Supplement A - Decision Making

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Supplement A -Decision Making
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Decision-Making Steps

• 1. Recognize and clearly define the decision.
• 2. Collect information, analyze alternative
  courses of action
• 3. Choose and implement the most feasible
  alternative

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Four procedures

• Break-even analysis when volume changes
• Preference matrix when multiple criteria
• Decision theory when outcomes are uncertain
• Decision tree when sequentially decision are
  made

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Break-Even Analysis
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Sensitivity Analysis
400 300 200 100 0
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Make-or-Buy Decisions
Salad Bar Fixed cost 12,000 Variable cost
1.50/salad Pre-assembled Salads Fixed cost
2,400 Variable cost 2.00/salad Annual
Demand 25,000 salads
Q
Q 19,200 salads
gt
Salad Bar is preferred
Example A.3
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Preference Matrix
Threshold score 800
Performance Weight Score Weighted
Score Criterion (A) (B) (A x B)
Market potential 30 8 240 Unit profit
margin 20 10 200 Operations compatibility 20 6 120
Competitive advantage 15 10 150 Investment
requirement 10 2 20 Project risk 5 4 20

Weighted score 750
Example A.4
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Decision theory, the process

• List a reasonable number of feasible
  alternatives.
• List the events.
• Calculate the payoff table showing the payoff for
  each alternative in each event.
• Estimate the probability of occurrence for each
  event.
• Select a decision rule to evaluate the
  alternatives

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Under Certainty
Example A.5
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Fyra besluts regler (decision rule)

• MaximinMaximera sämsta utfallet.
• MaximaxMaximera bästa utfallet.
• LaplaceRäkna ut det mest sannorlika utfallet
  för alternativen, välj det lönsammaste.
• Minimax Regret Minimera den maximala ånger
  som fås vid fel beslut.

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Under Uncertainty
Example A.6
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Under Uncertainty
Example A.6
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Under Uncertainty
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Under Uncertainty
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Under Risk
Highest Expected Value
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Decision Trees
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Decision Trees
Figure A.6
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Chapter 3 - Process Management

• What Is Process Management?
• Processes underlie all work activities
• Processes are nested within other processes

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• Process Decisions
• A new or substantially modified product or
  service is begin offered
• Quality must be improved
• Competitive priorities have changed
• Demand for product or service is changing
• Current performance is inadequate
• Competitors are gaining
• Costs have changed

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• Major Process Decisions
• Process Choice
• Vertical Integration
• Resource Flexibility
• Customer Involvement
• Capital Intensity

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Processes at manufacturing organizations

• Project process
• Selecting location for new plant in Europe
• Installing ERP for a manufacturing firms
  business processes

• Job process
• Machining precision metal tubes
• Internal consulting team at manufacturing firm

• Batch process
• Forging process to make fittings for pressure
  vessels access
• Producing a batch of textbooks at R. R.
  Donnelleys plant

• Line process
• Auto assembly
• King Soopers bread line

• Continuous process
• Oil refining process
• Bordens pasta making process

High
Low
Volume
Figure 3.1a
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Processes at service providers

• Project process
• Real estate process for leasing and constructing
  facilities for large insurance company
• Student teams field project

• Job process
• Customer service process at financial services
  firm
• General medical practice

• Batch process
• Order fulfillment process of importer/distributor
• Placing purchase orders at public relations agency

• Line process
• Cafeteria line
• Teller line at bank

• Continuous process
• Power generation plant
• Providing telephone line access

High
Low
Volume
Figure 3.1b
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Vertical Integration
Raw materials (eggs, flour, sugar)
Backward integration
King Soopers
In-house processes
Forward integration
Customers (grocery stores)
Figure 3.3
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Costs and Volume
Process 2 Special-purpose equipment
Break-even quantity
Total cost (dollars)
Process 1 General-purpose equipment
F2
F1
Units per year (Q)
Figure 3.4
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Volume and Process Decisions for Manufacturing
Low volume, make-to-order process

• Project process
• Selecting location for new plant in Europe
• Installing ERP for a manufacturing firms
  business processes

• Less vertical integration
• More resource flexibility
• More customer involvement
• Less capital intensity/automation

• Job process
• Machining precision metal tubes
• Internal consulting team at manufacturing firm

Process design choices
High volume, make-to-stock process

• More vertical integration
• Less resource flexibility
• Less customer involvement
• More capital intensity/automation

• Line process
• Auto assembly
• King Soopers bread line

• Continuous process
• Oil refining process
• Bordens pasta making process

Figure 3.5
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Volume and Process Decisions for Services
Low volume, customized-service process

• Less vertical integration
• More resource flexibility
• More customer involvement
• Less capital intensity/automation

• Project process
• Real estate process for leasing and constructing
  facilities for large insurance company
• Student teams field project

• Job process
• Customer service process at financial services
  firm
• General medical practice

Process design choices
High volume, standardized-service process

• Batch process
• Order fulfillment process of importer/distributor
• Placing purchase orders at public relations agency

• More vertical integration
• Less resource flexibility
• Less customer involvement
• More capital intensity/automation

• Line process
• Cafeteria line
• Teller line at bank

• Continuous process
• Power generation plant
• Providing telephone line access

Figure 3.6
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• Process Improvement
• The Process is Slow to Respond
• The Process Introduces Quality Problems
• The Process is Costly
• The Process is a Bottleneck
• The Process Involves Disagreeable Work

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• Designing processes a systematic approach
• Describe the strategic dimensions of the process
• Identify inputs, outputs, and customers of the
  process
• Identify the important performance measures
• Document the process with particular attention to
  the problem
• Redesign or refine the process for better
  performance
• Evaluate the changes and implement those that
  appear to give the best payoffs on particular
  performance measures

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• Three techniques
• Flow diagrams
• Process charts
• Simulation models

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Flow Diagrams
Figure 3.6
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Process Charts
Figure 3.7
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Simulation
Figure 3.9(a)