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Chapter 1, Operations Management as a Competitive Weapon

Definition: Operations management (OM) includes all the activities and processes, such as directing and
controlling processes to transform input, such as raw material and skills of labor into out of goods and services.
Input includes raw material, labor, land, facilities (including buildings and plants) equipments, accessories,
energy, etc. In other words, OM includes all the activities to convert input into output of goods and services.

Goals of Operations Management (OM): The ultimate goals of OM are to achieve efficiency (saving cost,
time, efforts and other resources) and effectiveness (getting the desired results) with the help of many
techniques, such as analysis of quantitative data, production planning, inventory control, budgeting, scheduling,
and so forth.

Operations Management (OM) Versus Manufacturing Management (similarities and differences): The
industrial revolution came in 1750 in Europe and America when the large-scale industries were set up and mass
production began. The concepts of systematic and scientific management emerged. Managers defined the duties
and responsibilities of jobs, specialized skills for jobs were stressed and concepts of production planning,
inventory control, budgeting, scheduling, etc were introduced. At the time, the concept of manufacturing
management emerged, which was also called industrial management. The discipline totally ignored the service
sector. Later on, with rise of service sector, the concept of production management emerged that includes
production of goods and services too, which is now called ‘Operations management (OM).’

Differences in manufacturing and operations management are found because of the different nature of goods
than services.

Goods Services

Physical and durable products Intangible products


Can be stored / inventoried Can not be stored / inventoried
Perishable and durable products Perishable after use
Relatively lower customer contact Relatively great customer contact
Easily marketable in local, regional, Locally produced and consumed
national and international markets
Relatively large facilities Relatively small facilities (ie plants & buildings)
Quality easily measurable in lab Quality not easily measurable, which
requires getting feedback from customers
whose preference and tastes differ

Trends in Operations Management: Four of the most significant trends are: 1, the service sector is growing
faster; 2, manufacturing or production has become very technical (requiring higher skills); 3, OM has become
less labor intensive and more automatic, especially with the use of robots; 4, productivity world wide is
decreasing because of increasing prices of raw material, energy and other inputs.

Productivity = Output
Input

Productivity is the measure of efficiency, which is the difference between the value of input and the output.
Productivity is found by dividing total output of goods and services in value by total input of raw material, labor
wages, and other resources or overheads used in production.

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Example 1: Suppose a tailor stitches 8 shirts in 8 hours; the productivity of his work is 1 shirt in 1 hour. 8
shirts / (divided by) 8 hours = 1 shirt per hour.
Example 2: A ball point pen manufacturer produces 100,000 pens worth Rs500,000 or Rs5 for each pen; the
input includes labor cost Rs100,000 + raw material for Rs50,000 + other overheads for Rs50,000. The
productivity is:

Rs500,000
100,000+50,000+50,000 = Rs2.5 per unit ie 200% profit margin

Operations Management and Business Ethics (environmental, labor/ workforce diversity and societal
issues): Operations management must not harm to the environment by spreading pollution, poisoned water,
chemical wastes, detrimental gases causing global warming, etc; no discrimination should be made with
workers on the basis of race, religion, sex/ gender, ethnicity, etc; and the society should be at no risk from
harmful ingredients of products, their packaging, etc.

Skills of Operation Managers: Operation managers are masters at quantitative analysis of data for problem
solutions; general business management; organization behavior (OB) and human resources (HR) to aid in job
design and controlling workforce for getting desired results; management information system (MIS) to deal
with stores of data; economics; international business and so on.

Figure 1.1, Organizational Structure of a Typical Company

Human
Resources
Managemen
Research &
t
Development

Operations Account
Marketin Management s
g &
Finance
Managemen resource
t s
Information
System

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Figure 1.2, Departmental Structure of Operations Management

Vice President/ Director OM

Manager OM

Manager Manager Plant Manager


Material / Engineering Manager Quality
Procurement Control &
Assurance

Vice president or director OM receives reports from manager OM, who is also called plant manager in some
organizations. Managers in materials, plant and quality control and assurance (QC & A) sub departments
coordinate with each other.

Chapter 2, Operations Strategy

Corporate Strategy: Corporate strategy is an organization’s plan that defines its business(es), opportunities
and threats, and growth objectives it should achieve. Corporate strategy is designed by the top management of
an organization, who decides its long-run future. Furthermore, the business strategy is about how to differentiate
a company and its products from competitors and gain competitive advantage. Normally, strategy is set to attain
organizational goals and objectives but corporate strategy sets the foundation block in the planning process,
which aids in making other strategic decisions, including vision, mission and so on.

Global Strategies: It includes many strategies, as listed hereunder:

1 Indirect export through an agent, broker, or another exporter is done at an initial stage of export.

2 Direct export can be done by opening an export department or an autonomous export division; hiring
foreign-based distributors or agents; sending export sales reps abroad; and opening overseas sales branch or
subsidiary company.

