Optimum capacity of shared accommodation: yield management analysis

Abstract

Purpose Low utilisation is observed in many buildings and space‐sharing is often identified as a facilities management response, but uncertainty about demand makes it difficult to decide how much shared accommodation to provide. The purpose of this paper is to analyse similar problems in the discipline of yield management, a branch of operations research. Design/methodology/approach The “newsvendor problem” in yield management is adapted and applied the to the space‐sharing problem. The mathematical model identifies the optimum capacity for specified values of input variables. The model is illustrated with worked examples for systematic variation in three factors: the average demand (three values), the penalty cost ratio (six values), and demand uncertainty (three values). Findings The optimum capacity for shared accommodation can be mathematically determined. It varies considerably with the case‐specific values given to input variables. Three “principles of optimality” are defined that apply to optimum capacity for a given demand, or alternatively to optimal loading for a given capacity. Research limitations/implications The variation between different cases shows that optimal capacity must be assessed for specific contexts. The mathematical model makes simplifying assumptions that have not yet been tested in real‐world situations. A comparison between optimal and actual performance would reveal whether there are opportunities for significant enhancement in facilities management performance. Originality/value Applications of yield management ideas to the space sharing problem have not been found in the literature.

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