Operations are the processes within organizations that acquire inputs (people, capital, and

material) and transform these inputs into outputs (services and goods) consumed by the public.
Operations Management is decision making involving the design, planning, and control of the
many factors that affect operations.
Goods (physical products) produced by organizations
For profit
Not-for-profit
Services (intangible products) produced by organizations
For profit
Not-for-profit
Operation Strategy: Operations should be linked to the organizations strategy to achieve the
greatest benefit
Operations Add Value:
1. Consumer

-willing to pay more for a product than the costs of the inputs

2. Private sector

-profits can be reinvested

3. Public sector

-creates greater wealth for society

Technology and Operation:

Product technology cellular phone change demand for competing products & customer
behavior
Process technology lasers change the way services and goods are produced
Global Trade and Competition
Relative Advantage:

Relative advantage is the difference between the lowest cost producer and the next lowest cost
producer.
Relative advantage leads to the percentage of world production moving between nations, and
creating Global Markets.
A system is a group of items, events, or actions in which no item, event, or action occurs
independently.
Supply Chain Management
Supply Chain: The sequence of organizations - their facilities, functions, and activities - that are
involved in producing and delivering a product or service
Sometimes referred to as value chains
Facilities: The sequence of the supply chain begins with basic suppliers and extends all the way
to the final customer

Warehouses
Factories
Processing centers
Distribution centers
Retail outlets
Offices

Functions and Activities:

Forecasting
Purchasing
Inventory management
Information management
Quality assurance
Scheduling
Production and delivery
Customer service

Supply Chain Management (SCM)

It is the strategic coordination of business functions within a business organization and

throughout its supply chain for the purpose of integrating supply and demand

management.
Synchronize a firms functions and activities and those of its suppliers to match the flow

of materials, services, and information with customer demand.

Poor coordination among supply chain partners in the U.S. food industry wastes about
$30 billion per year

Need for Supply Chain Management

Supply chain management (SCM) represents one of the most significant paradigm shifts
of modern business management by recognizing that individual businesses no longer
compete as solely autonomous entities, but rather as supply chains (Chen and Paulraj,

JOM, 2004).
Every business organization is part of at least one supply chain, and many are part of
multiple supply chains.

SCM Managers:

People at various levels of the organization who are responsible for managing supply and

demand both within and across business organizations.

Involved with planning and coordinating activities:
-Sourcing and procurement of materials and services
-Transformation activities
-Logistics

Key SCM Issues

The goal of SCM is to match supply to demand as effectively and efficiently as possible
Key issues:

Determining appropriate levels of outsourcing:

Managing procurement
Managing suppliers
Managing customer relationships

Being able to quickly identify problems and respond to them

Managing risk

Trends in Supply Chain Management

Reevaluation of Outsourcing

Outsourcing for the reasons of lower labor and materials costs, insufficient capacity, lack

of expertise/competency, etc.
Firms are realizing other costs such as transportation, inventory, duty costs, and the issues
of long lead time (lack of flexibility), intellectual property theft, which all should be
considered in outsourcing decisions.

Risk Management

Supplier quality and product safety (e.g., toys recall).

Long lead time and security issues increase the potential for disruption.

Lean Supply Chains

Use Pull rather than Push systems to better match supply with demand.
Using a limited number of certified suppliers can eliminate the need for inspection and
strengthen relationships for continuous improvement.

Sustainability

Outsourcing significantly increases carbon footprint (corporate social responsibility)

Environmental and social responsibility
Localization instead of Globalization

Benefits of Supply Chain Management

Lower inventories

Higher productivity

Greater agility

Shorter lead times

Higher profits

Greater customer loyalty

Procurement

The purchasing department is responsible for obtaining the materials, parts, and supplies
and services needed to produce a product or provide a service.

