Creating value with optimization: beyond the obvious

Creating value with optimization: beyond the obvious

Have you ever thought of in how many way optimization brings value to an organization? My long experience suggested to me at least three different answers. One is the more obvious besides two other uncommon.

The life-cycle of an optimization project includes this three main steps:

1. writing an optimization model
2. executing an optimization model
3. enjoying the results of an optimization model

Each of these steps brings more value, in term of knowledge, efficiency and cash.

You write the optimization model

Rubén Artime Torres Besides the obvious answer about the improvement in the efficiency, I think optimization helps to create value in an organization because it helps to get a better knowledge of “how things work”, that is, it improves the self-knowledge of the organization.
I have been working in optimization projects in the transport industry for more than 20 years and always the knowledge the company has about its internal procedures improves after the project. And I think this also applies to other industries.

Writing an optimization model means to translate into a mathematical model the problem to be solved.

To compile a formalization of the reality you have to understand it, guessing the few relevant modelling options. You have to ask a lot of questions to all the stakeholders and, you know, the first answers are the conventional answers. Those answers are not fully consistent nor fully exact. The good answers are those coming after some deep reasoning.

Moreover, to be effective the optimization model have to describes that 20% of the domain that brings the 80% of the value.

At this stage, even if you don’t have a working tool, the optimization model has increased the knowledge of your world, on how it works. The optimization model brings a new kind of value to your organization.

You execute the optimization model

Dustin S. Depends on the industry and product. There is no one size fits all answer(s).

At Caterpillar, we optimize solutions to many machine problems driving value to customers; however, this answer isn’t appropriate for all businesses.

Given the optimization model, you have to write a piece of software supporting it. In a non-trivial organization, to write a such a software at least two teams are involved:

• IT team, responsible for a proper implementation
• Business team, that know what to solve and what is good for the organization

Many times, another team is involved: the people in charge of the software development and expert in optimization technology.

Is teams collaboration a good value to broaden?

The implementation of an optimization problem, very often, bring on the surface other kinds of problems:

• where are the input data into the organization?
• which functions of the company are involved? Who gives the inputs and who receives the output?

Is inter-team communications a good value to broaden?

You enjoy the results of the optimization model

Khodakaram Salimifard I think, the most obvious way that optimization, and OR in general, can create values in an organization is the way it helps the decision makers to make better decisions to create values. In fact, OR is a tool to make better decisions.

Here we are in the obvious realm: an optimization model, or better a software implementing an optimization model, find the best answers to your best questions.

This means that if you want to minimize some cost, you’ll find the minimum one. And if you want to maximize some revenue, you’ll find the maximum one.

In a few words, you will improve your cash-flow. What every CEO is looking for :-)

Is there another way?

Do you think that optimization can create value in some other way? I’ll be happy to know your point of view — leave a comment at this post.