Chapter 6

Quantitative
Techniques for
Planning and Decision
Making

Data-Based Decision
Making

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.
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Forecasting Methods
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.

Types of Forecasts
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.

Gantt Chart

Compares planned and actual

progress (from SmartDraw)

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)
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.

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

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.
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Decision Trees

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.
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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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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
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Pareto Diagram to Identify

Problems

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