Dynamic facility location when the total number of facilities is uncertain: A decision analysis approach

Abstract

Models developed to analyze facility location decisions have typically optimized one or more objectives, subject to physical, structural, and policy constraints, in a static or deterministic setting. Because of the large capital outlays that are involved, however, facility location decisions are frequently long-term in nature. Consequently, there may be considerable uncertainty regarding the way in which relevant parameters in the location decision will change over time. In this paper, we propose two approaches for analyzing these types of dynamic location problems, focussing on situations where the total number of facilities to be located in uncertain. We term this type of location problem NOFUN (Number Of Facilities Uncertain). We analyze the NOFUN problem using two well-established decision criteria: the minimization of expected opportunity loss (EOL), and the minimization of maximum regret. In general, these criteria assume that there are a finite number of decision options and a finite number of possible states of nature. The minisum EOL criterion assumes that one can assign probabilities for the occurrence of the various states of nature and, therefore, find the initial set of facility locations that minimize the sum of expected losses across all future states. The minimax regret criteria finds the pattern of initial facility locations whose maximum loss is minimized over all possible future states.

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