Operations management Flashcards

1
Q

Location and scale (optimal Location)

A

An optimal location decision is the best site for a new business or for relocating an existing one, which should maximise with long term profits

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2
Q

Factors that affect location

A
  • the high fixed costs of the site with convenience for customers and potential sales
  • the low costs of a remote site with the limited supply of suitably qualified labour
  • quantitative factors with qualitative factors(see below)
  • the opportunities of receiving government grants in areas of high unemployment with the risks of low sales because of low average incomes in these areas
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3
Q

Drawbacks of non-optimal location:

A

-High fixed site costs: Leads to high break-even level of production, Low profits or even losses and if capacity utilisation is low, unit fixed costs will be high

-High labour costs: Low contribution per unit produced or sold, low profits or even losses, high average variable costs which reduces competitiveness

-Low employment rate: Problems with recruiting suitable employees, high labour turnover, wage may have to increase to attract and retain workers.

-High employment rate: Average disposable income low, resulting in relatively low demand for income-elastic products

-Poor transport infrastructure: Raises transport costs for materials and finished products. Relatively inaccessible to customers. Difficult to operate (JIT) due to unrelaible deliveries.

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4
Q

Quantitative factors that determine location and relocation decisions:

A

-Site and other fixed costs such as buildings: Cost of building on a “greenfield” site (one that has been never been developed), should be compared with the costs of adapting existing buildings on developed site.

-Labour costs: Location is a factor on whether the business adopts capital intensive or labour intensive production method.

-Transport costs: Businesses that use heavy and bulky raw materials incur high transport costs if suppliers are at a great distance from the steel plant. Service industries, such as hotels and retailing, need to be conveniently located for customers, and transport costs are of less significance.

-Potential revenue: Level of revenue achieved by a business is influenced by revenue.

-Government grants: Incentive to encourage businesses to operate in their country to reduce areas of uneployment.

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5
Q

Qualitative factor that determine location and relocation decisions:

A

-Profit estimates: Comparing estimated revenue of each location, the site with the highest amnual profit may be identified.

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6
Q

Factors that influence the scale of operations of a business:

A
  • owners’ objectives – they may wish to keep the business small and easy to manage
  • capital available – if this is limited, growth will be less likely
  • size of the market the firm operates in – a very small market will not require large-scale production
  • number of competitors – the market share of each firm may be small if there are many rivals
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7
Q

Economies of scale:

A

Decrease in unit costs as the scale of production increases

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8
Q

External economies of scale:

A

Economies of scale (cost advantage) to the whole industry not just a particular company

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9
Q

Internal economies of scale:

A

-Purchasing economies: Discounts offered by suppliers through bulk purchases

-Technical economies: Large businesses able to justify costs of flow production, using most advanced technical equipment

-Financial economies: Large firms being able to obtain a bank loan at very low interest rates. Due to proven track record and diversified products

-Marketing economies: Marketing costs can be spread over a higher level of sales for a big business and this offers a substantial economy of scale.

-Managerial economies: Business expansion provides finance to employ more efficient, skillfull functional managers.

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10
Q

External diseconomies of scale:

A

Diseconomies (Cost disadvantage) for the whole industry, where unit costs for businesses operating in that industry will rise

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11
Q

Internal diseconomies of scale:

A

-Communication problems: Large scale businesses lead to communication problems such as poor communication of feedback from and to workers and distortion of messages caused by the long chain of command. Which may lead to poor decisons being made. Reduces management efficiency and leads to higher average costs.

-Alienation of workforce: Bigger the organisation, more difficult it is to involve every employee, May lead to lack of sense of purpose and achievement. Job-enrichment methods helps reduced Alienation of workforce

-Poor coordination: Business expansion leads to inability to efficiently communicate and coordinate, to ensure all departments are achieveing the same objectives.

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12
Q

How to overcome the impact of diseconomies of scale:

A

Management by objectives: Will assist in avoiding coordination problems by giving each division and department objectives to work towards to achieve long-term goals of the whole business.

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13
Q

Decentralisation:

A

Provides business divisions with autonomy and freedom, Must avoid pursuing conflicting objectives, as it results in poor coordination.