The goal of procurement

Develop and implement purchasing plans for products and services that support
operations strategies

Duties of Purchasing

Identifying sources of supply

Negotiating contracts

Maintaining a database of suppliers

Obtaining goods and services

Managing supplies

Purchasing Cycle
1. Requisition received
2. Supplier selected
3. Order is placed
4. Monitor orders
5. Receive orders
E-business: It is the use of electronic technology to facilitate business transactions
Applications include

Internet buying and selling

E-mail
Order and shipment tracking
Electronic data interchange
Product and service promotion
Provide information about products and services

Advantages of E-Business

Companies can:

Have a global presence

Improve competitiveness and quality

Analyze customer interests

Collect detailed information

Shorten supply chain response times

Realize substantial cost savings

Also allows the:

Creation of virtual companies

Leveling of the playing field for small companies

Choosing Suppliers

Vendor analysis: refers to Evaluating the sources of supply in terms of price, quality,
reputation, and service

Suppliers Audits and Certification

Supplier audit is a means of keeping current on suppliers production (or service)

capabilities, quality and delivery problems and resolutions, and performance on other
criteria

Supplier certification: This involves a detailed examination of a suppliers policies and

capabilities. The process verifies the supplier meets or exceeds the requirements of a
buyer

Suppliers Relationship Management

Type of relationship is often governed by the duration of the trading relationship
Short-term: Oftentimes involves competitive bidding. Minimal interaction
Medium-term: Often involves an ongoing relationship
Long-term: Often involves greater cooperation that evolves into a partnership

Collaborative forecasting, planning, and replenishment (CFPR)

A supply chain initiative that focuses on information sharing among supply chain
trading partners in planning, forecasting, and inventory.

Collaborative Planning, Forecasting, and Replenishment

Focuses on information sharing among trading partners

Forecasts can be frozen and then converted into a shipping plan

Eliminates typical order processing

Inventory Management

Inventory issues in SCM

Inventory location

Centralized inventories

Decentralized inventories

Inventory velocity

The speed at which goods move through a supply chain

The bullwhip effect

Inventory oscillations that become increasingly larger looking backward

through the supply chain

The Bullwhip Effect

Variations in demand cause inventory fluctuations to fluctuate and get out of control

Inventory fluctuation can be magnified by

Periodic ordering

Reactions to shortages

Forecast inaccuracies

Order batching

Sales incentives and promotions

Liberal product return policies

Results in

Higher costs

Lower customer satisfaction

Mitigating the Bullwhip Effect:

Good supply chain management can overcome the bullwhip effect

Strategic buffering

Replenishment based on need

Vendor-managed inventory

Holding inventory at a distribution center rather than at retail outlets

Vendors monitor goods and replenish retail inventories when supplies are low

Order fulfillment

The process involved in responding to customer orders

Often a function of the degree of customization required

Common approaches

Engineer-to-order (ETO)

Make-to-order (MTO)

Assemble-to-order (ATO)

Make-to-stock (MTS)

Logistics: refers to the movement of materials and information within a facility and to
incoming and outgoing shipments of goods and materials in a supply chain

Incoming and Outgoing Shipments:

Traffic management

Overseeing the shipment of incoming and outgoing goods

Handles schedules and decisions on shipping method and times, taking

into account:

Costs of shipping alternatives

Government regulations

Needs of the organization

Shipping delays or disruptions

Radio frequency identification (RFID)

A technology that uses radio waves to identify objects, such as goods in supply
chains

Similar to barcodes but

Are able to convey much more information

Do not require line-of-sight for reading

Do not need to be read one at a time

Types:

Active

Passive

Third-party logistics (3-PL)

The outsourcing of logistics management

Includes

Warehousing and distribution

Managing Returns
Reverse Logistics

The process of transporting returned items

Products are returned to companies or third party handlers for a variety of reasons and in
a variety of conditions

Elements of return management

Gatekeeping

Screening returned goods to prevent incorrect acceptance of goods

Avoidance

Finding ways to minimize the number of items that are returned

Creating an Effective Supply Chain

It begins with strategic sourcing

Analyzing the procurement process to lower costs by reducing waste and nonvalue-added activities, increase profits, reduce risks, and improve supplier
performance