3 Licensing or franchising is an agreement between a manufactures or seller and buyer for the manufacturing,
or manufacturing and marketing, or wholesaling, or retailing the seller’s brands against a royalty fee and any
other fees. Coca-Cola carries its international marketing by licensing bottlers around the world and supply them
the syrup concentrate and training to produce, distribute, and sell the product. Normally, when the term
licensing is used, it means a license to share the technology and manufacturing the established brands of the
licenser. The term franchising is now more used with retail franchises, such as McDonald, KFC, Mobilink, etc.
The licensee/ franchisee has the right to enjoy licensor/ franchisor’s process, trade mark, patent, trade
secret, and corporate goodwill to maximize his/ her profits. The licensor/ franchisor ensures control by
supplying proprietary ingredients (such as syrup of Coca-Cola) or other components needed in the product;
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keep launching innovated brands and advertising them at large scale; and keep monitoring the performance of
the licensees/ franchisees so that they remain dependant on him.

4 Joint ventures are partnerships between foreign investors and local investors, in which they share ownership
and control. Joint ventures are sometimes advantageous because the knowledge, expertise, and contacts of local
partners are shared. Joint ownership has certain drawbacks, such as conflicts on the issues of decision
making and policy making about investment, withdrawals of profit, marketing programs, etc. Joint venture is
necessary in some countries where the governments do not permit import of certain goods nor allow direct
investment but only allow joint ventures.

5 Direct investment has its distinct advantages especially in the countries where a firm can enjoy low cost of
capital or interest on loans, cheap raw materials and labor, foreign government’s investment and tax incentives,
freight saving, and so on. The firm also establishes productive relation with the government, customers,
suppliers, but direct investment may involve risks of legal-political uncertainty, changes in government policies,
corruption, increase in cost of doing business, and so on.

Competitive Priorities: The top most competitive priorities in operations management include:

1. Quality: i. high performance


ii. added features
iii.consistent quality
2. Cost: i. low cost operations
3. Time: i. fast delivery time
ii. on-time delivery
iii. speedy development
(in products, processes, etc)
4. Flexibility: i. customization
ii. volume flexibility

Manufacturing Strategies: The fundamental strategies for manufacturing of goods (only) are defined below:

1. Make-to-stock Strategy: By using this strategy, firms produce large volume of some standardized products
on regular basis to meet their sales forecasts. Examples include manufacturing of food products, consumer
products, chemicals, crockery, cutlery, stationary, etc.

2. Assemble-to-order Strategy: By using this strategy, firms produce the goods exactly when the customers’
orders reach. For example, in addition to regular production or make-to-stock production, firms produce goods
in bulk quantities to meet the needs of the local buyers and export orders.

3. Make-to-order Strategy: By using this strategy, firms produce the goods exactly when the customers orders
reach and on customization basis ie as per the specifications or requirements of the customers. For example, in
addition to regular production or make-to-stock production and/ or assemble-to-order production, firms can
produce goods in bulk quantities to meet the needs of the local buyers and export orders. However, some firms
produce the goods only on the specification of customers, for example, jewelers produce jewelry on customer
specifications; caterers and some restaurants produce food only on customers specifications; some garment
factories and even tailors produce the costumes on customers specifications; some automobile manufacturing
companies allow the customers to pay Rs50000 extra to get painted the vehicles as per their choice.

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Chapter 3, Process Management

Process management (ie manufacturing process management) is the selection of input (such as raw material,
labor and capital), operations, workflows and methods to convert input into output of goods and services.

When to make process decisions?

They are made when:


• The new business or product is launched.
• The quality of the product seems inadequate.
• Competitors have threatened by introducing new technology.
• The demand for the product is decreasing.
• Making substantial changes or improvements in product seems essential.
• The cost or availability of input has been changed.

Major Decisions in Process Management

The three major decisions are: process choice, resource flexibility, and customer involvement.

1. Process Choice: Here four choices are:


i. Job shop: These are small organizations producing goods in small quantities but offer large varieties.
ii. Batch Process/ Manufacturing: These organizations produce goods in average quantities using standardized
methods, but their production capacity is larger than job shops.
iii. Line/ Repetitive Process: These organizations produce goods in relatively larger quantities than job shop
and batch manufacturing.
iv. Continuous Production: These organizations produce goods with the highest scale of production, which is
the highest among all other process choices, like job shop, batch and repetitive process.

2. Resource Flexibility: Here the firms decide the required skills of human resources including their
qualification and expertise and their responsibilities to do the job. Secondly, they decide whether to use general-
purpose or special-purpose equipment to produce the goods. The general-purpose equipment can produce the
goods in a great variety, while special-purpose equipments can only produce the goods with one or few designs.

3. Customer Involvement: The firms decide their process by considering whether they want to offer customer
service or self service (as in restaurants, super stores, gasoline stations, etc); whether they offer customization
(make-to-order) services or not; and which location to choose to serve the customer, whether the customer will
come to the organization or vice versa.