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14
Q

Reduce diversification

A

A less diversified business that concentrates on core activities may help to reduce coordination problems and communication problems. This could be achieved by a demerger. Which reduces the risk of diseconomies of scale occurring.

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15
Q

Quality Management

A

A quality product does not need to be made with the highest quality materials, but must meet the consumers expectations.

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16
Q

The importance of quality:

A
  • helps create customer loyalty
  • reduces costs of customer complaints: paying compensation, replacing defective products
  • helps prolong product life cycles
  • reduces the cost of advertising, as the brand will establish a quality image through the performance of its products
  • raises the prices that can be charged for quality goods and services.
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17
Q

How business competitiveness is affected by quality:

A
  • Reducing prices is not necessarily the best method of increasing competitiveness.
  • Consistent high quality can lead to such a well-known brand image that higher prices can be justified for this unique selling point (USP).
  • Average consumer incomes are increasing which raises consumer expectations.
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18
Q

Quality control

A

Quality control: Inspecting or checking, usually of the completed product or of the service as it is being provided to a consumer.

Businesses can use quality control and quality assurance to achieve quality output.

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19
Q

Quality control methods

A

-Prevention: This is the most effective way of improving quality. If the design of the product satisfies the requirements of the customer and allows for accurate production, then the other two stages will be less significant.

-Inspection: It involves high costs as technically qualified inspectors are needed to check the finished product.

-Correction and improvement: correcting faulty products but is also correcting the process that caused the fault in the first place. This will improve quality in the future.

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20
Q

Quality control inspection

A

Quality inspection is expensive as qualified engineers have to be used.

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21
Q

Impact of quality control on business:

A
  • Inspectors believe that they have been successful when they find faults. This can cause resentment among workers.
  • Employees may view inspectors as management employees who are there just to check on output and to find problems with the work. This mistrust is not good for working relationships and the overall levels of morale in the firm.
  • The job of inspection can be tedious, so inspectors become demotivated and may not carry out their tasks efficiently.
  • If checking takes place only at a few points in the production process, faulty products may pass through several production stages before being picked up.
  • It reduces workers’ responsibility for quality. Inspectors have full authority for checking products. This lack of responsibility is demotivating and will result in lower- quality output.
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22
Q

Quality assurance

A

Setting agreed quality standards at all stages of production to ensure that customers’ satisfaction is achieved.

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23
Q

Importance of Quality assurance

A
  • Puts much emphasis on the prevention of poor quality by designing products for easy fault-free manufacture and this should result in getting the quality right first time
  • Stresses the importance of workers aiming for zero defects, so reducing the chances of faulty products being made or expensive reworking of faulty goods
  • establishes quality standards and targets for each stage of the production process for goods and services
  • checks components, materials and services bought into the business at their point of arrival, and not at the end of the production process.

-involves self-checking by workers of their own output against these agreed quality standards.

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24
Q

Stages at which quality is improved

A

-Product design: The product needs to be designed to meet the expectations of consumers.

-Quality of inputs: Quality must not be let down by bought-in components. Suppliers will have to accept and keep to strict quality standards.

-Production quality: This can be improved by all employees taking quality seriously and being responsible for it. Workers should realise that quality levels must not drop below pre-set standards.

-Delivery systems: Customers need goods and services delivered at times that are convenient to them. The punctuality and reliability of delivery systems must be monitored.

-Customer service, including after-sales service: Continued customer satisfaction will depend on the quality of contact with consumers after purchase. This is a form of customer relationship marketing

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25
Q

Possible impacts of quality assurance on business:

A
  • Everyone is responsible for quality – this can be a form of job enrichment.
  • Worker motivation is increased when employees are responsible for self-checking products and services, and being involved in efforts to improve quality.
  • The system can be used to trace quality problems back to the stage of the production process where aproblem is occurring.
  • It reduces the need for the high costs of final inspection and reworking of faulty products.
  • Quality standards are set for all stages of production. The quality of work at each stage is assessed against these standards before the product is completed.
  • It reduces total quality costs. An overall culture of quality can lead to reduced costs of wastage and faulty products.
  • It can gain accreditation for quality assurance awards such as ISO 9000. These awards can give a business great status and can be used in promotions for its products.
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26
Q

To obtain the ISO 9000 certificate, a business must demonstrate that it has:

A

-Employee training and appraisal methods
-Methods for checking on suppliers
-Quality standards in all areas of the business including after-sales service

-Procedures for dealing with defective products and quality failures.

