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# Excel Solver

Overview

introduction

Excel Solver

Exercises

Goal Seek

## A tool for finding the value of an independent

variable (input cell) which produces a desired
output in a dependant cell (the cell containing a
formula dependent on the independent variable)

## It returns only if there is a single solution

Optimization: Basics

## Major field within the discipline of Operations

Research and Management Science

## Optimization Problem Components

Decision Variables
Objective Function (to maximize or minimize)
Constraints (requirements or limitations)

Basic Idea:
Find the values of the decision variables
that maximize (minimize) the objective
function value, while staying within the
constraints.

## If the objective function and all the constraints are

linear functions of the decision variables, then the
problem is called a Linear Programming (LP)
problem.

## LPs are much easier to solve by computer than

problems involving nonlinear functions.

## Real-world LPs may contain hundreds of variables,

and may require specialized software!.

Real-World Examples

Product Mix

Scheduling/Allocation of workforce

## Supply Chain Optimization

Capital Budgeting

Financial Planning

etc.

Mathematical Background
Find x which
Minimizes or Maximizes f(x)
Subject to
di(x) ai
ei(x) = bi

i = 1,2,m
i=1,2,p

x can be a vector

Mathematical
Background(contd...)

## If f(x) and the constraints are linear, we have a

linear programming problem

## If f(x) is quadratic, and the constraints are linear,

we have a quadratic programming problem

## If f(x) is non-linear (and not quadratic either),

and/or the constraints are nonlinear, we have
nonlinear programming problem

problem

in words

## Write the algebraic formulation:

Identify the decision variables

## Decide if the problem is maximization or minimization,

and then write the objective function in terms of the
decision variables
Write the constraints in terms of the decision variables
Write the non-negativity constraints, if any

An Example

A gas processing plant receives a fixed amount of raw gas each week

constraints

## Use the data in next page to develop a linear programming

formulation to maximize profit

Data
Product
Resource
Raw Gas

Regular
7

11

Resource Availability
77

Production Time
(hr/tonne)

10

120

Storage
(tonne)

Profit (/tonne)

150

175

(m /tonne)

## Problem Formulation : Decide the amount of regular gas and

premium gas to be produced to maximize profit

## Identify the Decision Variables

Product
Resource
Raw Gas

Regular
7

11

Resource Availability
77

Production Time
(hr/tonne)

10

120

Storage
(tonne)

Profit (/tonne)

150

175

(m /tonne)

## Decision Variables : Amount of regular gas (x1) and

Amount of premium gas (x2) to be produced

## Write down the Objective

Function
Product
Resource
Raw Gas

Regular
7

11

Resource Availability
77

Production Time
(hr/tonne)

10

120

Storage
(tonne)

Profit (/tonne)

150

175

(m /tonne)

Total Profit

Z = 150 x1 + 175 x2

Maximize

Z = 150 x1 + 175 x2

Objective
function

## Write the Constraints

Product
Resource
Raw Gas

Regular
7

11

Resource Availability
77

Production Time
(hr/tonne)

10

120

Storage
(tonne)

Profit (/tonne)

150

175

(m /tonne)

7x1 + 11x2 77
10x1 + 8x2 120

(material constraint)
(time constraint)

x1 9

(storage constraint)

x2 6

(storage constraint)

x1,x2 0

(positivity constraint)

