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RESOURCE

OPTIMIZATION

CASE STUDY

GROUP 20 || EGMP49

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ARPITA JAGASHETTY || EGMP49007

GEEJESH P KALIYATH || EGMP49015

RAGHUNATH BELLALA || EGMP49038


EGMP 49 || RESOURCE OPTIMIZATION CASE STUDY || GROUP-20

CONTENTS
03 – 04 CASE PROBLEM
PLANNING AN ADVERTISEMENT CAMPAIGN

05 – 08 MODEL DEVELOPMENT
DEFINE THE DECISION VARIABLES
DEFINE THE OBJECTIVE FUNCTION
DEFINE THE CONSTRAINTS
OPTIMAL SOLUTION USING SOLVER
SENSITIVITY ANALYSIS
ANSWER REPORT

09 – 09 SUMMARY

10 – 11 OTHER RECOMMENDATION(S)
RECOMMENDATION 1
RECOMMENDATION 2

11 – 12 APPENDICES

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EGMP 49 || RESOURCE OPTIMIZATION CASE STUDY || GROUP-20

1. CASE PROBLEM:
PLANNING AN ADVERTISEMENT CAMPAIGN

The Flamingo Grill is an upscale restaurant located in St. Petersburg, Florida. To


help plan an advertising campaign for the coming season, Flamingo’s management
team hired the advertising firm of Haskell & Johnson (HJ). The management team
requested HJ’s recommendation concerning how the advertising budget should be
distributed across television, radio, and newspaper advertisements. The budget has
been set at $279,000.

The exposure rating is viewed as a measure of the value of the ad to both existing
customers and potential new customers. It is a function of such things as image,
message recall, visual and audio appeal, and so on. As expected, the more expensive
television advertisement has the highest exposure effectiveness rating along with the
greatest potential for reaching new customers.

At this point, the HJ consultants pointed out that the data concerning exposure and
reach were only applicable to the first few ads in each medium. For television, HJ
stated that the exposure rating of 90 and the 4000 new customers reached per ad
were reliable for the first 10 television ads. After 10 ads, the benefit is expected to
decline. For planning purposes, HJ recommended reducing the exposure rating to 55
and the estimate of the potential new customers reached to 1500 for any television
ads beyond 10. For radio ads, the preceding data are reliable up to a maximum of 15
ads. Beyond 15 ads, the exposure rating declines to 20 and the number of new
customers reached declines to 1200 per ad. Similarly, for newspaper ads, the
preceding data are reliable up to a maximum of 20; the exposure rating declines to 5
and the potential number of new customers reached declines to 800 for additional
ads.

Flamingo’s management team accepted maximizing the total exposure rating, across
all media, as the objective of the advertising campaign. Because of management’s
concern with attracting new customers, management stated that the advertising
campaign must reach at least 100,000 new customers.

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EGMP 49 || RESOURCE OPTIMIZATION CASE STUDY || GROUP-20

To balance the advertising campaign and make use of all advertising media,
Flamingo’s management team also adopted the following guidelines:

1. Use at least twice as many radio advertisements as television advertisements.


2. Use no more than 20 television advertisements.
3. The television budget should be at least $140,000.
4. The radio advertising budget is restricted to a maximum of $99,000.
5. The newspaper budget is to be at least $30,000.

HJ agreed to work with these guidelines and provide a recommendation as to how


the $279,000 advertising budget should be allocated among television, radio, and
newspaper advertising.

MANAGERIAL REPORT

Develop a model that can be used to determine the advertising budget allocation for
the Flamingo Grill.

Include a discussion of the following in your report.

1. A schedule showing the recommended number of television, radio, and newspaper


advertisements and the budget allocation for each medium. Show the total exposure
and indicate the total number of potential new customers reached.

2. How would the total exposure change if an additional $10,000 were added to the
advertising budget?

3. A discussion of the ranges for the objective function coefficients. What do the
ranges indicate about how sensitive the recommended solution is to HJ’s exposure
rating coefficients?

