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MAS 09 - Quantitative Techniques
MAS 09 - Quantitative Techniques
NETWORK MODELS
NETWORK MODELS involve project scheduling techniques that are designed to aid the planning and
control of large-scale projects that have many interrelated activities. These models aid management in
predicting and controlling costs that pertain to certain projects or business activities.
SAMPLE APPLICATIONS: building constructions, book publishing, new product planning, feasibility
studies, research and development projects, and audit planning and scheduling
GANTT CHARTS
This is a graphical illustration of a scheduling technique in the form of a horizontal bar chart. The
project is divided into different sub-projects called activities or tasks (also called 'milestones). The starting
and completion time of activity is estimated and a bar chart is prepared showing each activity as a
horizontal bar along a time scale.
Tasks
PROGRAM EVALUATION AND REVIEW TECHNIQUE (PERT) - CRITICAL PATH METHOD (CPM)
PERT IS developed to aid managers in controlling large-Scale, complex problems.
PERT-RELATED TERMINOLOGIES
● PERT diagram is a probabilistic diagram of the interrelationship of a complex series of
activities; it is a free-form network showing each activity as line between events.
● EVENTS discrete moment in time representing the start or finish of an activity; they consume
no resources.
● ACTIVITIES - tasks to be accomplished; they consume resources (including time).
⮚ Series an activity that cannot be done unless another activity is undertaken first.
⮚ Parallel- an activity that can be performed simultaneously with another activity.
CPM, like PERT, is a network technique; however, CPM uses deterministic time and cost estimates,
among is advantages include cost estimates plus the concept of crash efforts and costs.
CPM-RELATED TERMINOLOGIES
● CRITICAL PATH Is longest path through the PERT network.
● EXPECTED TIME (t) is the average time an activity would require if it were repeated times.
te = ( t o + 4 t m + t p ) ÷ 6
● SLACK TIME the amount of time that can be added to an activity without increasing the delay
required on the critical path; the length of time an activity can be delayed without forcing a
delay for the entire project.
● CRASH TIME - the amount of time to complete an activity assuming that, under rush or urgent
condition, all available resources were devoted to the task (e.g., overtime, extra labor, etc);
any crash time spent in an activity normally would incur crash cost.
EXERCISES: PERT-CPM
1. Dayagsky Construction Firm, Inc. will soon begin to work on a building for US Tea that was initially
started by another firm that has gone out of business. The construction firm's schedule of activities
and related expected completion time for Us Tea project are presented in the following time table
Activity Code Activity Description Estimated Time (in weeks)
A–B Obtain on-site work permits 2
B–E Repair damages done by vandals 8
B–C Inspect construction materials left on site 1
C–E Order and receive construction materials 2
C–D Apply for waiver to add new materials 3
D–E Obtain waiver to add new materials 2
E–F Perform electric work 6
F–G Complete interior partitions 4
REQUIRED:
A) Prepare the PERT network for the US Tea project.
B) What is the critical path and its expected time in weeks?
1
C) What is the shortest path and its slack time in weeks?
25 2-6
2. A company is faced with the following PERT network situation for a certain project (time in days):
A
8 FINISH
S
4
1- 7 O
I N G
REQUIRED:
A) Determine the expected time (t.) for each activity.
B) Identify the critical path(s).
C) What is the shortest time to complete the entire project?
PROBABILITY ANALYSIS
2 Ube-AM Rita-PM Company plans to introduce a new product that requires an initial cash investment of P
440 If the product becomes successful, the net cash inflow is forecasted at P 800. However, if the
product becomes a failure, net cash inflow is estimated at P 200.
REQUIRED:
A) If the probability of success is 70%, what is the value of act "to invest?
B) What probability-percentages should be assigned to the events 'success' and 'failure" to be
indifferent between the two actions "to invest" and not to invest?
LEARNING CURVE
LEARNING CURVE describes the efficiencies arising from experience, because with experience comes
increased productivity. This productivity increases with production size, but at a decreasing rate as
diagrammed below:
The time required to perform a given task becomes progressively
shorter, but this is applicable only to the early stages of production.