We have an LP problem
Maximize

150 x1 + 175 x2

Subject to :
7x1 + 11x2 77
10x1 + 8x2 120
x1 9
x2 6
x1,x2 0

Graphical Solution
7x1 + 11x2 77
x2 -7/11 x1 +7

8
7
6

Constraint 1

x2

5
4
3
2
1
0
0

x1

10

Graphical Solution
(contd)
10x1 + 8x2 120
x2 -5/4x1 + 15
16

Constraint 1

14

Constraint 2

12

x2

10
8
6
4
2
0
0

10

x1

15

Graphical Solution
(contd)
x1 9
16

Constraint 1

14

Constraint 2

12

Constraint 3

x2

10
8
6
4
2
0
0

10

x1

15

Graphical Solution
(contd)
x2 6
Constraint 1
16

Constraint 2

14

Constraint 3

12

Constraint 4

x2

10
8
6
4
2
0
0

10

x1

15

Graphical Solution
(contd)
x1,x2 0
Constraint 1
16

Constraint 2

14

Constraint 3

12

x2

Convex Polytope

Constraint 4

10
8
6
4
2
0
0

10

x1

15

Graphical Solution
(contd)
Now we need to find the maximum value of the objective
function, while satisfying the constraints. Let us plot the
objective function for various values of Z and see:
Z=0

0=150x1 + 175x2

.
Z = 500

500=150x1 + 175x2

....
Z = 1200

1200=150x1 + 175x

Graphical Solution
(contd)
Z=0
Z=500
Z=1200

16
14
12
10
8

x2

6
4
2
0
-5

-2 0

-4

x1

10

15

problem

problem

## Examine results, make corrections to the model

and/or Solver settings

Solver : Basics

Solver Settings

## Specify Target Cell (objective function)

Specify Changing Cells (decision variables)
Specify Solver Settings (Linear model, non-negativity
etc.)

## Solve button : Solve the problem to find Optimal

Solution

Concepts:

Feasibility
Feasible Solution: A solution is feasible if all constraints are
satisfied.
Infeasible Solution: A solution is infeasible if one or more
constraints is violated.

## Optimal Solution: It is the feasible solution with the largest (for

maximization problem) value for the objective value (smallest for a
minimization problem).

## Binding Constraints: Constraints at the optimal solution with the LHS

equal to the RHS; equivalently for a resource, a binding constraint is
one in which all the resource is used up. Other constraints are called
non-binding constraints

Development

## Use algebraic formulation and natural structure of the

problem to guide structure of the spreadsheet.

## Store objective function coefficients in separate cells, and

use another cell to compute the objective function value.

## Store constraint coefficients in cells, compute the LHS value

of each constraint, for comparison to the RHS value.

Solution Reports

## Solver can generate three solution reports

Sensitivity Report
Limits Report

## The Answer Report presents in a standard format the Solver

Settings and the optimal solution.

## The Sensitivity Report shows what will happen if certain

problem parameters are changed from their current values.

## The Limits Report shows how much the decision variable

values can change but still stay within your constraints.

Solver Results:

Optimal Solution

Unbounded
Problem

Infeasible
Problem

## Solving an LP Problem : a review

Trial and error: possible for very small problems; virtually impossible
for large problems.

## Graphical approach: It is possible to solve a 2-variable problem

graphically to find the optimal solution.

Dantzig.

## Computer Software. Most optimization software actually uses the

Simplex Method to solve the problems. Excels Solver Add-In is an
example of such software.

## Solver can solve LPs of up to 200 variables. Enhanced versions of

Solver are available from Frontline Systems (http://www.solver.com).

## Exercise: Solver for Capital

Budgeting
Chapter 32 : Templates\Capbudgetemp.xlsx
Which Projects to choose to get maximum NPV
Resource Constraints on capital and labor

## Identify the Decision Variables : To Do or Not to Do

Objective Function : Maximize the NPV generated from the
selected projects
Constraints : in any year t
Capital used is less than or equal to available capital
Labor used is less than equal to available labor

Thank YOU

Another Example
Minimize the amount of material used to make the can while
keeping the volume constant.

## The Solver would return the

values for height, h, and

Solving Equations:

2x5 -3x2 5 = 0

## Find a positive real root of this

equation, the added restriction is that
x 0.

## Simultaneous algebraic equations arise in many engineering

applications. Solver is capable of finding the solution.

3x1 + 2x2 x3 4 = 0
2x1 x2 + x3 3 = 0

x1 + x2 2x3 + 3 = 0
Find the values of x1, x2, and x3 that will cause all three equations to equal zero.