Please re-write this discussion board to avoid plagiarism. You can use the exact same citation listed on here.
“Solving linear problems provides a manager with invaluable information that allows him/her to make the most profitable decision for the organization. Sensitivity analysis expands on this idea and applies it to more real world scenarios where the numeric coefficients in the model, might change from day to day or minute to minute, (Ragsdale, 2013 p.p. 139). Any number of things, like changes in a predicted profit or the availability of additional resources of a constraint variable can impact these coefficients and completely alter the optimal solution to the existing problem. Sensitivity analysis addresses these issues by assessing the sensitivity of the solution to uncertainty or estimation errors in the model coefficients, as well as the solutions sensitivity to changes in model coefficients that might occur because of human intervention. (Ragsdale, 2013 p.p. 140)
There are widespread applications for sensitivity analysis in managerial decision making. One example in the text discusses the consideration of adding a new model of hot tub to Blue Ridge Hot Tubs existing product line. Of course, with a new a product comes additional need for resources/materials like tubing and pumps. As in the example, managers can use the original model and LP problem and a sensitivity analysis to decide whether or not the introduction of this new product is financially feasible for the organization, given its available resources (constraints). In this case, the organization found that the new product would not be profitable, however, the company might choose to produce a small number of Typhoon Lagoons (new hot tub model) to enhance its product line for marketing purposes, (Ragsdale, 2013 p.p. 149).
While this may be helpful, other organizations may not be interested in creating a new product that is predicted to cost them money solely for marketing purposes. Wholesalers, for example, may use sensitivity analysis to, determine how much the profit figures could change before the optimal solutionwould change, (Ragsdale, 2013 p.p. 145). When considering the purchase of a certain amount of inventory, a wholesaler may use its predicted profit, limited labor hours and storage capacity, to decide the quantity of the product to purchase. Once a model is created, and LP problem solved, a manager may use sensitivity analysis to see how much these predicted profits can fluctuate before the quantity to be purchased changes. This will give the manager guidance as to how much negotiating room he/she has in the future sale price of this inventory, in order to remain as profitable as possible.
Ragsdale, C. (2013). Spreadsheet Modeling & Decision Analysis: A Practical Introduction to Business Analytics (7th ed.) Boston, MA: Cengage.”