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27
Q

Total quality management (TQM):

A

an approach to quality that aims to involve all employees in
quality improvements. includes: quality chains, quality circles, zero defects, concept of internal customers and kaizen.

The impact of total quality management on business: Everyone within a business has a contribution to make to the overall quality of the finished product or service.

-TQM should almost eliminate the need for a separate quality control department

-TQM aims to cut the costs of faulty or defective products and to achieve zero defects. With TQM, if quality is improved and guaranteed, the demand for the products will rise over time.

-TQM will only work effectively if everyone in the business is committed to the idea. TQM will not operate well in a rigid and authoritarian structure.

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28
Q

Benchmarking

A

Comparing the business against the performance standards of the best businesses in the same industry.

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29
Q

Stages in the benchmarking process:

A
  1. Identify benchmark performance indicators (BPI).: Decided by interviewing customers and finding out what they consider to be most important.
  2. Measure performance in these areas: For example, reliability records, delivery records and the number of customer complaints could be used to gather data.
  3. Identify the businesses in the industry that are considered to be the best:
  4. Use BPI data from the best businesses to establish the weaknesses in the business: Data could be obtained from other businesses From published accounts,or contact with customers and suppliers.
  5. Set standards for improvement: These might be the standards set by the best firms or they could be set even higher to create a competitive advantage.
  6. Change processes to achieve the standards set
  7. Re-measure: The changes to the process need to be checked to see if the new, higher standards are being reached.
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30
Q

Importance of benchmarking in quality management:

A
  • ## More effective way of identifying and solving business problems than trying to solve production or quality problems without external comparisons.The areas of greatest significance for customers are identified, and action is directed to improving these.
  • It is a process that can help a business increase international competitiveness.
  • Comparisons between businesses in different industries
  • It is important to involve the workforce, then their participation can lead to better ideas for improvement and increased motivation.
  • Internal benchmarking is comparing performances of different divisions of the same business. Uses internal data which is easy to obtain.
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31
Q

Limitations of benchmarking in quality management:

A
  • Benchmarking depends on obtaining relevant and up-to-date information from other businesses in the industry. If this is difficult to obtain, then the process will be limited.
  • Merely copying the ideas and practices of other businesses may discourage initiative and original ideas.
  • The costs of the comparison exercise may not be recovered by the improvements obtained from benchmarking.
32
Q

Quality management: an evaluation

A
  • It is a fundamental aspect of all successful businesses.
  • Quality is an issue for all businesses should also make the quality of their products and customer service a priority to survive in competitive markets.
  • Improving quality has obvious cost advantages if the rate of defective products is reduced. Satisfying customers gives clear advantages when seeking further sales. Involving workers in quality-improvement programmes can lead to a more motivated workforce.
  • Improving quality needs to be the driving force throughout the business.
  • Must achieve the quality of product or service that the customer expects. This will encourage customers to return in the future.
33
Q

Strategic operations decisions include:

A
  • expanding or reducing capacity
  • locating a business or relocating it
  • offshoring or reshoring
  • outsourcing
  • changing operations (production) methods
  • application of IT and AI.
34
Q

long-term decisions require the operations department to assess the resources of the whole business

A
  • Expand capacity: will require long-term sales forecasts from the marketing department, a revised workforce plan from human resources and financial resources to pay for it. If these resources are not available, the decision to expand might have to be abandoned.
  • Relocate operations: will require a suitable supply of labour in the new location, financial resources to pay for the costs of buying and developing the site. If these resources are not available or are inadequate, then an alternative site will be needed, or the decision could even be made to remain on the existing site.
35
Q

Computer-aided design (CAD)

A

using computers and IT when designing products.