There must be

Trust

Effective communication

Information velocity

Event management capability

Performance metrics

Challenges

Barriers to integration of organizations

Getting top management on board

Dealing with trade-offs

Small businesses

Variability and uncertainty

Response time

Trade-Offs
Lot-size-inventory trade-off: Large lot sizes yield benefits in terms of quantity discounts and
lower annual setup costs, but it increases the amount of safety stock (and inventory carrying
costs) carried by suppliers
Inventory-transportation costs: Suppliers prefer to ship full truckloads instead of partial loads
to spread shipping costs over as many units as possible. This leads to greater holding costs for
customers
Cross-docking: A technique whereby goods arriving at a warehouse from a supplier are
unloaded from the suppliers truck and loaded onto outbound truck, thereby avoiding warehouse
storage.
Lead time-transportation costs: Suppliers like to ship in full loads, but waiting for sufficient
orders and/or production to achieve a full load may increase lead time
Product variety-inventory: Greater product variety usually means smaller lot sizes and higher
setup costs, as well as higher transportation and inventory management costs

Delayed differentiation: Production of standard components and subassemblies which are held
until late in the process to add differentiating features
Cost-customer service: Producing and shipping in large lots reduces costs, but increases lead
time
Disintermediation: Reducing one or more steps in a supply chain by cutting out one or more
intermediaries

What is supply chain management

Explain the benefits of supply chain management
Explain the challenges of supply chain management.
Suggest ways of improving on the supply chain of any business
JOB DESIGN and CAPACITY PLANNING
Human Resource Strategy: The objective of a human resource strategy is to manage labor and
design jobs so people are effectively and efficiently utilized.
1. People should be effectively utilized within the constraints of other operations
management decisions
2. People should have a reasonable quality of work life in an atmosphere of mutual
commitment and trust
Labor Planning:
Employment Stability Policies
1. Follow demand exactly
Matches direct labor costs to production
Incurs costs in hiring and termination, unemployment insurance, and premium
wages
Labor is treated as a variable cost
2. Hold employment constant

 Maintains trained workforce

Minimizes hiring, termination, and unemployment costs
Employees may be underutilized during slack periods
Labor is treated as a fixed cost
Work Schedules:
Standard work schedule
Five eight-hour days
Flex-time
Allows employees, within limits, to determine their own schedules
Flexible work week
Fewer but longer days
Part-time
Fewer, possibly irregular, hours
Job Classification and Work Rules:
Specify who can do what
Specify when they can do it
Specify under what conditions they can do it
Often result of union contracts
Restricts flexibility in assignments and consequently efficiency of production
Job Design: Specifying the tasks that constitute a job for an individual or a group
1. Job specialization
2. Job expansion

3. Psychological components
4. Self-directed teams
5. Motivation and incentive systems
Labor Specialization: it is the division of labor into unique tasks
First suggested by Adam Smith in 1776
1. Development of dexterity and faster learning
2. Less loss of time
3. Development of specialized tools
Later Charles Babbage (1832) added another consideration
4. Wages exactly fit the required skill
Job Expansion: Adding more variety to jobs
Intended to reduce boredom associated with labor specialization
Job enlargement
Job rotation
Job enrichment
Employee empowerment
Psychological Components of Job Design: Human resource strategy requires consideration of
the psychological components of job design
Core Job Characteristics:
Jobs should include the following characteristics
Skill variety
Job identity

 Job significance
Autonomy
Feedback
Self-Directed Teams: it is a group of empowered individuals working together to reach a
common goal
May be organized for long-term or short-term objectives
Effective because
Provide employee empowerment
Ensure core job characteristics
Meet individual psychological needs
To maximize effectiveness, managers should:
Ensure those who have legitimate contributions are on the team
Provide management support
Ensure the necessary training
Endorse clear objectives and goals
Financial and non-financial rewards
Supervisors must release control
Benefits of Teams and Expanded Job Designs:
Improved quality of work life
Improved job satisfaction
Increased motivation
Allows employees to accept more responsibility