Economies of Scale & Scope

Economies of Scale: The theory of economies of scale suggests that when a firm produces goods or services at
large scale, its total cost decreases with mass production. For example, if a firm produces 100,000 foot balls at
Rs100 each and sell each ball at Rs200, when the firm produces 150,000 foot balls, its fixed cost/ expenses
remain the same but only its variable costs/ expenses change (as increases in this case) with the amount of
changes in the production level. Secondly, the firm buys raw material and other inputs in greater quantity and
thus uses its bargaining power to avail further discounts on purchases. Hence, the firm can enjoy a total cost cut
and can efficiently produce the same foot balls at Rs80 per piece, for instance.

The types of costs are: i Fixed costs (also known as overheads): These are costs that do not vary with the
amount of production, such as, monthly rent of business place, connection charges for phone and electricity,
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interest on loan, executives salaries, etc. A company has to incur such expenses whether the sales support the
running expenditure or not. ii Variable costs: These are directly linked with the level of production. Because the
higher the quantity of goods produced, the higher the variable expenses because of greater input of raw
material, utilities consumption like gas and electricity, labor size and salaries, etc. iii Total costs: Total cost
consists of fixed cost and variable cost in a specific period.

Economies of Scope: The ability to produce multiple products more cheaply in combination than separately,
such as extending the brand family in tooth paste products, on which the firm has already got experience on low
cost production.

Managing Technological Changes: Technology refers to any manual, semi-automatic or automatic process to
convert input into output of goods and services. It exhibits/shows acceleration in technological changes,
innovational opportunities for new discoveries, increasing RND budget, and changing regulation about
technology. Technological environment hurts old technology, for example xerography (or photo copying) hurts
carbon paper business, autos hurt railways business, television hurts newspaper business, and cell phone hurts
landline telephone business, so companies must have a for sight on future technologies to avail new
opportunities and face new threats and competitive challenges.

Process Reengineering: Reengineering is the fundamental rethinking and radical redesign of business
processes to dramatically improve performance. Process reengineering is indeed reinvention, rather than
incremental improvement. Reengineering involves process analysis and cross functional/ inter-departmental
involvement and coordination.

Process Improvement: It is the systematic study of process flows and activities in order to improve it. In many
companies, process improvement often goes on regular basis but reengineering occurs when revolutionary
changes take place. Process flow charts are designed in which diagrams are drawn to show process activities or
procedures in a sequence. A typical example of process improvement may be to reduce/ eliminate unnecessary
work procedures and supervisory approvals in the loan application process.

Chapter 4, Total Quality Management

Total quality management (TQM) is a management philosophy about managing the quality of products and
entire systems of an organization. TQM stresses three principles for maximizing quality: customer satisfaction,
employee involvement, and continuous improvement in quality.

Product Design Process Design


Employee Continuous
Customer Satisfaction
Involvement Improvement
Benchmarking Purchasing

Decision-making Tools

Figure 4.1, TQM Wheel

The TQM wheel includes the major concepts of total quality management systems that starts from identification
of customer needs and wants through observations, surveys (that include questionnaire and interviews) and
experiments and satisfying them by producing better products. The quality system involves employees’
suggestion and complaints and stresses non-stop improvements whether smaller or greater but regular
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improvements. These concepts will be utilized for better product design and process design. Firms must do
purchasing or procurement of raw materials, accessories and supplies carefully/ diligently to assure maximum
quality output of goods. Firms also set benchmarks of quality to be met. Benchmarks are also called standards,
parameters, yardsticks, or hallmarks. For instance, a benchmark of a fast food restaurant may be to serve an
average customer orders within seven minutes; a standards of a top quality car may be to stay defect less till
driving of 100,000 kilo meters subject to appropriate use by the driver; a parameter for a biscuit manufacturing
plant may be to produce 100,000 biscuits in an hour, while the variation in that standardized amount will be
called high or below standard. The other examples of benchmarks include cost per unit, revenue per unit, return
on investment, customer retention level, etc. Finally TQM suggests some decision-making tools to ensure
optimum quality.

Employee Involvement in TQM

A complete program for employee involvement includes changing organizational culture, fostering individual
development through training, establishing awards and incentives, and encouraging team works.

i. Cultural Change: The challenge is to instill an awareness of importance of quality in all employees and
motivate them to produce the best quality products and services. The cultural change must come from the top
management who should encourage and execute employees’ valuable suggestion and solve their problems.

ii. Individual Development: On-the-job training programs, training and development and particularly job
rotations improve an employee’s skills, morale and motivation level; increase quality, reduce defects, and thus
improve capacity.

iii. Awards and Incentives: In addition to pay and regular benefits, many companies plan and allocate awards
and incentives directly for quality improvement that leads to lesser defects, improved productivity and offer
greater sales potential.

