1. CHAPTER 7 Quantitative Techniques for Planning and Decision Making Andrew J. DuBrin Essentials of Management, 6/e South-Western College Publishing Copyright © 2003 Screen graphics created by: Jana F. Kuzmicki, PhD, Christian Brothers University

2. PP T 7.1 After reading this chapter, you should be able to: 1 Explain the use of forecasting techniques in planning. 2 Describe how to use Gantt charts, milestone charts, and PERT planning techniques. 3 Describe how to use break-even analysis and decision trees for problem solving and decision making. 4 Describe how to manage inventory by using materials requirement planning (MRP), the economic order quantity (EOQ), and just-in-time (JIT) techniques. 5 Describe how to identify problems using a Pareto diagram.

3. PP T Types of Forecasting Methods Qualitative A prediction based on a collection of subjective hunches. Quantitative A prediction based on historical data or models, such as a time-series analysis. Adapted from Exhibit 7.2 0 100 75 50 25 199019921994199619982000200220042006 % of people taking vacations during summer months Forecasted Data 7.2

4. PP T Gantt Chart: Opening a Nightclub Production Activities 01. Locate site 02. Get liquor license 03. Hire contractors for renovation 04. Supervise renovation 05. Hire lighting contractor 06. Supervise lighting installation 07. Begin advertising of club 08. Hire club employees 09. Get booking agent for nightclub talent 10. Open for business Adapted from Exhibit 7.3 JunJulAugSepOctNovDecJan Scheduled Completed 30 Nov 7.3

5. PP T Milestone Chart: Opening a Nightclub Adapted from Exhibit 7.5 Production Activities 01. Locate site 02. Get liquor license 03. Hire contractors for renovation 04. Supervise renovation 05. Hire lighting contractor 06. Supervise lighting installation 07. Begin advertising of club 08. Hire club employees 09. Get booking agent for nightclub talent 10. Open for business JunJulAugSepOctNovDecJan 1 2 3 4 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 Milestones to be Accomplished 27. Speak to friends and acquaintances about job openings 28. Put ad in local newspapers 29. Conduct interviews with applicants and check references of best candidates 30. Make job offers to best candidates 33. Have grand-opening celebration 5 January 7.4

6. PP T PERT Network: Opening a Nightclub Estimated Time in Weeks Preceding Event 5None 30A 13A 30C 6D 13E 8B, F 14G 8G, H Event A B C D E F G H I J Activity Locate site Get liquor license Hire renovation contractors Supervise renovation Hire lighting installation Supervise lighting installation Begin advertising club Hire club employees Get booking agent Open club for business 1I = Critical Path (thick arrow) Adapted from Exhibit 7.6 7.5

7. PP T PERT Network: Opening a Nightclub (continued) StartA B G H C D E F I J 5 30 14 8 8 8 13 30 6 8 1 Adapted from Exhibit 7.6 7.6

8. PP T Break-Even Chart: Adding a New Product Adapted from Exhibit 7.7 80 70 60 50 40 30 20 10 02030405060708090100 Revenues and costs ($ in thousands) Sales (units in hundreds) Revenues Total Costs Profit Loss Fixed Costs Variable Costs Break-Even Point 7.7

9. PP T First-Year Decision Tree for Nightclub Owner Adapted from Exhibit 7.8 Possible AlternativesStates of Nature Conditional Values Expected Values Decision Point Nightclub only Nightclub and dinner restaurant Good season (0.6) Poor season (0.4) $100,000 -$10,000 $150,000 -$30,000 $56,000 $78,000 7.8

10. PP T Inventory Control Techniques Just-in-Time (JIT) A system designed to minimize inventory and move it into the plant exactly when needed. Material-Requirement Planning (MRP) A system designed to ensure that materials handling and inventory control are efficient. Economic-Order Quantity (EOQ) The inventory level that minimizes both administrative and carrying costs. 7.9