 Improved productivity and quality

Reduced turnover and absenteeism
Limitations of Job Expansion:
1. Higher capital cost
2. Individuals may prefer simple jobs
3. Higher wages rates for greater skills
4. Smaller labor pool
5. Higher training costs

Motivation and Incentive Systems:

Bonuses - cash or stock options
Profit-sharing - profits for distribution to employees
Gain sharing - rewards for improvements
Incentive plans - typically based on production rates
Knowledge-based systems - reward for knowledge or skills
The Visual Workplace:
Use low-cost visual devices to share information quickly and accurately
Displays and graphs replace printouts and paperwork
Able to provide timely information in a dynamic environment
System should focus on improvement
The Visual Workplace:
Visual signals can take many forms and serve many functions

 Present the big picture

Performance
Housekeeping
Ethics and the Work Environment:
Fairness, equity, and ethics are important constraints of job design
Important issues may relate to equal opportunity, equal pay for equal work, and safe
working conditions
Helpful to work with government agencies, trade unions, insurers, and employees
Labor Standards:
Effective manpower planning is dependent on a knowledge of the labor required
Labor standards are the amount of time required to perform a job or part of a job
Accurate labor standards help determine labor requirements, costs, and fair work
Capacity:
The throughput, or the number of units a facility can hold, receive, store, or produce in a
period of time
Determines fixed costs
Determines if demand will be satisfied
Design and Effective Capacity:
Design capacity is the maximum theoretical output of a system
Normally expressed as a rate
Effective capacity is the capacity a firm expects to achieve given current operating
constraints
Often lower than design capacity

Utilization and Efficiency:

Utilization is the percent of design capacity achieved
Utilization = Actual output/Design capacity
Efficiency is the percent of effective capacity achieved
Efficiency = Actual output/Effective capacity
Capacity and Strategy:
Capacity decisions impact all 10 decisions of operations management as well as other
functional areas of the organization

Capacity decisions must be integrated into the organizations mission and strategy
Capacity Considerations:
Forecast demand accurately
Understand the technology and capacity increments
Find the optimum
operating level
(volume)
Build for change
Managing Demand
Demand exceeds capacity
Curtail demand by raising prices, scheduling longer lead time
Long term solution is to increase capacity
Capacity exceeds demand
Stimulate market

 Product changes
Adjusting to seasonal demands
Produce products with complementary demand patterns
Tactics for Matching Capacity to Demand:
1. Making staffing changes
2. Adjusting equipment
Purchasing additional machinery
Selling or leasing out existing equipment
3. Improving processes to increase throughput
4. Redesigning products to facilitate more throughput
5. Adding process flexibility to meet changing product preferences
6. Closing facilities
Break-Even Analysis: It is a technique for evaluating process and equipment alternatives
Objective is to find the point in dollars and units at which cost equals revenue
Requires estimation of fixed costs, variable costs, and revenue
Product design is concerned with the efficient and effective generation and development of
ideas through a process that leads to new products.
Product Designers conceptualize and evaluate ideas, making them tangible through
products in a more systematic approach.
Their role is to combine art, science and technology to create tangible three-dimensional
goods.

 This evolving role has been facilitated by digital tools that allow designers to
communicate, visualize and analyze ideas in a way that would have taken greater
manpower in the past.
Product design is conceptualization of an idea about a product and transformation of the idea
into a reality. To transform the idea into reality a specification about the product is prepared. This
specification is prepared by considering different constraints such as production process,
customer expectation, etc. In product design stage every aspects of the product are analyzed.
Also final decision regarding the product is taken on the basis of the analysis. This decision can
be any aspect related to the product, e.g. dimension and tolerances, type of material for every
components, etc.
Product design is one of the most important and sensitive factor for an organization. Success or
failure of the product decides companys business, market share and reputation. So during design
stage various factors related to the product needs to be addressed.
Objectives of product design:
To ensure growth of the organization
To utilize the surplus capacity of the organization, such as physical facility, man power,

etc.
To utilize the surplus fund of the organization
To meet new requirement of the customers
To increase companys market share and to target new market segment
To ensure complete product range in companys portfolio