36
Q

The benefits of CAD include:

A
  • lower product development costs
  • increased productivity
  • improved product quality
  • quicker development of new products and reduced time to bring them to market
  • good visualisation of the final product and its major components
  • great accuracy, so errors in production are reduced.
37
Q

limitations of CAD include:

A
  • High complexity and cost of the programs
  • need for extensive employee training
  • it requires large amounts of computer processing power, which can be expensive.
38
Q

Computer-aided manufacturing:

A

the use of computers and computer-controlled machinery to speed up the production process and make it more flexible.

39
Q

The benefits of CAM include:

A
  • Precise manufacturing and reduced quality problems.
  • Faster production and increased labour productivity.
  • More flexible production operations, which allow quick changeover from one product to another.
  • Integrating with CAD and CAM allows more design variants of a product to be produced. This means that niche products can be produced as well as mainstream mass-market products, often on the same production line. Mass customisation increases the competitiveness of businesses in both small and large market segments.
40
Q

The limitations of CAM include:

A
  • Costs of hardware, programs and employee training. These costs may mean that smaller businesses cannot access the benefits of CAM, although technology is becoming cheaper.
  • Hardware failure and breakdowns can occur, which can be complex and time-consuming to solve.
  • Quality assurance is still needed. Errors in programs can produce faults that have to be spotted and rectified before being passed on to the next stage of production.
41
Q

AI applications in business operations

A

-Can automate repetitive and commonly occurring tasks to increase productivity and improve customer service.
-Can boost productivity by having ability to reduce search time and process more data to inform decisions.

-Can improve operational efficiency, customer satisfaction and the working experience of employees.

42
Q

Other AI applications in business operations include

A
  • banking applications for processing loan requests, which give customers a much quicker response
  • online payment systems which identify potential fraud
  • legal applications for identifying relevant previous court cases
  • manufacturing applications for scheduling the best time to maintain equipment
  • pharmaceutical research and development applications for predicting the success of medical drugs that are being developed
  • cyber security software to monitor online behaviour, detect abnormal behaviour, issue alerts and respond to threats.
43
Q

The importance of operational flexibility

A

Can improve business efficiency by:

  • Adapting the volume of output to changes in market demand
  • Changing delivery time schedules to meet changes in the timing of customer requirements
  • Responding to the demand from customers for unique or unusual product specifications.
44
Q

Process innovation

A

The use of a new or much improved production method or service delivery method.

Examples:

  • robots in manufacturing
  • faster machines to manufacture microchips for computers
  • computer tracking of inventories (e.g. by using bar codes and scanners) to reduce the chances of customers finding businesses out of stock
  • internet tracking of the exact location of parcels being delivered worldwide to improve the speed of delivery.
45
Q

ERP

A

The use of a single computer application to plan the purchase and the use of resources in an organisation to improve the efficiency of operations.

-ERP software will monitor all of these stages.

46
Q

Benefits of ERP

A
  • Supply only according to demand, avoiding waste also achieving sustainability in its operations.
  • More effective utilisation of capacity and quicker response to changes, such as variations in consumer demand, also a result of the greater workforce flexibility
  • Just-in-time ordering of inventories
  • Reductions in costs at all stages of the supply chain. Materials and products are electronically tracked at all stages.
  • More accurate costing and pricing of products as components and labour costs are appropriately allocated to each product.
  • Improved delivery times and better customer service.
  • Departments linked more closely together by the single database, resulting in better coordination between them and less waste.
  • Management information is increased. Data from all stages of the production process is available to senior management via the computer system. This could help in future decision-making (e.g. changing suppliers if lower-priced supplies of consistent quality are
    offered).
  • Financial management: Better control over assets, cash flow and accounting
47
Q

Limitations of ERP

A
  • The costs of the database and computer systems are expensive
  • Employee training costs have to be incurred as a badly implemented ERP system could make operations less efficient.
  • The different ways in which different departments can operate now have to be reduced to one
    common system. This may cause resentment as departments are forced to give up tried-and-tested
    ways of operating.
  • In most businesses the full implementation of ERP can take one to three years. Technological
    advances over this period could make the chosen software obsolete. Financing further investment in
    the most up-to-date ERP system might require other projects to be abandoned.
48
Q

