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Chapter 6

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.

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Chapter 6

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  1. 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. Nucleus of PERT Time for three tasks = Completion time for project 1 week 2 weeks 2 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 OrderQuantity (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

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