Features of a good product design:

Functionality: The product must function properly for intended purpose.
Reliability: The product must perform properly for the designated period of time.
Productivity: The product must be produced with a required quantity and quality at a
defined and feasible cost.
Quality: The product must satisfy customers stated and unstated needs.
Standardization: The product should be designed in such a fashion so that most of the
components are standardized and easily available in the market.
Maintainability: The product must perform for a designated period with a minimum and
defined maintenance. Adequate provision for maintenance should be kept in the product.

 Cost effectiveness: The product must be cost effective. The must be manufactured in the
most cost effective environment.
Concepts of product design:
1. Research & development:
Basic research is a search for new knowledge. It does not have any immediate application, but
based on the basic research new product can be developed in future. Applied research has
objective of developing commercial products.
2. Reverse engineering:
Reverse engineering is the process of carefully dismantling a product, understanding its design
and developing a product which is better than the existing one.
3. CAD-CAM:
By using 3D modeling software system, designers develop a computerized model of a new
product and analyze its design parameters. After computer aided design (CAD), computer aided
manufacturing (CAM) system produce the product by using CNC facility.
4. Concurrent engineering (CE):
CE is different than conventional approach of design. In CE, different co-related teams are
formed, which perform different activities for developing a product. For example, development
of market concept, design of product, development of manufacturing process, selection and
arrangement of material for new design is performed by different teams at the same time. It
reduces considerable amount of time to develop a new product.
In practice different concepts are combined and applied together to design a new product
Steps of product design:
Synthesis: Try to develop different alternatives
Sketching: Draw sketches in exact scale for different alternatives
Analysis: Analysis different alternatives with respect to operability, maintainability, inspection,
assembling and dismantling issues, cost parameters, production methods, etc.
Selection: Select the best alternative

Basic engineering: Prepare layout in exact scale, calculate strength of components, select proper
cost effective material.
Detail design: Prepare detail engineering drawing for each component
Prototype: If option is there, then prepare prototype and test it
Manufacturing: If prototype is not made, then follow manufacturing steps and solve
manufacturing problems and assembly problems, if any.
Operation: collect feedback during actual operation of the new product. If any problem exists,
try to provide design based solution. Also, implement lessons in the future design.
Product development: If any modification can be done, implement the same in the next
generation product.

Typical Phases of Product Design & Development:

A Product Development Process is the entire set of activities required to bring a new product
concept to a state of market readiness.
Product design is the organization and management of people and the information they develop
in the evolution of a product.
A Design Process is the set of technical activities within a product design process that work to
meet marketing and business case vision
Idea Generation and Selection
Concept Development
Product Planning
Product/Process Engineering
Pilot Production/Ramp-Up

Concurrent Engineering:
is defined as the simultaneous development of project design functions, with open and

interactive communication existing among all team members for the purposes of reducing
time to market, decreasing cost, and improving quality and reliability.

Teams provide the primary integration mechanism in CE programs

There are three types of teams

Program Management Team

Technical Team

Design-Build Teams

Time savings of CE programs are created by performing activities in parallel

Designing for the Customer:

Quality Function Deployment

Interfunctional teams from marketing, design engineering, and manufacturing

Voice of the customer

House of Quality

Designing for the Customer:

Value Analysis/Value Engineering (VA/VE

Achieve equivalent or better performance at a lower cost while maintaining all functional
requirements defined by the customer

Does the item have any design features that are not necessary?

Can two or more parts be combined into one?

How can we cut down the weight?

Are there nonstandard parts that can be eliminated?

