2nd ed. London: Cassell; 2000.
4. Stephen Mahar, Wayne Winston, and P. Daniel Wright. Eli Lilly and Company Uses Integer
Programming to Form Volunteer Teams in Impoverished Countries. Interfaces, Vol. 43,
No. 3, 2013, pp. 268284.
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