Lean Production

A

Involves producing goods and services with the minimum of wasted resources while maintaining high quality. Aims to increase efficiency and produce quality output using minimum resources

49
Q

Sources of wasted resources

A
  • excessive transportation of components and products
  • excessive inventory holding
  • unnecessary movement by employees (e.g. to get supplies of components from the storeroom)
  • waiting time (delays in the production process)
  • over-production (producing in excess of demand)
  • over-processing (making goods that are too complex although they could have been designed more
    simply)
  • defects (products that do not come up to quality standards and have to be rejected or corrected)
  • underutilised talent (not giving employees the opportunity to use all of their abilities).
50
Q

Kaizen

A

Continuous improvement

51
Q

Conditions are necessary for kaizen to operate

A
  • Management culture must allow for employee involvement. Employees’ views and ideas should be given great importance.
  • Teamworking is essential. Suggesting and discussing new ideas to improve quality or productivity is best done in groups. Each group may be empowered to put their own ideas into practice.
  • Each kaizen group should be given the power to take decisions regarding workplace improvements. This leads to the quick introduction of new ideas and motivates employees to come up with even more ideas.
52
Q

Limitations of the kaizen approach

A
  • Kaizen will only work effectively if there is real empowerment of the groups involved. Authoritarian managers find this impossible to accept.
  • In the short term, there may be tangible costs to the business of such a scheme, such as employee training and lost output as a result of group meeting times.
  • The most important advances tend to be made early on during the kaizen programme. Later changes can be less significant. Some business analysts believe there could be diminishing returns from
    kaizen.
  • Some changes cannot be introduced gradually and may need a radical and expensive solution such asnan AI-based operations system.
53
Q

Quality circles

A

voluntary groups of workers who meet regularly to discuss work-related problems and issues

54
Q

Advantages: of quality circle

A
  • They improve quality through joint discussion of ideas and solutions.
  • They improve motivation through participation.
  • They make full use of the knowledge and experience of the employees.
55
Q

Disadvantages: of quality circle:

A
  • Circle members must be committed to improving quality.
  • Members must be given training in holding meetings and problem-solving.
  • They need full support from management.
  • Teams should be empowered to implement the recommendations.
56
Q

Simultaneous engineering

A

-Product development is organised so that different stages are done at the same time insteadof in sequence.

-A method of developing new products by ensuring that essential design, market research, costing and engineering tasks are done at the same time as each other (simultaneously) –not one after the other (sequentially).

-New products will be way earlier in the market than in the case of sequential engineering

57
Q

Cell production

A

-Cell Production: splitting flow production into self contained groups that are responsible for whole work units.

-Significant improvements in worker commitment and motivation because there is teamwork and a sense of ‘ownership’ of the complete unit of work

-Job rotation within the cell

-Increased productivity.

58
Q

Just-in-time inventory-control principle

A

Eliminating buffers, reducing transfer distance and streamlining processes mean higher- quality products will be delivered to customers more quickly

59
Q

Waste management

A

The entire lean production approach is about reducing the causes of waste in business organisation. Specifically, the waste of physical resources, resulting from damage in inventory or defective products that have to be rejected

60
Q

Waste can be reduced by:

A
  • JIT to reduce inventory holdings and the risk of damage before materials and components are needed in production.
  • Adopting TQM and zero-defect principles. These reduce the cost of resources which have to be rejected for failure to reach quality assurance standards.
  • The use of production methods that allow for the use of recycled materials. This will also improve the sustainability of the operations of the business.
61
Q

Main advantages of lean production

A
  • Waste of time and resources is reduced or eliminated: sustainability of operations is improved.
  • Efficiency is increased and average costs are reduced, leading to higher profits.
  • The work area is less crowded and easier to operate in.
  • There is less risk of damage to inventories as lower (or even zero) levels are held.
  • New products are launched more quickly.
  • Quality is improved.
  • Employees’ jobs are enriched, their roles enhanced and motivation improved.
  • Flexible working improves capacity management by allowing resources to be switched from processes with spare capacity to processes reaching maximum capacity.
62
Q

Operations planning

A

Major operations decisions often involve major projects, such as relocation, factory or office space expansion, and changes in operations methods.