iv. Team-work: Employee involvement, also called workers participation or labor-management jointness, is a
key tactic for improving quality. In such teams, workers work together in smaller teams and focus to achieve
not only individuals but also common goals of the team, management however, rewards individual as well as
common efforts and teamwork. Furthermore, team members have a common commitment for a performance
objective; performance is not judged only by individual contributions but rather a collective work;
communications chains and open-ended discussions are encouraged to share and resolve problems; leadership
roles are shared rather than held by a single, strong leader; and the team members work together, rather than
delegating work to subordinates.

v. Problems-Solving Teams/ Quality Circles: This very famous technique was invented in Japan in 1920 and
became popular worldwide. These teams consists of 5 to 12 people drawn from various areas of a department
who meet regularly to identify, analyze, and solve production and quality related problems. The philosophy
behind this approach is that the people who are directly responsible for making quality products or providing
services will be most able to resolve a problem. The teams are assigned a particular task such as improving
assembly line in a computer manufacturing plant or reducing time for credit application processing. Finally, the
team (quality circles) passes suggestions to management to reduce cost, defects, wastage and time, and improve
quality and productivity.

vi. Special-Purpose Teams: People from various departments (like operations finance, accounts, marketing,
HR, MIS, etc) are brought together to solve particular problems that require multi-disciplinary skills. The
examples include project management teams, ad hoc teams or committees to work and capitalize opportunities
to develop and launch new products.

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vii. Self-managing Teams: In this type of organizational structure, many of the managers and supervisors are
eliminated; their number is very limited and the employees are given free hand to a substantial level. It’s also
called organizational restructuring, which is the perfect example of employee empowerment and
decentralization.

Continuous Improvement/ Kaisen: The Japanese philosophy of management Kaisen became popular world-
wide, which seeks to continually find ways to improve operations. The theory suggests that no single day
should go without some kind of improvement, whether smaller or larger. It involves identifying benchmarks of
quality excellence and instilling a sense of employee ownership of the process. The ultimate goals of kaizen are
improving quality and productivity by reducing cost and wastage i.e. accomplishing the goals of efficiency and
effectiveness.

The Costs of Poor Quality: Most experts agree that the poor quality results in loss of 20 to 30% of gross sales,
as a direct result of defective products or unsatisfactory products. Four major categories of costs associated with
quality management are: prevention, appraisal, interval and external failure.

1. Prevention: These ere the costs that incur on preventing the defects before they occur. They include smooth
flow of operative process and procedure, quality functioning of plants, machines, and equipments, availability
of necessary tools and accessories, and finally trained employees’ involvement to control defects.

2. Appraisal: These are the costs that incur on assessing the required level of quality through quality audits. In
quality audits, some samples of products are randomly taken by quality control and assurance (QC&A) officers
from every batch to evaluate their quality standard.

3. Interval Failure: These are the costs that incur on defects discovered during the production of goods and
services. Defective products need to be either reworked, which will waste time, efforts, and financial resources,
or defective products will be destroyed, which is a great loss.

4. External Failure: These are the costs that occur on handling customer complaints and providing after-sale
services on repair or replacement of goods and services. External failures of various products, for example
defective TV screens, out of order sound system in DVDs may result in customer grievances, loss of sales,
reputation and goodwill of the company. Many times companies are ethically bound by warranty and/ or
guarantee to remove the product defects by repairing the goods or replace the goods or a full refund of the
money, if they do not perform satisfactorily.

Tools for Improving Quality: Some of the key tools are as under:

1. Checklists: A checklist is a form used to record the frequency of occurrence of certain characteristics of a
product related to quality. The check list of a carbonated bottled drink’s production process may be:

* Input of all raw material ingredients available * Machine ready to function


* Labor and supervisors ready * Automatic weight measurement
scales ready
* Processing product in time * Quality inspection teams ready
* Packing machines ready * Product weight, length, color, design,
finishing, etc, and overall quality
satisfactory.

The supervisors either tick marks the regular and expected quality characteristics or write in front of them, yes
or no.

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2. Histograms & Bar Charts: The data obtained from a checklist can be presented clearly with histograms and
bar charts. Similar to checklists, histograms and bar charts measure the frequency of certain characteristics of a
product related to quality and the frequency distribution is shown in statistical terms, such as measures of
central tendency and dispersion of data.

3. Cause-and-Effect Diagrams: These diagrams relate a key quality problem to its potential causes. It helps
management trace and resolve customer complaints by linking them directly to the process involved. For
example, many customers of Suzuki Baleno complained that the cars need extra pressure of an accelerator of
speed to pick up in the 1st gear, otherwise it stops moving. The management may review the potential causes of
defects during operations and may resolve those grievances accordingly.

