Read the Management Science in Action insert on page 93 Links to an external site.in your textbook (Section 3.2 'Right-Hand Sides' in your digital textbook). Use one or more of the following topics to guide your thoughts for this week's Application Exercise: In your opinion, is the model at PAC fairer than a more basic KPI (such as gross revenue)? As a manager, what roles do efficiency and fairness play when considering all stakeholders? Give an example of how sensitivity analysis is used or could be used at your current organization or at a company you would like to work for.

MANAGEMENT SCIENCE IN ACTION EVALUATING EFFICIENCY AT PERFORMANCE ANALYSIS CORPORATION* Performance Analysis Corporation specializes in particular restaurant over the time period in the use of management science to design more question efficient and effective operations for a wide variety 2. The reduction in controllable resources or the of chain stores. One such application uses linear increase of outputs over the time period in ques- programming methodology to provide an evalua tion needed for an inefficient restaurant to be tion model for a chain of fast-food outlets. rated as efficient According to the concept of Pareto optimality, 3. A peer group of other restaurants with which a restaurant in a given chain is relatively inefficient each restaurant can be compared in the future if other restaurants in the same chain exhibit the following characteristics: Sensitivity analysis provides important manage- rial information. For example, for each constraint 1. Operate in the same or worse environment concerning a minimum acceptable output level, 2. Produce at least the same level of all outputs the dual value tells the manager how much one 3. Utilize no more of any resource and less of at more unit of output would change the efficiency least one of the resources measure. To determine which of the restaurants are Pareto The analysis typically identifies 40% to inefficient, Performance Analysis Corporation de- 50% of the restaurants as underperforming, veloped and solved a linear programming model. given the previously stated conditions concern- Model constraints involve requirements concern- ing the inputs available and outputs produced. ing the minimum acceptable levels of output and Performance Analysis Corporation finds that if conditions imposed by uncontrollable elements in all the relative inefficiencies identified are elimi- the environment, and the objective function calls nated simultaneously, corporate profits typically for the minimization of the resources necessary to increase approximately from 5% to 10%. This produce the output. Solving the model produces increase is truly substantial given the large scale the following output for each restaurant: of operations involved. 1. A score that assesses the level of so-called *Based on information provided by Richard C. Morey relative technical efficiency achieved by the of Performance Analysis Corporation