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

2. 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.

3. 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.

4. 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.

5. Gantt Chart
Compares planned and actual progress (from SmartDraw)

6. 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.

7. 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.

8. 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).

9. 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 weeks

10. 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.

11. 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.

12. 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

13. 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

14. Pareto Diagram to Identify Problems