Prescriptions for Excellence in Quality through W. Ewards Deming’s Way

W. Ewards Deming is considered to be father of quality control in Japan; he summarized quality principles and
long-lasting effects of improving quality. He prescribed many quality principles, some of them are:

• Adopt a new philosophy (of quality management). The organization can no longer live with defective
materials, poor workman and unacceptable delays in different tasks. The procurement department should
not only buy goods and services of low cost but should consider their quality as well.
• Find problems and continually strive to improve all aspects of operations. Use statistical methods to
uncover sources of problems.
• Improve supervision. Allow more time to supervisors to work with employees and provide them with
the tools to do the job. Management should implement the recommendation provided by the supervisors.
• Drive out fear of employees. Management should create an environment in which employees will not
fear in reporting problems or recommending improvements.
• Institute a vigorous program of education, training and development, and imparting new skills in
employees.

Edward prescribed some core points on long-lasting effects of quality improvement with his five-step chain
reaction.

• First, costs decline because of less rework, fewer mistakes, fewer delays, and better use of time and
materials, which
• results in improved productivity, which
• increases market share because of better quality and prices, which
• increases profitability, allowing the company to stay in business, which,
• results in more jobs.

What is ISO 9000?

ISO 9000 is a family or series of standards established by International Standardization Organization (ISO),
executed and certified by accredited agencies about the quality standards of products and entire processes with
in an organization. ISO 9000 provides a set of documentary guidelines on all the work processes and resultant
procedures of workflows.

ISO 9000 consists of seven documents: ISO 9000-9004, ISO 14000, and ISO 17000. ISO 9000 provides
guidelines for selection and use of other standards. ISO 9001 (also called ISO 9001: 2000) focuses on 20
aspects of a quality program for companies that design, install, and provide services of products. ISO 9002
covers the same areas as ISO 9000 for companies that provide goods and services as per the customer’s design
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and specifications or they have design and service facilities to some other place. ISO 9003 addresses only the
production processes. ISO 9004 contains guide lines for interpreting other standards. ISO 14000 contains guide
lines for quality conformity through quality assurance systems. ISO 17000 contains guide lines for meeting
environmental safety standards.

When the standards of ISO 9000 are executed in an organization and its subsequent departments like,
operations, RND, finance, accounts, marketing, HR, MIS and their sub-departments, their performance
standards on each and every process and procedure are documented. For instance, procurement/ purchasing
department will document all the relevant guidelines about how to verify genuineness of an order of raw
material or any other supplies and seeking management approval before buying, requesting quotations from pre-
approved suppliers, collecting and evaluating the data i.e. the prices and other terms, negotiating terms of
service, etc. The inspecting the raw materials will take place when the reach in terms of ordered quantity,
quality, price, and other specifications provided to a supplier. The raw material will be isolated in a safe and
secure place, called “quarantine department”. Similarly employees’ recruitment and selection process and
subsequent procedures along with performance standards will be set.

Benefits of ISO 9000 Certification

At the outset (in the beginning) of ISO 9000 standards, it took 18 consecutive months and $200,000 audit fee to
help management and employees understand and implement quality standards. Nowadays it takes less time and
fee. First, a company requests an ISO 9000 certifying company to suggest ways and means or inspect its quality
management system (of products’ quality and quality of its entire systems), then the certifying company sets a
fee and time frame to provide consultancy, in which every one in the organization, from managers to workers
are involved in understanding all aspects of quality standards and systematic documentation of workflows.
When a company implements ISO 9000 guidelines and is certified by a qualified ISO 9000 consultant/
examiner (i.e. the certifying company), it is awarded with a certificate of ISO 9000. The company’s name and
other introductory details appear in directory of ISO 9000 certified companies. Quality conscious companies
and customers world wide find sources of suppliers from such directories, so they enjoy great reputation and
chances to win sales and business contracts. Actually, compliance with ISO 9000 standards does not guarantee
quality products but rather it provides documentation to support claims on quality of products and entire system
of an organization.

Chapter 5, Statistical Process Control

Statistical process control (SPC) is the application of statistical techniques to determine whether the output of a
process conforms to the product design and quality specification. In SPC, various statistical tools, diagrams and
control charts are used to prevent and detect defective products or services during production. Thus SPC is
availed to alert management and workers when something is wrong and needs to be corrected.

Some examples of problems may be:


• Production of unhygienic milk drinks;
• Production of automobiles with defective engines; and
• An increase in the average numbers of complaints per day at a hotel.

Sources of Variation of Quality

Two main sources of variation in quality are:

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1. Common causes: Common causes of variation are random and unidentified sources of errors in a
process. For instance, an abrupt failure of a machine, a sudden defect in the calligraphy of a machine, a
machine filling 450 grams of glucose rather than 500 grams in each packet of glucose.

2. Assignable causes: They include identified causes of errors in a process. For instance, delayed tuning
and services caused machine failure, untrained employees made defective products, raw materials
quality wasn’t tested, absence of service quality supervisors caused delays in a handling customers
complaints.

The Inspection Process

The inspection process includes various procedures and guidelines to assure confirmation to quality standards.
It includes below mentioned steps:

1. Quality measurement: To detect abnormal variation in output, inspectors must be able to measure
quality characteristics. Quality of a product is measured in size, weight and length, features and
attributes of performance, and time (timely production and timely delivery of goods or services). Quality
of a plant, machinery and equipment (PME) is measured in terms of performance, output capacity/
productivity/ volume of production per hour and cost of maintenance and servicing.

