Allocating Resources Types of Resources The assets of the organization Financial: debt, equity, retained earnings, and other financial holdings Physical: buildings, equipment, raw materials, and other tangible assets Human: experiences, skills, knowledge, and competencies Intangible: brand names, patents, reputation, trademarks, copyrights, and databases Structural/cultural: history, culture, work systems, working relationships, trust, and policies Learning Objective #2 Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Exhibit 8.3 Techniques for Allocating Resources Scheduling Detailing what's to be done, in what order, by whom, and when Breakeven Analysis Determining the point where revenue and costs of a project will match Linear Programming Using a mathematical technique to solve resource allocation Budgeting Creating a numerical plan for allocating resources to specific activities Revenue Expense Profit Cash Gantt Load PERT Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Allocating Resources: Budgeting Budgets Numerical plans for allocating resources (e.g., revenues, expenses, and capital expenditures) Used to improve time, space, and use of material resources Are the most commonly used and most widely applicable planning technique for organizations Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Exhibit 8.4 Types of Budgets Variable Budget Takes into account the costs that vary with volume Fixed Budget Assumes fixed level of sales or production Cash Budget Forecasts cash on hand and how much will be needed Revenue Budget Projects future sales Profit Budget Combines revenue and expense budgets of various units to determine each unit ’ ’s profit contribution Expense Budget Lists primary activities and allocates dollar amount to each OR Source: Based on R.S. Russell and B.W. Taylor III. Production and Operations Management (Upper Saddle River, NJ: Prentice Hall, 1995), p. 287. Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Tips for Managers: Improving Budgeting Be flexible. Understand that goals should drive budgets—budgets should not determine goals. Coordinate budgeting throughout the organization. Use budgeting/planning software when appropriate. Remember that budgets are tools. Remember that profits result from smart management, not because you budgeted for them. Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Allocating Resources: Scheduling Schedules Plans that allocate resources by detailing what activities have to be done, the order in which they are to be completed, who is to do each, and when they are to be completed Represent the coordination of various activities Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Allocating Resources: Charting Gantt Chart A bar graph with time on the horizontal axis and activities to be accomplished on the vertical axis Shows the expected and actual progress of various tasks Load Chart A modified Gantt chart that lists entire departments or specific resources on the vertical axis Allows managers to plan and control capacity utilization Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Exhibit 8.5 A Gantt Chart Copy-edit manuscript Design sample pages Draw artwork Print first pages Print final pages Design cover 1 2 Month Reporting Date Activity 3 4 Actual progress Goals Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Exhibit 8.6 A Load Chart Ling Antonio Kim Maurice Dave Rashid 1 2 Month Editors 3 4 5 6 Work scheduled Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Allocating Resources: Analysis Program Evaluation and Review Technique (PERT) A flow chart diagram that depicts the sequence of activities needed to complete a project and the time or costs associated with each activity Events: endpoints for completion Activities: time required for each activity Slack time: the time that a completed activity waits for another activity to finish so that the next activity, which depends on the completion of both activities, can start Critical path: the path (ordering) of activities that allows all tasks to be completed with the least slack time Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Exhibit 8.7 Steps in Developing a PERT Network Identify every significant activity that must be achieved for a project to be completed. Determine the order in which these events must be completed. Diagram the flow of activities from start to finish, identifying each activity and its relationship to all other activities. Compute a time estimate for completing each activity. Using the network diagram that contains time estimates for each activity, determine a schedule for the start and finish dates of each activity and for the entire project. Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Exhibit 8.8 Outline of Major Events for Constructing an Office Building Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Exhibit 8.9 A PERT Network for Constructing an Office Building Critical Path: A - B - C - D - G - H - J - K Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Allocating Resources: Analysis Breakeven Analysis Is used to determine the point at which all fixed costs have been recovered and profitability begins Fixed costs (FC) Variable costs (VC) Total Fixed Costs (TFC) Price (P) The Breakeven Formula: Costs Variable Unit - Price Fixed Total Breakeven : Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Exhibit 8.10 Breakeven Analysis 70 000 60 000 50 000 40 000 30 000 20 000 10 000 100 200 300 Output (in thousands) 400 500 600 Breakeven Point Variable Costs Fixed Costs Profit Area Total Revenue Loss Costs Revenue/Cost ($) Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Allocating Resources: Analysis Linear Programming A technique that seeks to solve resource allocation problems using the proportional relationships between two variables Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Exhibit 8.11 Production Data for Cinnamon-Scented Products Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada

Exhibit 8.12 Graphical Solution to Linear Programming Problem 700 600 500 F 400 Quantity of Scented Candles 300 B 200 C Feasibility 100 Region A D E 100 200 300 400 500 600 Quantity of Potpourri Bags Chapter 8, Stephen P. Robbins, Mary Coulter, and Nancy Langton, Management, Ninth Canadian Edition Copyright © 2009 Pearson Education Canada