Quantitative Techniques for Planning and Decision Making Chapter 6 Quantitative Techniques for Planning and Decision Making

Data-Based Decision Making Decisions are based on facts rather than impressions or guesses. Data-driven management uses high quality information. Data-driven managers want to see the data behind suggestion. Intuition and judgment still contribute.

Forecasting Methods Judgmental forecast uses subjective opinions. A time-series analysis estimates the future based on past trends, such as average growth per year. Three forecasting errors or traps: overconfidence, prudence, and recallability.

Types of Forecasts Economic forecasting predicts level of future business activity. Sales forecasting should be based on several estimates of future sales. Technological forecasting predicts what types of technological changes will take place, such as digitizing medical records.

Gantt Chart Compares planned and actual progress (from SmartDraw)

Milestone Charts Extends the Gantt chart by listing subactivities needed for major activities. For example, subactivities for finding tenants would include: Advertise in newspapers and online. Spread word through own network. Check credit histories of applicants.

Program Evaluation and Review Technique (PERT) PERT uses a network model to schedule activities and events. An event, or milestone, is the accomplishment of a task. An activity is a task that must be performed.

Steps in Preparing a PERT Network List activities and events needed to complete project. Draw PERT network by linking activities in proper sequence. Estimate time for each activity. Calculate critical path (most time consuming sequence of events and activities).

Time for three tasks = Completion time for project Nucleus of PERT Time for three tasks = Completion time for project Task x y 1 5.33 2 6 1.33 3 9.67 1 week 2 weeks 2 weeks

Break-Even Analysis BE = _______Fixed Cost ________ Price per unit – Variable cost Break-even analysis must be calculated frequently because fixed and variable costs may change suddenly. BEA keeps eye on volume of activity needed to justify expense.

Decision Trees Graphically illustrates alternative solutions. Expected value is average value if decision is made many times under certain conditions. Decision tree is used to help make sequence of decisions, such as expanding operations.

Economic Order Quantity (EOQ) EOQ = square root of 2DO C D = annual demand in units for product O = fixed costs of handling the order C = annual carrying cost per unit

Just-in-Time System Kanbans (cards for requirements) Demand-drive pull system Short production lead times High inventory turnover (goal is zero) Designated areas for receiving Designated containers for storage Neatness counts

Pareto Diagram to Identify Problems