Types of Processes:

Conversion (ex. Iron to steel)

Fabrication (ex. Cloth to clothes)

Assembly (ex. Parts to components)

Testing (ex. For quality of products)

Break-Even Analysis:

A standard approach to choosing among alternative processes or equipment

Model seeks to determine the point in units produced (and sold) where we will start
making profit on the process or equipment

Model seeks to determine the point in units produced (and sold) where total revenue and
total cost are equal

Break-Even Analysis (Continued)

Break-even Demand=
Purchase cost of process or equipment
Price per unit - Cost per unit
or
Total fixed costs of process or equipment
Unit price to customer - Variable costs per unit
This formula can be used to find any of its components algebraically if the other parameters are
known
Break-Even Analysis (Continued)

Example: Suppose you want to purchase a new computer that will cost $5,000. It will be
used to process written orders from customers who will pay $25 each for the service. The
cost of labor, electricity and the form used to place the order is $5 per customer. How
many customers will we need to serve to permit the total revenue to break-even with our
costs?

Break-even Demand:

= Total fixed costs of process or equip.

Unit price to customer Variable costs
=5,000/ (25-5)
=250 customers

Process Flow Design

A process flow design can be defined as a mapping of the specific processes that raw
materials, parts, and subassemblies follow as they move through a plant

The most common tools to conduct a process flow design include assembly drawings,
assembly charts, and operation and route sheets

DECISION MAKING PROCESS FOR OPERATIONAL:

Decision making is the process of taking the right choice out of a variety of possible
alternatives.
TYPE OF DECISIONS
There are mainly two types of decision making process namely:
Reactive and
Pro active
Facing a situation, you have to decide. For example, you are surrounded by the fire: What do you
do? Do you jump through the windows and risk killing yourself, or do you wait for the firemen
and risk being burned to death if they come too late?
In this case, the choice to not act and to wait the firemen is also a decision. Unfortunately, many
people are unable to decide: One day, they opt for a solution and the next morning they opt for
another. Indecisiveness plays a great role in the history of many events that have gone wrong.
It's not sufficient to be able to decide. You must take the good decision! Taking a good
decision is crucial because there is always a lot of uncertainty about the future and about the
actions that other people can take. All the decision making process aims is to reduce this
uncertainty.

Just imagine another example: you head a food catering company which provides schools with
meals. A TV journalist announces that three children have been transported to the Hospital and
that the cause seems to be food poisoning. He calls you for a hot interview: What would you say,
what would you do?
Difference between the two

Books only describe how to deal with proactive decisions such as starting a business,
partnering or merging. These decisions allow time for studying the options.

On the contrary, the reactive decisions that you have to make facing a disaster do not
allow any time. You have to act under the pressure of time and circumstances and of
course such decisions are both the most important and difficult.

Reactive Decision:

Reactive decision must be carefully prepared in order to act quite

automatically when the event occurs. A bad event with either a high or either a low probability is
a risk. The first step is to carefully study the risks which could strike your business.
Risk Assessment Matrix
Each business is exposed to specific risks connected with its main activity.
For example, Banks, currency traders and jewelers are currently exposed to difficulty. It's not
only a matter of insurance. It's a matter of life or death according how you react.
Businesses connected to chemicals, foods and drugs are currently exposed to poisoning risks,
ecological threats and food diseases. Travel agencies can be exposed to terrorism in some
countries. All businesses are exposed to labor accidents, fire, earthquake, volcanic eruption,
fraud and so on. In some countries, you must take in account civil wars, revolution and riots in
urban areas.
All these events can never be planned. It is quite impossible to identify or to predict their
chances: They occur suddenly and you have to decide suddenly too.
List your risks:

In any preparation, the first step is to list your risks and their probability. To simplify, just
identify high probability and low probability.

For example, with growing insecurity, a criminal attack must be graded as a high
possibility for any business involved in money business or gem trade. On the contrary, a
travel agency has a low probability to be confronted with a hitch.

The second task is to estimate the impact of the event. You can distinguish the accident,
the disaster and the catastrophe. With an accident, your business will go on as usual. A
disaster implies a long recovery and a catastrophe means that your business is terminated.

Establish your risk assessment matrix:

When you have finished this analysis, you draw up your risk assessment matrix.

