Lesson 2: Operations Decision Making PDF

Lesson2: Operations Decision Making  What is an operational decision? are choices made by an organization’s managers to govern daily activities and internal processes. are focused on completing tasks and solving immediate problems. Not to be confused with strategic decisions that focus o...

Lesson2: Operations Decision Making  What is an operational decision? are choices made by an organization’s managers to govern daily activities and internal processes. are focused on completing tasks and solving immediate problems. Not to be confused with strategic decisions that focus on the long- term vision and overall direction of the organization. contribute to the smooth daily running of a business through their ability to maintain stability, manage resources and ensure overall business performance. These decisions help meet daily challenges, maximize the efficiency of internal processes and respond to changing market needs. The Actors of the Operational Decision General management : the general management of the company is responsible for the overall vision of the organization. She makes strategic decisions that affect the entire company. Operational managers : Operational managers are responsible for implementing strategic decisions at the operational level. They supervise daily activities, set goals, and make decisions to achieve those goals. Field employees : These are all the people who carry out daily operational tasks. Their experience and expertise are essential in providing valuable information for decision-making. Support services : Departments such as human resources, finance, and IT provide essential information and services to support operations. Roles and responsibilities of operational managers Planning : operational managers develop detailed plans to achieve the objectives set by general management. They set priorities, allocate resources and establish schedules. Implementation : They oversee the implementation of operational plans, ensuring that employees perform tasks efficiently and in accordance with company standards. Monitoring and controlling : Operational managers monitor performance, identify potential problems and take corrective action when necessary. Communication : they ensure the transmission of essential information between general management and field employees.  The operational decision-making process Identify the problem or decision to be made : this could be an operational challenge, an opportunity to be seized or a situation that requires a response. Collect relevant data: include internal company information, such as financial data or performance reports, as well as external data, such as market or competitive information. The more complete and accurate the data, the better. Analyzing available options and decision making: involves weighing the pros and cons, considering the risks and opportunities, and determining the best possible option.  Implement the chosen plan : you must now put in place a concrete action plan to implement the decision; involves allocating resources, def in ing objectives, creating schedules and designating those responsible. Evaluate results : this makes it possible to check whether the decision taken was effective and whether the objectives were achieved. If necessary, adjustments can be made to improve performance. CHARACTERISTICS OF DECISIONS The significant or long lasting decisions, The time availability and the cost of analysis, and The degree of complexity of the decision. FRAMEWORK FOR DECISION-MAKING Defining the problem. Establish the decision criteria. Formulation of a model. Generating alternatives Evaluation of the alternatives. Implementation and monitoring.  DEFINING THE PROBLEM enables to identify the relevant variables and the cause of the problem. ESTABLISH THE DECISION CRITERIA is important because the criterion reflects the goals and purpose of the work efforts.  FORMULATION OF A MODEL lies at the heart of the scientific decision-making process. Model describes the essence of a problem or relationship by abstracting relevant variables from the real world situation. are used to simplify or approximate reality, so the relationships can be expressed in tangible form and studied in isolation. GENERATING ALTERNATIVES Alternatives are generated by varying the values of the parameters. Mathematical and statistical models are particularly suitable for generating alternatives because they can be easily modified. EVALUATION OF THE ALTERNATIVES is relatively objective in an analytical decision process because the criteria for evaluating the alternatives have been precisely defined. The best alternative is the one that most closely satisfies the criteria.  IMPLEMENTATION AND MONITORING are essential for completing the managerial action. The best course of action or the solution to a problem determined through a model is implemented in the business world. Then the follow-up procedures are required to ensure about appropriate action taken. This includes an analysis and evaluation of the solution along with the recommendations for changes or adjustments. Decision Methodology  Complete Certainty Methods: all relevant information about the decision variables and outcomes is known or assumed to be known; Risk and Uncertainty Methods: information about the decision variables or the outcomes is probabilistic. Extreme Uncertainty Methods: no information is available to assess the likelihood of alternative outcomes. Examples: DECISION SUPPORT SYSTEM is computer-based systems designed to aid decision-makers of any stage of the decision process in the development of alternatives and evaluation of possible course of action. Their purpose is to provide the information and analytical support that enables managers to better control and guide the decision process. Emphasis is given for giving useful information and appropriate quantitative models that support the manager’s skills. ECONOMIC MODELS Break-even Analysis is an economic model describing cost-price-volume relationships. indicates at what level of output, cost and revenue are in equilibrium’. In other words, it d e t e r m i n e s t h e l eve l o f o p e ra t i o n s i n a n enterprise where the undertaking neither gains a profit nor incurs a loss Break-Even Analysis Relationship between costs and activity level (AL) is also assumed to be linear. For every elemental cost, actual cost figures at different activity levels are plotted, and by ‘least square analysis’ a ‘line of best f it’ is obtained. This would give a f ixed cost component and a variable cost component for the elemental cost. STATISTICAL MODELS Statistical theory can help to control error associated with the amount of data used in the decision process. Decision makers utilize probabilities, which are the most basic measures of uncertainty. Probabilities attach a quantitative value (between 0 and 1) to the occurrence of an event. Events are called independent if the occurrence of one in no way affects any other one. There are three types of probabilities (a) Classical probabilities are based upon equally likely outcomes that can be calculated prior to an event on the basis of mathematical logic. (b) Empirical probabilities are based upon observed data and express the relative frequency of an event in the long run. (c) Subjective probabilities are based upon personal experience or judgment and are sometimes used to analyse one-time occurrences. DECISION TREE is a schematic representation of the alternatives available to a decision maker and their possible consequences. The term gets its name from the tree like appearance of the diagram (see Figure 2.8 below). Although tree diagrams can be used in place of a pay- off table, they are useful for analyzing situations that involve sequential decisions. is composed of a number of nodes that have branches emanating from them Square nodes denote decision points, and circular nodes denote chance events. Branches leaving square nodes represent alternatives; branches leaving circular nodes represent chance events (i.e., the possible states of nature). End of Chapter2