4. After reviewing HJ’s recommendation, the Flamingo’s management team asked


how the recommendation would change if the objective of the advertising campaign
was to maximize the number of potential new customers reached. Develop the media
schedule under this objective.

5. Compare the recommendations from parts 1 and 4. What is your recommendation


for the Flamingo Grill’s advertising campaign?

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EGMP 49 || RESOURCE OPTIMIZATION CASE STUDY || GROUP-20

2. MODEL DEVELOPMENT

2.1. DEFINE THE DECISION VARIABLES

We want to determine the number of ads in each category of advertising media. The
following table summarizes the decision variables:
No. of Ads in each category
Television Radio Newspaper
X1 X2 X3

2.2. DEFINE THE OBJECTIVE FUNCTION

Maximize the total exposure rating (ER).


Max: (No. of Ads in each category) X (Exposure Rating per Ad in each category)
Max: ER (TV) + ER (RADIO) + ER (NEWSPAPER)
Max: (10*90 + (X1-10)*55) + (15*25 + (X2-15)*20) + (20*10 + (X3-20)*5)

2.3. DEFINE THE CONSTRAINTS

P1, P2, P3 are price per ad in TV, Radio and Newspaper respectively.

- Advertising Budget has been set at USD 279,000


P1*X1 + P2*X2 + P3*X3 <= 279,000
(1) 10000*X1 + 3000*X2 + 1000*X3 <= 279,000

- Reach to New Customers of at least 100,000


(2) {10*4000 + (X1-10)*1500 + 15*2000 + (X2-15)*1200 + 20*1000 + (X3-
20)*800} >= 100,000

- Use at least twice as many radio advertisements as television advertisements


(3) X2 >= 2*X1

- Use no more than 20 television advertisements


(4) X1 <= 20

- The television budget should be at least USD 140,000


P1*X1 >= 140,000
(4) 10000*X1 >= 140,000
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EGMP 49 || RESOURCE OPTIMIZATION CASE STUDY || GROUP-20

- The Radio advertising budget is restricted to a maximum of USD 99,000


P2*X2 <= 99,000
(5) 3000*X2 <= 99,000

- The newspaper budget is to be at least USD 30,000


P3*X3 >= 30,000
(6) 1000*X3 >= 30,000

- Non-negativity of variables:
(7) Xi >= 0, i = 1, 2, 3.

2.4. OPTIMAL SOLUTION USING SOLVER

No. of Ads in each category


Television Radio Newspaper
X1 X2 X3
15 33 30

Recommended media schedule is stated below:


No. of Television advertisements = 15
No. of Radio advertisements = 33
No. of Newspaper advertisements = 30

Maximize Exposure Rating


1175 735 250 2160 Maximize

Total Exposure Rating = 2160

New Customers Reach 47500 51600 28000 127100 >= 100000

Total number of potential new customers reached = 127,100

- With the developed model, we were able to reach out to new potential customers
well beyond the target within the budget.

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EGMP 49 || RESOURCE OPTIMIZATION CASE STUDY || GROUP-20

2.5. SENSITIVITY ANALYSIS


Variable Cells
Final Reduced Objective Allowable Allowable Range of Optimality
Cell Name Value Cost Coefficient Increase Decrease Upper Limit Lower Limit
$M$5 X1 15 0 55 11.66666667 5 66.66666667 50
$N$5 X2 33 0 20 1E+30 3.5 Infinity 16.5
$O$5 X3 30 0 5 0.5 1E+30 5.5 Infinity

