Stochastic Programming with Recourse: A Modification from an Applications Viewpoint

The paper describes a modified "wait-and-see" approach to solving two-stage stochastic programming problems. The approach, which involves a detailed sensitivity analysis in the classical sense, is described within the frameworks of decision theory and probabilistic programming. Although optimality in the mathematical sense cannot be guaranteed by using the approach, it is suggested that the managerial benefits weigh heavily in its favour. The approach allows management to consider a wide variety of objectives in making the choice between alternatives and facilities detection of the cause of any infeasibility due to management policy constraints. In addition, it allows much simpler programming calculations and provides an upper bound on the benefits that can be obtained by solving the full "here-and-now" problem and thus a judgement of the worth of the added computational burden can easily be made.