[Optimization Models For Revenue Management]

by

ACKNOWLEDGEMENT

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

I, [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

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ABSTRACT

Most profit oriented organizations are constantly striving to improve their revenues while keeping costs under control, in a continuous effort to meet customers'? demand. After its proven success in the airline industry, the revenue management approach is implemented today in many industries and organizations that face the challenge of satisfying customers? uncertain demand with a relatively fixed amount of resources. Revenue management has the potential to complement existing scheduling and pricing policies, and help organizations reach important improvements in profitability through a better management of capacity and demand. The work presented in this thesis investigates the use of revenue management techniques in the service sector, when demand for service arrives from several competing customer classes and the amount of resource required to provide service for each customer is stochastic. We look into efficiently allocating a limited resource (i.e., time) among requests for service when facing variable resource usage per request, by deciding on the amount of resource to be protected for each customer and surgery class. The capacity allocation policies we develop lead to maximizing the organization's expected revenue over the planning horizon, while making no assumption about the order of customers? arrival. After the development of the theory in Chapter 3, we show how the mathematical model works by implementing it in the healthcare industry, more specifically in the operating room area, towards protecting time for elective procedures and classes. By doing this, we develop advance patient scheduling and capacity allocation policies and apply them to scheduling situations faced by operating rooms to determine optimal time allocations for various types of surgical procedures. The main contribution is the development of the methodology to handle random resource utilization in the context of revenue management, with focus in healthcare. We also develop a heuristics which could be used for larger size problems. We show how the optimal and heuristic-based solutions apply to real-life situations. Both the model and the heuristic find applications in healthcare where demand for service arrives randomly over time from various customer segments, and requires uncertain resource usage per request.

TABLE OF CONTENTS

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

CHAPTER 1: INTRODUCTION7

Problem Statement11

CHAPTER 2: LITERATURE REVIEW12

Revenue Management12

Value of Healthcare Revenue management20

Effects of Revenue management on Changing Healthcare22

Overbooking24

Healthcare25

Mapping Revenue Management Concepts To The Healthcare Environment33

CHAPTER 3: METHODOLOGY43

CHAPTER 4: DISCUSSION AND ANALYSIS46

Case Analysis49

Problem Complexity54

Heuristic Solution55

CHAPTER 5: CONCLUSION59

Model Extension61

Forecasting demand and deciding on the length of the booking period62

REFERENCES64

CHAPTER 1: INTRODUCTION

Revenue, or yield management (RM) has been an intensely researched topic, of great practical interest in many industries, since its incipient phases in the airline industry, in the ...