Management Decision Making Flashcards
Three ways in which paired comparisons can be used to analyse data and generate management decision.
Actual performance to target - what we have got against what we expect.
This months performance to last month to see if we are improving or deteriorating.
This month’s performance to the same month last year to see if we are improving or deteriorating, but allowing for seasonal trends.
Critique the paired comparison approach described in (a) above, and suggest a more appropriate data analysis regime to generate more robust decisions
Paired comparisons use to little data to draw conclusions: Does a difference indicate a problem with either point or both?
This approach takes no account of the longer term trends. Perhaps both points could be exceptionally high compared to longer term trends. This would be masked.
There is no mechanism for accurately assessing whether the point is part of the system (common cause) or outside the system (special cause).
If a target is used for part of the comparison, there is no guarantee that the target is appropriate for the process under consideration.
A more appropriate approach would be to use control charts for the data which would use natural (or control) limits to indicate the significance of each point in terms of understanding whether a special cause had occurred,
Describe how purchasing the cheapest available components can lead to the increase in overall costs of a design.
The lowest purchase price does not ensure the minimum total cost. The acquisition price is one aspect of the total cost of an item throughout its life cycle. If purchase decisions are made with no measure of the quality of the product being assessed, the whole system will drift to one of low price, poor quality and high subsequent costs. A problem with low cost parts can have consequential costs much higher than the initial savings from the purchase decision.
If the purchasers constantly force their suppliers based on price from one project to another, the suppliers will be forced to cut corners in their design when bidding for work and in the production systems subsequently. How much better it is to develop a long-term relationship with suppliers so that they can innovate and develop economies of scale?