Constraints
Final Shadow Constraint Allowable Allowable Range of Feasibility
Cell Name Value Price R.H. Side Increase Decrease Upper Limit Lower Limit
$P$13 Advertising Budget 279000 0.0055 279000 15000 10000 294000 269000
$P$14 Constraint2 15 0 20 1E+30 5 Infinity 15
$P$15 Constraint4 99000 0.001166667 99000 10000 5625 109000 93375
$P$16 Constraint1 3 0 0 3 1E+30 3 Infinity
$P$17 New Customers Reach 127100 0 100000 27100 1E+30 127100 Infinity
$P$18 Constraint3 150000 0 140000 10000 1E+30 150000 Infinity
$P$19 Constraint5 30000 -0.0005 30000 10000 15000 40000 15000

- For advertising budget from USD 269k to USD 294k, the exposure rating changes
by 0.0055 for every unit increase or decrease of the value.
- For radio advertising budget from USD 93.375k to USD 109k, the exposure rating
changes by 0.001167 for every unit increase or decrease of the value.
- For newspaper advertising budget from USD 15k to USD 40k, the exposure rating
changes by -0.0005 for every unit increase or decrease of the value.
- Any change in the constraints beyond the range of lower and upper limits, the
nature of the solution changes and the solver tool needs to be applied again with the
changed values.

2.6. ANSWER REPORT

Objective Cell (Max)


Cell Name Original Value Final Value
$P$8 2160 2160

Variable Cells
Cell Name Original Value Final Value Integer
$M$5 X1 15 15 Contin
$N$5 X2 33 33 Contin
$O$5 X3 30 30 Contin

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EGMP 49 || RESOURCE OPTIMIZATION CASE STUDY || GROUP-20

Constraints
Cell Name Cell Value Formula Status Slack
$P$13 Advertising Budget 279000 $P$13<=$R$13 Binding 0
$P$14 Constraint2 15 $P$14<=$R$14 Not Binding 5
$P$15 Constraint4 99000 $P$15<=$R$15 Binding 0
$P$16 Constraint1 3 $P$16>=$R$16 Not Binding 3
$P$17 New Customers Reach 127100 $P$17>=$R$17 Not Binding 27100
$P$18 Constraint3 150000 $P$18>=$R$18 Not Binding 10000
$P$19 Constraint5 30000 $P$19>=$R$19 Binding 0

- Out of SEVEN constraints mentioned in the table, FOUR of them are NON
BINDING constraints with certain slack. THREE of them are BINDING constraints,
which means the limits are exhaustive.

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EGMP 49 || RESOURCE OPTIMIZATION CASE STUDY || GROUP-20

3. SUMMARY

1. With an objective to maximize exposure rating with several constraints as


mentioned in section 2.3, the media scheduling is as shown in section 2.4. The total
number of potential new customers reach would be 127,100.

2. If additional USD 10k is added to the advertising budget (which is within the
range of feasibility), the exposure quality increases by 10000*(Shadow Price) =
10000*0.0055 = 55, which is equivalent to 2215.

3. Sensitivity of the solution was discussed in detail in section 2.5.

4. With change in objective to maximize the number of potential new customers


reach, the recommended media schedule could be as stated below:
Maximize Number of Potential New Customers
46000 45600 48000 139600 Maximize

X1 X2 X3
14 28 55
No. of Television advertisements = 14
No. of Radio advertisements = 28
No. of Newspaper advertisements = 55
With the change in objective, the total exposure quality = 2130

5. Following observations can be made from the recommendations made in part 1


and part 4:
- With an objective to maximize the total exposure quality (a value of 2160), the
total number of potential new customers reach could be 127100, while the objective
to maximize the total number of potential new customers reach (a value of 139600),
the total exposure quality could be 2130 under a given advertising budget of USD
279k.
- The target for Flamingo Grill’s it to achieve a new potential customer’s reach of
100k, which is possible in either recommendation. But part 1 offers better exposure
quality.
- But with a compromise of 1.4% in exposure quality, the reach to new potential
customers would increase by 9.9% within the same budget.

