Sensitivity analysis with finite changes: An application to modified EOQ models

In this work, we introduce a new method for the sensitivity analysis of model output in the presence of …nite changes in one or more of the exogenous variables. We de…ne sensitivity measures that do not rest on di¤erentiability. We relate the sensitivity measures to classical di¤erential and comparative statics indicators. We prove a result that allows us to obtain the sensitivity measures at the same cost of one-variable-at-a-time methods, thus making their estimation feasible also for computationally intensive models. We discuss in detail the derivation of managerial insights formulating a procedure based on the concept of “Settings”. The method is applied to the sensitivity analysis of a discrete change in optimal order quantity following a jump in the exogenous variables of a nonlinear programming inventory model. Acknowledgments The author wishes to thank the anonymous referees for the very insightful and perceptive comments, that have resulted in improvement of the previous versions of the present manuscript. Financial support from the ELEUSI research center is gratefully acknowledged.