63
Q

Need for planning operations:

A

Operations decisions need to be planned carefully to minimise resource use, including the time taken to complete the chosen project.

64
Q

Other examples of business projects include

A
  • setting up a new IT system
  • relocating company operations
  • installing new machinery
  • marketing products in another country
  • building a factory.

-All these projects involve the use of resources. Labour, buildings, machines)

-Resources are expensive. Most expensive resource is one that is not used or underused.

-Unused inventories take up space and working capital, machinery left idle wastes capital and can require protective maintenance, and labour left waiting for supplies to arrive will add unnecessarily to the wages bill.

-Efficient firms always aim to use their resources as intensively as possible and avoid wasted time and idle assets.

65
Q

CPA

A

CPA uses network diagrams to indicate the shortest possible time in which a project can be completed.

66
Q

The process of using CPA:

A
  1. Identify the objective of the project (e.g. build a factory in six weeks).
  2. Put the tasks that make up the project into the right sequence and draw a network diagram of that sequence (see below).
  3. Add the durations of each of the activities.

4.Identify the critical path – those activities that must be finished on time for the project to be finished in the shortest time.

5Use the network as a control tool when problems occur during the project.

67
Q

Network diagrams

A

A network diagram can be drawn to help identify the critical path.

68
Q

How the critical path is determined

A

The critical path is indicated by calculating, at each node, the earliest start time (EST) and the latest finish time (LFT).

69
Q

Calculating EST

A

earliest start time than an activity can commence based on the completion of the previous activity

70
Q

Calculating LFT

A

latest finish time by which the previous activity must be completed

  • work from right to left
  • the last node would have the total project time so that will be put as the LFT (lower half of the circle)
  • from then you minus the duration of each activity going backwards
71
Q

Calculating float times for non-critical activities

A

All of the non-critical activities (those not on the critical path) will have a certain amount of spare time.

-This spare time is called float. There are two types: total float and free float.

72
Q

Total float:

A

an amount of time an activity can be delayed without delaying the whole project duration

LFT - duration – EST

73
Q

Free float:

A

length of time an activity can be delayed without delaying the start of the following/proceeding activities

EST (next activity) – duration – EST (this activity)

74
Q

Dummy activities

A

-Dummy activities: a device to show logical dependency between activities, but which consume no time and no resources themselves

-It is shown by a dotted line on a network diagram.

-It shows a logical dependency between other activities that must be included in certain networks to prevent an illogical path from being created.

75
Q

The benefits of critical path analysis (CPA)

A

-Allows businesses to give accurate delivery dates

-Calculating EST for each activity allows manager to order special equipment or materials needed for the task at the correct time. Effective use of working capital and helps in managing cash flow

-Calculating LFT of each activity provides a useful control tool for the operations manager.

-Knowing the critical path is important. If there is a delay on a critical activity, as there is no float time, this will put back the timings of the whole project

76
Q

Further benefits of CPA

A

-Additional resources for speeding up a critical activity could come from a the on critical ones. This allows a better and more efficient use of firm’s resources.

-The sequential and logical structure of the diagram lends itself well to computer applications and nearly all business applications of network analysis are now run on computer

-The need to put all activities into sequence in order to structure the diagram forces managers to plan each project carefully by putting activities in correct order

-Network diagram gives design and engineering departments an advantage by showing them the tasks which can be undertaken simultaneously, reducing the total time to develop new products/projects.

77
Q

CPA Evaluation

A

-CPA is a planning and control technique to assist with project management. Cannot guarantee success by itself, and requires execution through skilled and motivated employees.

-Experienced managers must identify cheapest options to switch resources between non critical and critical activities when looking to compensate for the lost time on critical path.

-When using CPA for a new project, considerable guesswork is involved in estimating the durations of each activity.

-Although the drawing of network diagram and calculation of floats is aided by computers, it can still take hours to put a complex project onto a computer. This time and cost must be justified by the efficiency savings of applying the technique.