Chapter 14: Multicriteria Decisions

Instructor: Dr. Neha Mittal

Overview
Goal Programming Formulation and Graphical Solution Scoring Models

Goal Programming
Goal programming may be used to solve linear programs with multiple objectives, with each objective viewed as a "goal". One approach to goal programming is to satisfy goals in a priority sequence. Second-priority goals are pursued without reducing the first-priority goals, etc. In goal programming, di+ and di- , deviation variables, are the amounts a targeted goal i is greater than or lesser than the target.

Goal Programming

For each priority level, the objective function is to minimize the (weighted) sum of the goal deviations. Previous "optimal" achievements of goals are added to the constraint set so that they are not degraded while trying to achieve lesser priority goals.

Goal Programming Formulation

Step 1: Identify any functional/resource constraints (not goal related) Step 2: For each priority level, determine the goal and associated constraints Constraints will include the deviations - di+ (amount greater than target) and/or di- (amount less than target), from the goal. Each goal will minimize the undesired deviation. Step 3: If a priority level has more than one goal, decide the weight on each goal. The weight, wi , will be placed on the deviation(s), di+ and/or di-, from the goal.

Step 4: Set up the formulation summary Objective Function: Minimize sum of all undesired deviations (denote priority level of deviation with P1, P2, etc.; with 1 being highest level of priority) Constraint Set consists of: All resource constraints All goal-related constraints (all equalities with deviations) All non-negativity (all decision variables and deviations)

NOTE: The formulation summary actually represents multiple individual LPs (equal to the number of priority levels)

Example 1: Nicolo Advisors

Nicolo Investment Advisors has a client with $80,000 to invest in a portfolio of only two stocks:
Stock Price/Share Estimated Annual Return/Share $3 $5 Risk Index/Share 0.50 0.25

U.S. Oil (U) Hub Properties (H)

$25 $50

The client has TWO objectives: Priority 1: Find a portfolio with a risk index of 700 or less Priority 2: Find a portfolio that will provide a return of $9000+ Determine the goal programming formulation summary

Step 1: Identify any functional/resource constraints (not goal related) Step 2: For each priority level, determine the goal and associated constraints Constraints will include the deviations di+ (amount greater than target) and/or di- (amount less than target), from the goal Each goal will minimize the undesired deviation.

Available funds constraint: $25U + $50H < $80,000

Priority one level (portfolio risk of 700 or less): Constraint: 0.50U + 0.25H = 700 - d1- + d1+ Goal: Min d1+ Priority two goal (annual return of $9000+): Constraint: $3U + $5H = $9000 - d2- + d2+ Goal: Min d2-

Step 4: Set up the formulation summary Objective Function: Minimize sum of all undesired deviations (denote priority level of deviation with P1, P2, etc.; with 1 being highest level of priority) Constraint Set consists of All resource constraints All goal-related constraints (all equalities with deviations) All non-negativity (all decision variables and deviations)

Min

P1(d1+) + P2(d2-)

s.t.,

25U + 50H 0.50U + 0.25H +d1- -d1+

< 80,000 Funds available = 700 P1 goal (Risk)

P2 goal (Return)

3U + 5H +d2- -d2+ = 9000 U, H, d1-, d1+, d2-, d2+ > 0

NOTE: P1 and P2 are not weights, they are labels that indicate priority

QM Input

Solution

Graph

Priority 1 Goal

Resource Constraint Priority 2 Goal

Example 2: Conceptual Products

Conceptual Products is a computer company that produces the CP400 and CP500 computers. Many of the components used in the two computer models are produced in abundant supply by the company. However, the memory modules, external hard drives, and cases are bought from suppliers. The CP400 model uses two memory modules and no external hard drive, whereas the CP500 uses one memory module and one external hard drive. Both models use one case.