You write in each square, the risks you have listed according to their probabilities and
their impacts.

Whatever their low or high probabilities, all the risks that are fully insured could be put in
the left part of the drawing: low impact. However, you have to analyze: For example a

burglary by night has a low impact because insurance should pay.

On the contrary, a hold up causing the death of customers and employees has a high
impact: Of course insurance will pay but you will nevertheless suffer moral prejudice and

a bad impact for your image.

Then, you have to prepare yourself for taking decision
Of course, you can never prevent these events to occur because zero risk never exists.

Nevertheless, you can reduce the probability of the risks.

Firstly, adopt and implement some preventive measures: Reinforce the defenses of the
bank. Have a good driver and maintenance for your tourist bus. Have good anti-virus for

your internet site and so on. It does not prevent the risk but just reduces its probability.
Secondly, according to your risk assessment matrix, establish the best emergency plans.
Thirdly, you must be aware that once the event occurs, most people are in panic. In this
case, the best plan becomes ineffective because people are emotionally unable to apply it.
It means that you have to prepare for a chain of automatic decisions that everybody can
follow up without having to think.

Proactive Decision Making: Fortunately, proactive decisions are more frequent than reactive
decisions. We bear in mind that daily business decisions and solutions rely on well-known tools.
Decision making implies a phase of preparation and a phase of execution

The Process of Decision Making/Proactive:

1) Preparation.
2) Define the Problem.
3) Collect Information/ Data.
4) Assess the consequences of each option.
5) Define your options and best alternative.
6) Plan & Execution.
7) Make a follow up.
1. Preparation: Preparation is a must. You know the event :("Do I start a business or not") but
you do not know the consequences: Is it a good decision? What are the probabilities of doing
well or inversely, to be impoverished?
2. Define the problem: In any problem, you have to establish the causes and the symptoms.
Knowing the causes, you can recommend a solution just as a doctor does.

Unfortunately, most often there are different possible solutions such as A, B, and C. What
is more, you do not know the chances of success of A, B, or C!

3. Collect information: One way for reducing uncertainty is to collect information. For
example: Will you partner with company A? This company can be good, medium or bad. In
order to reduce this uncertainty, you can collect information from your bank or other sources.
Unfortunately, sensible information is not on the market place and requires that you enter in
the domain of intelligence.
4. Assess the consequences of each option: You must also intensively investigate all the
consequences of your decision: Let's suppose that your decision could have three outcomes: one
very good (A), one good (B) and one bad (C) with equal probabilities. In this case, your decision
should have 66% of chance to be a good decision.

Now examine more carefully the possible consequences: With A, you win 100, with B you win
30 and with C you get a death penalty! In this case the consequences of C are out of proportion
with the benefit that you can expect. It's why most criminal activities are risked!
5. Define your options and the best alternative: Be careful about the idea to multiply the
options. It could be a poor excuse for never taking any decisions. Too much option kills the
decisions and risk inducing an infinite process of brainstorming
6. Execution: After passing through all the above stages the one can make an appropriate
decision, and later carryout a decision Tree.
A Decision tree is a way for visualizing a complex chain of decisions. A decision leads to a new
choice and therefore to a new decision that in turn faces with a new choice and so on.
Decision Trees are excellent tools for helping you to choose between several courses of action.
They provide a highly effective structure within which you can lay out options and investigate
the possible outcomes of choosing those options. They also help you to form a balanced picture
of the risks and rewards associated with each possible course of action.
Starting from the new decision squares on your diagram, draw out lines representing the options
that you could select. From the circles draw lines representing possible outcomes. Again make a
brief note on the line saying what it means. Keep on doing this until you have drawn out as many
of the possible outcomes and decisions as you can see leading on from the original decisions.
a) Define decision making
b) Distinguish between Proactive & Re active decision making.
c) Identify & explain the rationale for decision making in operations management.
d) Describe the stages of decision making in operations management.
e) What challenges are faced in decision making
f) As an operational manager how would overcome such challenges above