Cumulative Production
REQUIRED:
A) What is the cumulative average time per unit after four (4) units are completed?
B) How many hours are required to produce a total of two (2) units?
C) How many hours are required to produce the second unit?
2. Which of the following unfavorable variances would be directly affected by the relative position of a
production process on the learning curve?
a. Material price c. Labor rate
b. Material usage d. Labor efficiency
INVENTORY MODELS
INVENTORY MODELS are usually devised to minimize the costs associated with inventory while
maintaining certain level of inventories needed to sustain smooth operations.
At EOQ, a firm incurs the lowest total inventory costs computed as follows
CARRYING ORDERING
COSTS COSTS
Average inventory is computed as follows:
● No safety stock: EOQ ÷ 2
● With safety stock: (EOQ ÷ 2) + safety stock
● If EOQ is not available: (Beginning Inventory + Ending inventory) ÷ 2
● LEAD TIME IS period from the time an order 1S placed until such time the order is received.
⮚ NORMAL (AVERAGE) LEAD TIME - this refers to the usual delay in the receipt of ordered goods.
⮚ MAXIMUM LEAD TIME - this adds to normal lead time a reasonable allowance for further delay.
● NORMAL LEAD TIME USAGE = normal lead time x average usage
● SAFETY STOCK = (maximum lead time - normal lead time) x average usage
● RE-ORDER POINT (without safety stock) = Normal lead time usage
● RE-ORDER POINT (with safety stock) = Normal lead time usage + safety stock
= maximum lead time x average Usage
When applied to production operations, the EOQ formula is used to compute the Economic Lot Size
(ELS)
Where: o → Set-up cost per batch of production
ELS = 2Do D → Annual production requirement
c c → Cost of carrying one unit for one year
EXERCTSES INVENTORY MODELS
1. Shirley Company requires 40,000 shells for its signature product, "Pearly Shirl”. The shells will be used
evenly throughout the year The cost to place one order is P 20 while the cost to carry the she is in
inventory for one year is P 0 40.
REQUIRED:
A) What is the optimal order quantity (EOQ)
B) How many orders should be placed within the year
C) What is the average inventory in units?
2. Based on an analysis, the optimal order quantity is 4,000 units. Annual inventory carrying costs equal
30% of the average inventory level. The company pays P 10 per unit to buy the product and P 400 to
place an order The monthly demand for the product is 5,000 units.
3. Asher subsidiary Purchases 7,500 units of laundry soap per annum. The company works 300 days per
year. The average or normal purchase lead time is 7 working days while maximum lead-time is IO
working days.
REQUIRED:
A) How many units should Asher maintain as safety (buffer) stock
B) What is Asher's reorder point for the laundry soaps?
4. Each stock-Out of a product sold by Fermina Company costs P 2,000 per occurrence. The carrying cost
per unit of inventory is P 5 per year and the company orders 1,500 units of product 18 times a year at a
cost of P 200 per order. The probability of a stock-out at various levels of safety stock is:
Units of Safety Stock Probability of a Stock-Out
0 50%
200 30%
400 14%
600 5%
800 1%
What is the optimal level of safety stock for the company?
a. 200 units c. 600 units
b. 400 units d. 800 units
SOLUTION GUIDE
5. Marka Bookstore publishes a book about accounting Set-up cost is P 10. Marka prints 675 copies of the
book evenly throughout the year. The optimal production run (economic lot size) is 30.
REQUIRED:
How much is the unit carrying cost per year?
SOLUTION GUIDE
Maximize revenue
OBJECTIVE Maximize net profit
Minimize costs and expenses
Limited resources must be allocated to the company's most profitable products so that net income is
maximized. Linear programming models are extremely helpful in the analysis and solution of resource
allocation problems.
Simplex method is a much detailed linear programming technique especially useful if there are more than
two variables in a linear programming problem
2. Neo Corporation produces a product in 50-gallon batches. The basic ingredients used for material B are
costing P 20 per gallon and for Material A, costing P 10 per gallon. No more than 1 gallon of A can be
used, and at least 15 gallons of B must be used.
REQUIRED:
How would the objective function (minimization of product cost) be expressed?