Mathematical Modeling for Optimisation

In many business activites,you have to optimise certain variables .

Suppose you own a pick up truck which you have been using for a few
years. You may like to replace the old one for a new truck.You may
ask yourself whether it is economical to replace it or continue
to use the old one. This is called "Replacement Theory".
This is an optimisation problem.

In any optimisation problem, we have more than one factor. The factors
may be opposing to each other with respect to cost or time or some factor like usage.

Truck Replacement Problem

Here the total cost has two components. Capital cost of owning the truck
which keep decreasing with th emileage run or time .This is decreasing function--right.
The other factor is the increasing operating and maintenance costs {O&M Cost].
As time passes by,the capital cost is almost zero.But the O&M cost will go up.
A time comes when you want to sell the truck and get a new one.

Let us model first in simple formulas:

Say, capital cost C decreases linearly with mileage:
If you bought the truck for $30000.
Let the capital cost decrease 3000 dollars for every 10000 kms run.
We write : C= 30000 - 3000 * X Equation (1)
where x is the mileage run in 10000 kms.
This is a straight line decrease----called linear depreciation"-----
Accountant like to use such depreciation equations.
The book value for the truck becomes zero after 10 years according
to accountants.! We will use a better model later.
Again, for O&M costs, let us use a linear model:
O&M Cost= 1000 + 5000 * X Equation (2)
You see that O&Mcost keeps increasing with miles run as it should.

Now the Total Cost TC= C + O&M Cos

cost

An easy way to understand this is to plot both th the costs as a function of

X. Let us forma table before we plot the lines:

X C O&M Cost
0 30000 1000
1 27000 6000
2 24000 11000
3 21000 16000
4 18000 21000
5 15000 26000
6 12000 31000

Now we plot the two lines in Excel spreadsheet.

 Replacement models
32500
30000

27500
25000
22500
20000
17500
Cost

C
15000 O&M Cost
12500
10000
7500
5000
2500
0
0 1 2 3 4 5 6
miles run x 10000 kms

Now we note that the two costs are equal when miles run is
Beyond that O&M costs will increase and the total cost will go up.
The total cost is a minumum at this point where the wo lines intersect.!
Solving algebraically 30000 - 3000*X=
0*X = 1000 + 5000*X

Solving X =29000/8000
X= 3.8
X = 38000 kms
IMPROVED MODEL

The model given above is too simplistic , because we used straight line functions
and for O&M costs… real life is more complicated. The capital cost decreases rapidly as any
vehicle owner knows. The capital cost decreases as follows:
C=k/X
For our model ,let k=24000
This function called "rational expression' in Algebra
gebra. It is a better model for
 capital cost.
Now the O&M cost is not linear with miles run;it t increases much faster;let

O&M Cost= 5000*(1.1)^X

I have used a sort of 'compound interest fromula' for this cost.

The total cost TC = 24000/X + 5000*(1.1)^X

Let us form a table for these numbers:

X C O&M cost
1 24000 5500
2 12000 6050
3 8000 6655
4 6000 7320.5
5 4800 8052.55
6 4000 8857.81
7 3428.57 9743.59
8 3000 10717.94

25000
22500
20000
17500
15000
Cost

12500 C
10000 O&M cost

7500
5000
2500
1 2 3 4 5 6 7 8
miles run (10000 km)

The graph shows that the two curves cut around 3.5 or 35000 km run as the repalcement time.

This example is illustrative of many such optimisation modes used in business.

Thermal Insulation Problem

Here is a typical problem solved by engineers. You want to insulate a cylindrical pipe with
outer diameter D. With each layer of insualtion tape wound over the pipe, the path of heat flow inc
is reduced by increased diameter of D + X where X is the thickness of tape layer.Since heat flow is proport
temp difference across this layer divided by thickness X we write:
heat energysaving S= k/ X
where k is a constant to convert energy saved in terms of cost of saving.
As thickness of insulation layer increases, the cost of added insulation is proportioanl
portional
to thickness
tothickness
squared., since c
pi * [(D+X)^2 - D*D} .Expanding we will get: pi* {D*X + X*X]
Cost of Insulation C= n * [D*X + X*X] where n is a constant to convert the quantity in
Total Cost= S+C
 You can optimize by finding the value of X at which TC is a minimum.

Note that any optimization problem involves one increasing function and one decreasing function for a common va

Do it yourself Exercise
1 John wantsto buy a diesel engine for his yacht. The cost of engine increases with reliability or M
C= a+b * MTBF
MTBF is a common measure of relaibility and is expressed in hours.
16000
The maintenance cost would decrease with increased reliability or MTBF. 15000
14000
Let maintenanace
nance cost M=8000-100(MTBF/1000)^2 13000
For a = 5000 b=1 MTBF is in the range 1000 to 10000 hours. 12000
11000
Solve for the optimum value for MTBF 10000
9000
MTBF C M Total 8000
7000
1000 6000 7900 13900 6000
2000 7000 7600 14600 5000
4000
4000 9000 6400 15400 3000
2000
6000 11000 4400 15400 1000
8000 12000 1600 13600 1000 2000 3000 4000 5000 6000

Interpret the results from the table and the graphs.

2 Mike, a chemical enginer wants to build a cylindrical reactor vessel to hold

hold1000
100 cubic meters.
a height and diameter for the vessel such that the volume will be 100 cu.meter but the surface area will b
he wants to optimise the surface area for two reasons;1 to reduce the cost of sheet required to build the
2 to reduce the heat loss from the reactor vessel.
Volume= pi*r*r* h Surface area SA = 2*pi*r*h + 2*pi*r*r= 2*pi*(r*h+r*r)
Try to solve for the ratio h/r for maximum of volume/SA ratio and get V=100.
NOTE See my other articles on mathematical modeling for basic concepts
relavant to this article in www.scribd.com
This article is based on the experience of the author in mathematical modeling for aircraft systems and r
The numbers given are indicative of the real world numbers for certain systems.
 C
O&M Cost

about 38000 kms.

for capital
decreases rapidly as any

is a better model for

 C
O&M cost

a cylindrical pipe with

the path of heat flow increase
increases
and
and
heat loss
.Since heat flow is proportional to

squared.

t to convert the quantity into cost.

function for a common variable.

creases with reliability or MTBF {mean time between Failure]

C
M
Total

0 2000 3000 4000 5000 6000 7000 8000

cu.meters. He wants to choose

but the surface area will be minimum. He wants to optimise the surface area for two reasons:1 to reduce sheet area required to build the ve
heet required to build the vessel;

for aircraft systems and realted work.

area required to build the vessel 2.to reduce heat loss from the re actor vessel.