What is optimization and how it improves planning outcomes

Product Manager, Advanced Analytics, IBM

When was the last time you used optimization to make a decision? If you asked me, I don't know if I'd have an answer. However, if I asked you when you last used car navigation, I'm sure you'd have no problem answering. Your car navigation system is an example of optimization. Optimization models are built to achieve a goal while considering constraints and variables. With our car navigation example, the goal is the destination, the constraints are the limited roadways, and the variables might be traffic or road closures. After considering traffic and various routes, your car navigation suggests the best path forward. Optimization has a range of applications from investment strategy -- what is the right portfolio mix for my retirement? -- to production planning -- what products should we manufacture, when and where? It is best applied when you're deciding among a large number of alternatives and more valuable when those alternatives can lead to significantly different outcomes. With car navigation it's easy to see how optimization may help you get to the office on time, but now let's explore how you can use it when you get there. 

One of the areas where optimization can have significant impact is planning. Today, organizations face a range of complex planning questions which require blending top-down (strategic) and bottom-up (tactical) planning data and expertise from across their business units. These planning decisions can have significant short and long term impacts, putting pressure on organizations to go from a plan to the right plan. 

Take production planning, for example. Production planning involves questions such as what product to produce, when to produce it, how much to produce, and where to produce it. Businesses need to respond to demand with optimal production cost, speed, and flexibility in order to maximize profit. To answer these planning questions, businesses face a series of hurdles. First, they need to assemble data from sales, marketing, operations, and finance into a single view in order to get a true picture of their business.  Second, to make the right decisions they need an easy way to evaluate options by exploring trade-offs and asking "what if" questions. Lastly, they need to act, which requires identifying the best path forward. Underpinning these activities is the need to be responsive and fast. As Forrester notes, “executing business strategies in the current macroeconomic climate requires frequent planning cycles and timely performance insight based on business results and real-world context" (Source: The EPM Market Landscape Responds To The Growth Agenda And Digital Disruption" by Paul D. Hamerman, Christopher Andrews, Victoria Boutan, April 30, 2015). Speed is the name of the game. 

Two of the offerings IBM customers use to address these challenges and determine the right decisions are Planning Analytics and Decision Optimization. Planning Analytics (formerly known as TM1) is the planning, budgeting, and forecasting backbone for more than half of the global Fortune 500. It unifies planning data from across the business, linking operational drivers to financial outcomes. This provides insight into business drivers and opportunities to adapt plans to changing business conditions. IBM Decision Optimization is used by many Global 500 companies in their most important planning and scheduling applications. It evaluates millions of possibilities, balancing trade-offs and business constraints to find the best possible solution. Together, businesses can link data from across their organization in an environment they know and love and evaluate possible planning scenarios which consider their business specific goals, constraints, and variables in order to determine the best-case, executable plan.  

The planner no longer has the tedious task of a trial-and-error approach, instead exploring scenarios with a click-of-a-button in a fraction of the time, accelerating planning cycles and improving plan quality. Organizations can capture more value in the marketplace by improving operations, save money by managing resources more effectively, and mitigate risk by gaining insight into how decisions can impact their business. 

The optimal path for a businesses varies just as much as the optimal path for a person driving to work. The power of optimization, however, isn't in finding a path, it's in finding the right path. While optimization aims to present the best option, it's ultimately up to the driver to take it.   

You can learn more and explore how IBM Decision Optimization can add value to your business.