(Contd.)
Suppliers can provide Conceptual Products with 1000 memory modules, 500 external hard drives, and 600 cases on a weekly basis. It takes one hour to manufacture a CP400 and its profit is $200 and it takes one and one-half hours to manufacture a CP500 and its profit is $500. The company has four goals: Priority 1: Priority 2: Priority 3: Priority 4: Meet a contract of 200 CP400 machines weekly. (Goal 1) Make at least 500 total computers weekly. (Goal 2) Make at least $250,000 weekly. (Goal 3) Use no more than 400 man-hours per week. (Goal 4)

Goal Programming: Formulation

Variables x1 = number of CP400 computers produced weekly x2 = number of CP500 computers produced weekly di- = amount the right hand side of goal i is deficient di+ = amount the right hand side of goal i is exceeded Functional Constraints Availability of memory modules: 2x1 + x2 < 1000 Availability of external hard drives: x2 < 500 Availability of cases: x1 + x2 < 600

 Goals (1) 200 CP400 computers weekly: x1 + d1- - d1+ = 200 (2) 500 total computers weekly: x1 + x2 + d2- - d2+ = 500 (3) $250(in thousands) profit: .2x1 + .5x2 + d3- - d3+ = 250 (4) 400 total man-hours weekly: x1 + 1.5x2 + d4- - d4+ = 400 Non-negativity: x1, x2, di-, di+ > 0 for all i

 Objective Functions Priority 1: Minimize the amount the state contract is not met: Min d1-

Priority 2: Minimize the number under 500 computers produced weekly: Min d2Priority 3: Minimize the amount under $250,000 earned weekly: Min d3Priority 4: Minimize the man-hours over 400 used weekly: Min d4+

 Formulation Summary
Min s.t. P1(d1-) + P2(d2-) + P3(d3-) + P4(d4+) 2x1 +x2 +x2 +x2 < 1000 < 500 < 600 = 200 = 500 = 250 = 400 > 0

x1 x1 +d1- -d1+ x1 +x2 +d2- -d2+ .2x1+ .5x2 +d3- -d3+ x1+1.5x2 +d4- -d4+ x1, x2, d1-, d1+, d2-, d2+, d3-, d3+, d4-, d4+

Graphical Solution
Iteration 1 To solve graphically, first graph the functional constraints. Then graph the first goal: x1 = 200.

 Functional Constraints and Goal 1 Graphed

x2
1000 800 600 400 200 200 400 600 800 1000 2x1 + x2 < 1000 Goal 1: x1 > 200 x1 + x2 < 600 x2 < 500

Points Satisfying Goal 1 1200

x1

 Iteration 2 Now keeping Goal 1 as x1 > 200 and graph Goal 2: x1 + x2 = 500. Note on the next slide that there is still a set of points satisfying the first goal that also satisfies this second goal (where d2= 0).

 Goal 1 (Constraint) and Goal 2 Graphed

x2
1000 800 600 400 200 200 400 600 2x1 + x2 < 1000 Goal 1: x1 > 200 x2 < 500

x1 + x2 < 600

Points Satisfying Both Goals 1 and 2 Goal 2: x1 + x2 > 500 800 1000 1200

x1

 Iteration 3 Now keeping Goal 1, Goal 2, plot Goal 3: .2x1 + .5x2 = 250. Note on the next slide that no points satisfy the previous functional constraints and goals and satisfy this constraint. Thus, to Min d3-, this minimum value is achieved when we Max .2x1 + .5x2. Note that this occurs at x1 = 200 and x2 = 400, so that .2x1 + .5x2 = 240 or d3- = 10.

 Goal 2 (Constraint), Goal 3 and Goal 4 Graphed

x2
1000 800

2x1 + x2 < 1000 Goal 1: x1 > 200

x1 + x2 < 600

x2 < 500

600
(200,400) 400

200
200 400 Goal 4: x1 + 1.5x2 < 400 600 800

Goal 2: x1 + x2 > 500

Goal 3: .2x1 + .5x2 > 250

1000 1200

x1

Practice Problem
The campaign headquarters of Jerry Baker, a candidate for the Board of Supervisors, has 100 volunteers. With one week to go in the election, there are three major strategies: telephone campaigning, door-to-door canvassing and media advertising. It is estimated that phone-workers could make 1260 calls per week and door-to-door canvasser can make 720 personal contacts. Each ad utilizes the talents of 3 workers for the week. At a min., it is felt that he needs 30,000 phone contacts; 20,000 personal contacts; and 3 adv. during the last week. However, he would like to see 50,000 phone contacts and 50,000 personal contacts made and 5 adv. developed. It is felt that phone contacts are top-most on priority, than personal contacts and last is advertising. Formulate the problem as a goal program with a single weighted priority to determine how the work should be distributed during the final week of campaign.

