Module 8: Optimization I

Introduction

Optimization has been around for a long time, in fact, it was used way before business analytics was even ‘invented’, but is so powerful that it is still used all the time. Optimization is the process of minimizing or maximizing something under a set of constraints. For example, one could try to find the fastest way to work at 9 o’clock in the morning. There are several constraints in this problem, such as the maximum speed allowed and the traffic on the different roads. Many business problems can also be framed as optimization problems, where the goal usually is to minimize the cost of producing a product, but under the constraint that the product should still be of a certain quality. In this module we will look at a relatively simply problem first, and in the next module we will look at a more realistic problem setting.

Optimization is very useful in and of itself but as we saw in cluster analysis, it can also be used as a tool to implement other business analytics approaches.

Module Objectives

• Recognize an optimization problem
• Describe what an objective, decisions, and constraints are
• Illustrate how solutions to optimization problems are found
• Implement a simple optimization problem in Excel
• Prepare the Excel solver for an optimization problem

Learning Resources

• Module 8 Readings: First half of Chapter 4
• Module 8 Slides: First half of Chapter 4

Learning Activities

• Module 8 Assignment