Chapter 6
Quantitative Techniques
for Planning and
Decision Making
Data-Based Decision
Making



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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.
2
Forecasting Methods

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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.
3
Types of Forecasts
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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.
4
Gantt Chart

Compares planned and actual progress
(from SmartDraw)
5
Milestone Charts

1.
2.
3.
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.
6
Program Evaluation and
Review Technique (PERT)

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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.
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Steps in Preparing a
PERT Network
1.
2.
3.
4.
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).
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Nucleus of PERT
Time for three tasks =
Completion time for project
1 week
2 weeks
2 weeks
9
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.
10
Decision Trees


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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.
11
Economic Order
Quantity (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
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12
Just-in-Time System
1.
2.
3.
4.
5.
6.
7.
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
13
Pareto Diagram to Identify
Problems
14