2. Location of inspection station: Quality of products is ensured at three stages: 1) raw material testing,
sources of suppliers/ suppliers should be limited and quality certified; raw materials should be inspected
and after verification of quality, it should be kept separately in quarantine department; 2) testing during
work-in-progress/ process, here different samples of semi-finished products are taken randomly to check
their conformance to quality; and 3) final product or service testing, here different samples of finished
products of each batch are taken randomly to check their conformance to quality; while the delivery of
execution of service is tested by sudden quality inspections or quality audits and making customer
surveys. Samples of each batch of goods are kept in a controlled temperature environment till the period
longer than its expiry date, so that quality complaints from customers or markets can be tackled by re-
measuring or reexamining the quality of samples available in the laboratory as well as samples sent from
market.

Statistical Techniques for Quality

Various statistical tools & techniques are utilized in quality process control. The common techniques are
averages, percentages and ratios.

An average (also called mean) shows the total of observations divided by the number of observations.
Companies set an average standard of quality of products and strive to surpass that average/ minimum standard.

A percentage is a part or proportion of a whole described as a percentage of some quantity. Quality inspectors
note the minimum number and percentage of defective parts and strive to minimize or maintain that percentage.

A ratio shows the relationship between two or more factors or variables, such as ratio of defective parts to
perfect parts; ratio of pre-sale services to post-sale customer services.

Control Charts

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Control charts are designed to tally or match existing quality of a product with a preset quality benchmark to
identify and minimize deviations from those benchmarks. Some of the control charts are as under:

Quality Engineering

Quality engineering is an approach that involves combining engineering and statistical methods to reduce costs
and improve quality by improving product design and manufacturing process.

Computer & Statistical Quality Control Procedures

Nowadays computers have made various jobs easy to do and control. In specialized computer soft wares/
programs, the quality supervisors simply input the data and receive the output within seconds.

Chapter 6, Workforce Management

Organizational Structures

The two organizational structures are:

1. Horizontal Structure Organization: It has many departments like operations, accounts, finance, marketing,
HR, MIS, etc and there is a line of communication between the departments.

2. Vertical Structure Organization: It has the same departments as a horizontal organization has but there is
no or very little communication between the departments. Operations department doesn’t know the problems of
marketing departments, which is unaware of accounts and finance problems.

Managing the Diversified Workforce

In the international and multinational companies, workers and managers belong to various countries, racers,
religions, languages, etc and possess different backgrounds in skills. Managing such teams is complex thing.
The international managers have designed multiple techniques to enhance workers efficiency and efficiency,
such as:

1. Training and Development: Training by the in-house training department, by seniors or supervisors, or by
external trainers who impart basic skills in workers mandatory to do the job correctly. An on-the-job training
concept grooms basic skills in labor-force. Development is an advanced training to further nourish and polish
worker’s skills.

2. Incentive Plans: As money is one of the main motivator, so in additional to an attractive incentive plan,
recognition of work, worker’s respect, dignity of workmanship, etc are exercised to attain performance goals.
The major incentive plans are depicted under:

i. Individual-Based Plans: These plans are based an individual performance, such as, wages, piece rate (i.e
compensation per unit produced by a worker), salary, over-time, bonus, etc.

ii. Team-Based Plans: Here incentives are tied to higher production or higher quality goals and incentives are
equally distributed in team members. But in some cases, top three workers may receive greater cash award.

iii. Group-Based Incentives: These groups are the teams to whom management offers special incentives on
profit or gain sharing.

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a. Profit Sharing: The managements reward the employees when it meets a certain profitability level i.e
the profit goal/ target.
b. Gain Sharing: The management rewards the employees when it gains profit from defects control and
cost cut, as a direct result of group efforts.

3. Job Design: It specifies a job’s contents, a set of duties and responsibilities to do the job (called job
analysis) and an employee’s skills, qualification, experience, specialization, and training needed to perform the
job (called job specification). Some of the techniques to enhance the scope of job and achieve greater
performance are expounded hereunder:
i. Job Specialization: A job with a higher degree of specialization involves a narrow range of tasks, a high
degree of repetition, great efficiency, and high quality. For instance, an automobile technician can better
diagnose and understand the repair problems in a car than an ordinary man; a radiologist (i.e. X-Ray doctor) can
better diagnose and report any joint injury and fracture than any other doctor (physician or specialist).

ii. Job Enlargement: It is increasing the range of job tasks or adding more responsibilities in a job. For
instance, an account clerk is asked to perform the duties of assistant accountant for one month, which adds in
their skills level and reduces boredom.

iii. Job Rotation: This allows the workers to exchange jobs periodically with the consent of the supervisors,
which adds in their skills level and reduces boredom. But the workers should be capable to perform the job with
approximately the same efficiency level. For instance, two waiters in a family restaurant do the purchasing of
ingredients and thus exchange their jobs temporarily with the purchase officers, or a receptionist is asked to
assist the restaurant manager as a deputy manager for six months.

iv. Job Enrichment: This allows workers to have a greater control and responsibility of an entire system,
rather a specific operation by reducing the number of supervisors. It is also called employee empowerment or
self-managing teams. It also enhances employees’ skills level and reduces boredom. For instance, the chef and
her team in a family restaurant help each other in completing the daily process by purchasing the ingredients,
cutting, cleaning and cooking food, restaurant maintenance, and finally serving the meals.

