Benefits of Optimization

There are three main business benefits of optimization:

1 Efficiency

We can make decisions that mean we can do more with less. For example, we can use optimization to maximize production with existing resources within existing facilities. We can reduce energy consumption; we can reduce transportation manpower, commissions or overhead costs. In finance, we can minimize the number of shares held to track an index.

2 Revenue

In a similar way, optimization can be used to increase business revenue or earnings. For example, we can minimize production costs by making more product from existing facilities, or making a product of certain characteristics from the cheapest materials. We can use optimization to increase revenue, i.e., produce the maximum possible from a particular operation, carry as much as possible from one point to another or provide the highest level of insurance cover. We can construct a portfolio with characteristics as close as possible to target characteristics; we can maximize the number of transactions between a given set of sell and buy bids.

3 Understanding and performance assessment

Optimization gives a unique insight into all sorts of situations where decisions are involved. It can be used to benchmark performance, for example current performance against the best possible. Optimization provides information about the costs of limitations for example, what additional profits could be made if a limit were moved or removed? In the same way it can give insight into the implied costs of policy decisions or arbitrary rules. Further insight is gained when an optimization model of a process or situation is created; making the model is instructive as is performing what-if analyses. Once an optimization model is built, it can be used for what-if analysis, for instance, by modeling the impact of a new opportunity, plant, ingredient, or process.