2Cost Benefit Analysis Chapters 7 - 9, in “The Complete Problem Solver” Chapter 9, in our text, “Niebel’s Methods”
3Uses and Importance of Cost Benefit Analysis Choose the most appropriate alternative to present to your managementSell the idea to your management!!If you can’t sell the idea – no change will happen.Many people new to the job market view “selling” ideas as outside their scope of responsibility and expertise, but it is an essential part of most jobs!
4Selling an idea Describe situation: What change do you propose?What alternatives were considered?What was the rationale behind the choice? (e.g. why is A better than B or C?)What are the predicted improvements? (Quality? Reliability? Performance? Cost?)How much capital will be required? (e.g. Start-up and maintenance costs).How long till capital is recovered? (Cross-over table),What is the expected lifetime of the change and what is the expected Return On Investment (ROI) over that lifetime?
5Implementing a change Choose the most appropriate alternative. Methods for to deciding between alternative solutionsValue EngineeringCost-benefit AnalysisEconomic AnalysisSell methodIdentify a process for change. Where and when will the method be piloted? Who will use it? How will they be trained? When will everyone use it?Establish base rates using reliable job evaluationsAccommodate workers of all abilities
6Choosing the most appropriate Alternative Can use all of the methods fromJ. R. Hayes, Chapter 7, 8 and 9:Dominance, Lexicographic, Additive Weighting, Satisficing,Optimistic, pessimistic and Hurwitz,Expected ValueAnd from Neibel and Freivalds, Ch. 9:Decision and Hazard Action tables,Value Engineering (same as Additive Weighting)Cost Benefit Analyses under uncertainty (CPS Chapter 9, and Multi-criteria decision making in “Neibel’s Methods Chapter 9)Cross-over charts
7Examples of Methods for comparing several alternatives Value engineering: computes a “value score” for each alternative, thus facilitating their comparison.Cost-benefit analysis: allows comparison of alternatives based on a cost/benefit ration. (Small cost/benefit is desirable).Cross-over charts: allows visualization of the total cost of several alternatives under multiple conditions.Expected return (value): allows comparison of alternatives based on a weighted average of the likely returns under various conditions.
8Decision Tables & Hazard Action Tables Hazard action tables used in safety programs,Can be used to recommend actions in emergency and disaster situations, (fire, Katrina, hospital emergency procedures)Have form:“If condition x, y, z, etc,Then do action ACan unambiguously recommend what to do in complex situations,Help by encouraging people to think of appropriate actions before an emergency arises.
9Decision tables can be used to choose between alternatives: Assembly task example:If the assembly is perfect, then put in “completed bin,”If two or fewer parts are defective, then put in “rework” bin,If three or more parts are defective, then put in “scrap” bin.Can apply to many areas:Medical room emergency procedures,sorting job applicants, etc.
10Decision Table vs Decision Matrix A decision tableJust includes simple “yes” “no” answers. Binary.Other names: “gates.” Each condition is a “gate” like that a horse would leap over.Making it through the gate is a “go/no go” decision.Good for rapidly winnowing acceptable and unacceptable solutions.A decision matrixhas multi-valued resultsExample: a table created using the weighted sums method in “The Complete Problem Solver.”Also known as “value engineering.”Good for comparing a few “good” options to find the “best.”
11Decision Table Example Foot operated press for making blades (for a hand-held knife with plastic handle):Cut blade with press using foot operated pedal,Pick up rubber nib with tweezers,Place nib on blade,Position blade on plate using stereoscope
12Problems Operators complain of pain in: WristNeckBackAnkleCome up with alternative process changesUse CTD Risk index (Fig 5-25) to calculate risk of injury from new alternatives.Calculate increases in productivity
13Costs and Benefits of each option Work design and methods changes∆ Productivity(%)∆ CTD Risk (%)Cost ($)Foot operated electric switch-11752. Adjust stereoscope-2103. Video projection system+12,0004. Gravity feed bin+7-10405. Vacuum stylus-40200
14A Decision Table Conditions Action Method Changes #1 #2 #3 Policy Company Policy says “Proceed if condition 1, and either 2 OR 3 are met:Condition 1: implementation cost is $200 or less,Condition 2: productivity increase greater than 5%Condition 3: injury risks reduced by more than 33%ConditionsActionMethod Changes#1#2#3Policy1. Electric switch---2. Adjust stereoscope3. Video projection system4. Gravity feed binProceed5. Vacuum stylusOR
15Value EngineeringValue Engineering is any technique in which you use numbers and weights to create a “value score” for each alternative (same as Additive Weighting from J. R. Hayes chapter 7).Each alternative is given a “value score” so that all alternatives can be compared.Both costs and benefits are considered.
16Cost-Benefit Analysis Small cost/benefit is good!For any C/B less than 1, benefits exceed costs – its worth doing.Each 1% increase in productivity = $645 per year,For each 1% decrease in Cumulative Trauma Disorder (CTD) risk, benefit = $60/year
17Cross-over Charts The value of an alternative may also depend on: How long is it used?How long is it in production?How many are you going to sell or purchase?Cross-over charts are good for graphically showing after how much time/production/etc. one alternative becomes better than others.Very useful tool for quickly showing your team, or your management the economic pros and cons of several options.
18Many factors must be considered when implementing changes Hawthorne Effect: the positive impact of involvement of workers in change (to get “buy-in,” similar to “participatory design.”)Resistance to change,Job evaluation: who will perform new or changed operations: A job evaluation allows company to identify importance of job to the company, and the qualifications required to perform it.
19Hawthorne EffectWorker involvement in change, and motivation can have a large impact on productivity.Initial study done at Western Electric, Co.’s Hawthorne plant near Chicago (1924 – 1927).
20Hawthorn Effect (cont.) Workers responded to change as they felt they were expected to act.Three experiments at Hawthorne plant:Illumination increased; productivity increased.Illumination decreased; productivity decreased.Illumination same, but light bulbs changed and workers allowed to believe it illumination was increaced; productivity increased.
21Hawthorne Effect (cont.) Another set of experiments (1927 – 1932), explored impact of mental attitudes on effectiveness6 operators were studied under various conditions:Group incentives,More rest breaks,Shorter work days,Shorter work weeks,Lunches or beverages at company expense,All changes discussed in advance with 6 workers, effects of changes discussed.Regardless of the condition, workers:Took fewer sick days than co-workersIncrease in social satisfaction.
22Job Evaluation First need a job description detailing: Job Title, Job responsibilities (unambiguous as possible),List of machines and tools used in the job, (e.g. forklift, microscope)Mental and physical requirements, (e.g. must have valid drivers license, certified fork-lift operator, 20/40 vision, etc.)
23Why are Job Evaluation Systems Important? Explains why one job is “worth” more than another (i.e. more pay).Provides explanation of why a change to a method results in a change in pay,Basis for matching personnel with specific qualifications to specific jobs,Determines criteria for hiring and promotion,Identify opportunities for methods improvements.
24Job Evaluation Systems Classification methodPoint system: each job is given a value “score” based on a weighted average.Factor comparison methodRanking methodFor this exam only need to go up to pg 355 in Ch. 8 – but you will need to know the whole chapter for the final exam.