Operational planning under uncertainty

Abstract

This paper is concerned with the problem of operational and production planning under varying conditions and changing economic circumstances. The effect of uncertainty on future plant operation is investigated via the incorporation of explicit future plan feasibility constraints into a two-stage stochastic programming formulation with an objective to maximize an expected profit over a time horizon, and the use of the Value of Perfect Information, VPI. This value, which is described as the difference between two alternative behavioural models of actions under uncertainty, the here-and-now and the wait-and-see models, is especially useful when a decision must be made in the face of uncertainty whether to expand capacities and/or to introduce new technologies. The importance of obtaining this information at the decision stage and properly integrating it with plan feasibility aspects is illustrated with a number of example problems.