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EGMP 49 || RESOURCE OPTIMIZATION CASE STUDY || GROUP-20

4. OTHER RECOMMENDATION(S)
(NOT MENTIONED IN THE CASE PROBLEM)
4.1. RECOMMENDATION 1

- Interestingly, in Part 1, if there are NO constraints on category wise budget


allocation with an objective to maximize the exposure quality, Reach to new
potential customers could be 135600 with a total exposure quality of 2235.

- With the following media scheduling, reach to new potential customers and
exposure quality can be increased by 6.68% and 3.47% respectively without
compromise in total advertising budget.

- If there are no contractual agreements with the media partners, we think that this
scheduling would be optimal solution.
X1 X2 X3
10 53 20

4.2. RECOMMENDATION 2

-Rather than maximizing the exposure quality or reach to new potential customers,
minimizing the overall advertising budget without any individual budget allocation
restrictions and minimum exposure quality of 2130, Reach to new potential
customers could be more than 100K.

- With the following media scheduling, the total advertising budget could be reduced
by 2.15% from the allotted value.

- If there are no contractual agreements with the media partners, we think that this
scheduling would be optimal solution.
X1 X2 X3
15 33 24

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EGMP 49 || RESOURCE OPTIMIZATION CASE STUDY || GROUP-20

6. APPENDICES

Fig1. Maximization of Exposure Quality


No. of Ads in each category
Decision Television Radio Newspaper
Variables X1 X2 X3
15 33 30

Maximize Exposure Rating


Objective
1175 735 250 2160 Maximize

Constraints

Advertising Budget 10000 3000 1000 279000 <= 279000

Constraint2 1 15 <= 20

Constraint4 3000 99000 <= 99000

Constraint1 -2 1 3 >= 0

New Customers Reach 47500 51600 28000 127100 >= 100000

Constraint3 10000 150000 >= 140000

Constraint5 1000 30000 >= 30000

Fig2. Maximization of Reach to Potential New Customer


No. of Ads in each category
Decision Television Radio Newspaper
Variables X1 X2 X3
14 28 55

Maximize Number of Potential New Customers


Objective
46000 45600 48000 139600 Maximize

Exposure Quality 1120 635 375 2130

Constraints

Advertising Budget 10000 3000 1000 279000 <= 279000

Constraint2 1 14 <= 20

Constraint4 3000 84000 <= 99000

Constraint1 -2 1 0 >= 0

Constraint3 10000 140000 >= 140000

Constraint5 1000 55000 >= 30000

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EGMP 49 || RESOURCE OPTIMIZATION CASE STUDY || GROUP-20

Fig3. Maximization of Exposure Quality without category wise budget allocation


No. of Ads in each category
Decision Television Radio Newspaper
Variables X1 X2 X3
10 53 20

Maximize Exposure Rating


Objective
900 1135 200 2235 Maximize

Constraints

Advertising Budget 10000 3000 1000 279000 <= 279000

Constraint2 1 10 <= 20

Constraint4 3000 159000 <= 99000

Constraint1 -2 1 33 >= 0

New Customers Reach 40000 75600 20000 135600 >= 100000

Constraint3 10000 100000 >= 140000

Constraint5 1000 20000 >= 30000


X1 1 10 >= 10
X2 1 53 >= 15
X3 1 20 >= 20

Fig4. Minimization of Overall Advertising Budget


No. of Ads in each category
Decision Television Radio Newspaper
Variables X1 X2 X3
15 33 24

Minimizing Budget
Objective
10000 3000 1000 273000 Minimize

Constraints

Exposure Quality 1175 735 220 2130 >= 2130

Constraint2 1 15 <= 20

Constraint4 3000 99000 <= 99000

Constraint1 -2 1 3 >= 0

New Customers Reach 47500 51600 23200 122300 >= 100000

Constraint3 10000 150000 >= 140000

Constraint5 1000 24000 >= 30000


X1 1 15 >= 10
X2 1 33 >= 15
X3 1 24 >= 20

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