4. Work Standards and Methods of Work Measurement: A work standard is measure of work efficiency or
a performance goal, in which a worker performs a task in a prescribed manner in a preset time and normal
effort. The methods of work measurement are to observe the performance of each task by a sample group of
trained workers and to record the start and finish time on a stopwatch and then, devise a general standard of
time and efforts for an average trained work to complete a certain process, which may be, preparing pizza in a
fast food restaurant in two minutes, or getting a shirt stitched and packed within thirty minutes by a group of
tailors who perform various tasks in a series. The size of the sample group is between two to five per cent of the
total population of trained workers or as depend on case to case basis.

Chapter 7, Capacity

Capacity Defined: Capacity is the maximum level of goods and services produced in a facility. Facility
refers to a work station, service place, factory, or a laboratory.

Capacity Planning: Companies plan their capacity of production to successfully meet the sales-
forecast. Capacity should neither be very low or high than demand because a low capacity results in a loss of
sales revenue, while a high capacity results in a blockage of investment in resources like men, materials,
machines, products, and so forth. Capacity planning is done through total capacity measurement, estimating
current capacity utilization and determining economies of scale and diseconomies of scale.
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1. Capacity Measurement: Capacity is measured in terms of total output produced. For example, TCS
Courier Company’s staff can handle 20 customers in an hour; Sony Sweets can handle 50 customers in
an hour; Capri Cinema has the sitting capacity of 500 people per show; PIA has the sitting capacity of
100 passengers per flight in its Boeings; Agha’s Super Store can generate thousands of rupees sale per
square feet of its space (when we refer to the capacity of a super store, here the size of its place and staff
members to serve the customers determine its capacity); a machine can produce 10000 tablets in an hour
is its capacity.

2. Capacity Utilization: It is essential to know the level of capacity utilized every time i.e. either the
firm is utilizing its 100% capacity or how much capacity is idle or further needed to cover the demand.
The formula is:

Capacity Utilization = Average Output * 100 = 70000 * 100 = 70%


Total Capacity 100000

3. Economies of Scale: The theory suggests that the higher the level of production, the lesser will be the
cost, because the company can bargain its suppliers for a cheaper price, which will cut its cost and the
fixed cost will be spread over many units. For further reference on economies of scale, see chapter 3. In
addition, many economists believe that in a focus strategy, a company will focus or concentrate on
producing one or a small number of products as in a mill or factory to attain a better level of economies
of scale. Such types of companies are called focused factories.

4. Diseconomies of Scale: Through economies of scale, a firm wants to achieve optimum level of
efficiency in production but when the sales-forecast does not support the bulk level of inventory, a loss
of financial and other resources occur, which is termed as diseconomies of scale. Because the company
will hire additional people, buy surplus raw material, machines, and other resources, which will be
wastage of essential economic resources since the sales do not support them.

Capacity Strategies: Three of the most common strategies are:

1. Lead Strategy: In a lead strategy, a firm produces little more than its quarterly or annual demand to
meet its demand forecast and can sell the surplus if the demand exceeds the forecast due to extra
ordinary sales growth, seasonal impact, or any other reason.

2. Lag Strategy: In a lag strategy, a firm produces the goods of exactly the same quantity as its sales
forecast suggests. The disadvantage of such strategy is loss of customers’ orders, if they exceed the
regular demand or sales-forecast.

3. Tracking Strategy: In a tracking strategy, a firm buys such kind of equipments in which it can add or
subtract certain parts to produce more or less output to adjust the increasing or decreasing demand. It
provides a flexibility of production.

Chapter 8, Production Planning:


Materials & Inventory Management

Production Planning/ Aggregate Planning: An aggregate plan mainly includes production rate/ capacity,
workforce level and inventory level to meet customer’s demand.

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Materials Management: It is concerned with supplies, inventory level, production level, staffing schedules and
distribution of products.

Materials Management Cycle: It includes five steps starting with acquisition of raw material, storage,
conversion into semi finished and finished goods, again storage, and finally distribution of products to the
customer. See figure 8.1.

Acquisition of raw material/ purchasing: It normally involves a seven step process including:
1. Recognition of need by the production department
2. Assessment and approval of procurement by the management
3. The purchase department finds and selects the suppliers (on the criterion to supply quality materials
at an economical price and agreed delivery schedule and payment terms)
4. Placing the order
5. Tacking the order
6. Receiving the order
7. Evaluating the desired quality and features as agreed upon with the supplier.

