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Linear Optimization

Linear optimization, or linear programming, is a mathematical method for maximizing or minimizing a linear objective function under a set of linear constraints, widely used in business analytics for decision-making. Key components include decision variables, an objective function, and constraints, which together form a standard mathematical model. The benefits of linear optimization include data-driven decision making, resource efficiency, scalability, and flexibility in integrating with other analytical tools.

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8 views9 pages

Linear Optimization

Linear optimization, or linear programming, is a mathematical method for maximizing or minimizing a linear objective function under a set of linear constraints, widely used in business analytics for decision-making. Key components include decision variables, an objective function, and constraints, which together form a standard mathematical model. The benefits of linear optimization include data-driven decision making, resource efficiency, scalability, and flexibility in integrating with other analytical tools.

Uploaded by

kineti7606
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Linear Optimization

Optimization tehnique
Linear optimization, also known as linear
programming, is a mathematical technique
used to maximize or minimize a linear
objective function while satisfying a set of
linear constraints. In business analytics, it's
a powerful tool for making optimal decisions in
areas such as resource allocation,
production planning, supply chain
management, and portfolio optimization.
Key Components of Linear Optimization

• Decision Variables:
Represent the quantities to be determined (e.g.,
number of products to manufacture, units to invest).

• Objective Function:
A linear function that needs to be maximized or
minimized (e.g., profit, cost).

• Constraints:
Linear inequalities or equations representing limitations
or requirements (e.g., resource availability, demand).
Linear Programming Model
Let: X1, X2, X3, ………, Xn = decision variables
Z = Objective function or linear function

Requirement: Maximization of the linear


function Z.
Z = c1X1 + c2X2 + c3X3 + ………+ cnXn
…..Eq (1)
subject to the following constraints:

…..Eq (2)
Standard Formulation

• Mathematical Formulation
minimize cx

subject to
Ax = b
x >= 0
Standard Formulation
where x is the vector of variables to
be solved for, A is a matrix of
known coefficients,
and c and b are vectors of known
coefficients.
The expression "cx" is called the
objective function,
and the equations "Ax=b" are
called the constraints.
Assumption of Linear Programming
• Additivity of Resources and
Activities
• Linearity of the objective function
and constraints
• Divisibility of Activities and
Resources
• Finiteness of the Activities and the
Resources
• Single- Valued Expectations
• Non- negative of the Decision
Steps in Building a Linear
Optimization Model
•Define Decision Variables:
Identify what decisions need to be made and represent them
mathematically.
•Formulate the Objective Function:
Develop a linear function that represents the goal, such as maximizing
revenue or minimizing costs.
•Establish Constraints:
Express all limitations (budget, resource capacity, market demand) as
linear equations or inequalities.
•Solve the Model:
Use a linear programming solver to find the optimal solution. In R,
common packages include lpSolve, ROI, or ompr.
Benefits of Using Linear
Optimization in Business
Analytics
•Data-Driven Decision Making:
Provides a structured framework for making complex decisions based
on quantitative data.
•Resource Efficiency:
Optimizes the use of limited resources, ensuring maximum return or
minimum cost.
•Scalability:
Models can be expanded to include more variables and constraints as
business complexity grows.
•Flexibility:
Can be integrated with other analytical tools and embedded in
dashboards for real-time decision support.

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