Scoring Model for Job Selection

A graduating college student with a double major in Finance and Accounting has received the following three job offers: financial analyst for an investment firm in Chicago accountant for a manufacturing firm in Denver auditor for a CPA firm in Houston

 The student made the following comments: The financial analyst position provides the best opportunity for my long-run career advancement. I would prefer living in Denver rather than in Chicago or Houston. I like the management style and philosophy at the Houston CPA firm the best. Clearly, this is a multicriteria decision.

 Considering only the long-run career advancement criterion: The financial analyst position in Chicago is the best decision alternative. Considering only the location criterion: The accountant position in Denver is the best decision alternative. Considering only the style criterion: The auditor position in Houston is the best alternative.

Steps Required to Develop a Scoring Model

Step 1: List the decision-making criteria.

Step 2: Assign a weight to each criterion.

Step 3: Rate how well each decision alternative satisfies each criterion. Step 4: Compute the score for each decision alternative.

Step 5: The alternative with the highest score is the recommended alternative.

Scoring Model: Step 1

List of Criteria Career advancement Location Management Salary Prestige Job Security Enjoyable work

Scoring Model: Step 2

Five-Point Scale Chosen Importance Very unimportant Somewhat unimportant Average importance Somewhat important Very important

Weight 1 2 3 4 5

 Assigning a Weight to Each Criterion Criterion Career advancement Location Management Salary Prestige Job security Enjoyable work Importance Very important Average importance Somewhat important Average importance Somewhat unimportant Somewhat important Very important Weight 5 3 4 3 2 4 5

Scoring Model: Step 3

Nine-Point Scale Chosen
Level of Satisfaction Rating

Extremely low Very low Low Slightly low Average Slightly high High Very high Extremely high

1 2 3 4 5 6 7 8 9

Scoring Model: Step 3

Rate how well each decision alternative satisfies each criterion. Decision Alternative Analyst Accountant Auditor Chicago Denver Houston 8 6 4 3 8 7 5 6 9 6 7 5 7 5 4 4 7 6 8 6 5

Criterion Career advancement (5) Location (3) Management (4) Salary (3) Prestige (2) Job security (4) Enjoyable work (5)

Scoring Model: Step 4

Compute the score for each decision alternative. Decision Alternative 1 - Analyst in Chicago Criterion Career advancement Location Management Salary Prestige Job security Enjoyable work Weight (wi ) 5 3 4 3 2 4 5 x Rating (ri1) 8 3 5 6 7 4 8 = wiri1 40 9 20 18 14 16 40

Score

157

Scoring Model: Step 4

Compute the score for each decision alternative.

s j wi rij
i

S1 = 5(8)+3(3)+4(5)+3(6)+2(7)+4(4)+5(8) = 157
S2 = 5(6)+3(8)+4(6)+3(7)+2(5)+4(7)+5(6) = 167 S3 = 5(4)+3(7)+4(9)+3(5)+2(4)+4(6)+5(5) = 149

Scoring Model: Step 5

Order the decision alternatives from highest score to lowest score. The alternative with the highest score is the recommended alternative.
The accountant position in Denver has the highest score and is the recommended decision alternative. Note that the analyst position in Chicago ranks first in 4 of 7 criteria compared to only 2 of 7 for the accountant position in Denver. But when the weights of the criteria are considered, the Denver position is superior to the Chicago job.

The Lofton Company has developed the following linear programming problem Max s.t. x1 + x2 2x1 + x2 <= 10 2x1 + 3x2 <= 24 3x1 + 4x2 >= 36 but finds it is infeasible. In revision, Lofton drops the original objective and establishes the three goals Goal 1: Goal 2: Don't exceed 10 in constraint 1. Don't fall short of 36 in constraint 3.

Goal 3:

Don't exceed 24 in constraint 2.

Give the goal programming model

Rosie's Ribs is in need of an office management software package. After considerable research, Rosie has narrowed her choice to one of three packages: Nable, VersaSuite, and SoftTrack. She has determined her decision-making criteria, assigned a weight to each criterion, and rated how well each alternative satisfies each criterion.
Decision Alternatives Criterion Ease of use Report generation Functional integration On-line help Entry error-checking Price Weight 4 3 5 3 2 4 N-Able 3 8 5 8 8 4 VersaSuite 5 7 8 6 3 7 SoftTrack 8 6 6 4 4 5

Support cost

Using a scoring model, determine the recommended software package for Rosie's Ribs.