Distribution: The distribution of products is normally sought near customers which is called forward
placement. When a company holds little inventory or no inventory with it due to seasonal demand it is called
backward placement.

Materials Requirement Planning (MRP): MRP is a computerized information system that aids in managing
demand of inventory and making schedules to replenish the inventory to fulfill customer’s orders.

Impact of Inventory on Profitability and the Economy

Firms normally keep on inventory that is sufficient enough to meet their periodic demand, which may be
monthly sales stock, or quarterly, or seasonal demand and a reasonable surplus inventory to meet extra ordinary
or unexpected demand. A higher level of inventory, much bigger than the routine sale will block a company’s
investment in the inventory and the company will sustain a loss or less return on investment.

A country or an economy usually keeps an inventory of goods to meet its recurring demand and as a whole that
inventory equals to a country’s three months demand. However, the same country might have gas reserves to
fulfill its demand for 100 years, while it might have oil reserves to fulfill its demand for only 15 days.

Inventory Management

Inventory includes both semi-finished and finished goods. Various techniques to manage inventory efficiently
are delineated hereunder:

1. Demand and Sales Forecast: Sales forecasting is the prediction or estimate of sales of a product or
business of a future period. Sale forecast is central is sales management and marketing research
because companies want to know their future sales revenue and incur their expenditures accordingly.
Generally sales forecast is made through an analysis of past sales. Seasonal fluctuations in sales are
also taken into account. Even the new companies predict their sales of new products on the grounds
of marketing tools, for instance the product’s innovated features, attractive packaging, affordable
pricing, promotional tools such as introductory price offers, advertising, distribution channels
effectiveness, etc. Sales forecasting is done by experts including the sales force, marketing team,
marketing researchers, consultants, franchisers, distributors, dealers, suppliers and even some
government agencies sometimes.

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2. Inventory Measures and Continuous Records of Inventory: After the sales forecast, inventory is
produced and is measured in terms of units of quantity and value. Companies continually maintain
records of inventory in tables, charts and graphs to keep an eye on inventory levels and make sure a
minimum balance to stock all the time to cover the market or meet the demand.

3. Inventory Carrying Cost: Also called holding cost, it includes interest, insurance taxes, and
warehouse maintenance cost (such as maintaining racks, air conditioning, staff salary, stationary,
computers, cleaning supplies, etc). If the inventory is bought with borrowed funds, a company has to
pay interest on loan, insurance for safekeeping of stock and to avoid damage or fire, local or state
taxes on inventory production, and godown maintenance costs include, arranging sufficient,
controlled temperatures etc. Inventory carrying cost is often rechecked/ calculated as cost as a
percentage of an individual unit of stock, for instance 25% of the unit that costs Rs60, i.e. Rs15 per
unit.

4. Just-in-time (JIT) Production: JIT is a Japanese management technique that favors to arrange the
stock exactly at the time when needed in production so that investment can be utilized most
efficiently.

5. Safety Stock: It is the minimum stock level maintained at one time to meet the surplus demand.

6. Stockout/ Shortage: It is the finishing point of stock or having zero inventory.

7. Lead Time: It is the time between stock order and stock receipt. For example, the lead time for a
motor bike assembler may be 15 days.

8. Time between Orders (TBO): It is the time difference between one order and another.

9. Total Inventory: Total inventory equals to inventory on hand plus pending orders/ open orders/
scheduled receipts.

10. Inventory Turnover: It is the movement or sale of stock number of times a year. The normal
turnover for various goods is 6 to 7 times a year, which proves very profitable for firms. An
inventory turnover of 4 times a year is even fine. In the decade of 90s, the Japanese auto-mobile
manufacturers reported 40 turns per year that shocked the whole world. The formula of inventory
turnover is:

Inventory turnover = Annual sales (at cost) = Rs 1 M


Average aggregate inventory value Rs0.2M

= 5 Times/ year

11. FIFO / LIFO: FIFO is first come first out, which suggests that the stock that comes first should be
sold first. For instance, batch number 10 should be sold before batch number 11, as the lot number
10 should not be expired or out-dated, or remain at the same selling price. LIFO is last in first out,
which is vice versa to FIFO.

12. Bar Code: It is a code printed on the wrappers or packets of products, which comprises of black and
white vertical lines that can be read through a scanner. The scanner puts light on the bar code and
reads the information about the product name, size, basic description, and price. The scanner
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transforms the information to a computer that generates an invoice and updates the inventory after
every sale or purchase transactions.

13. Economic Order Quantity (EOQ): EOQ is the optimum level of cost to order goods that saves the
cost to maximum level. On placement of every order, a firm incurs ordering cost. The ordering cost
includes the cost to generate a purchase order, stationery cost, computer cost, purchase clerk’s salary
and the like. Firms plan to minimize ordering cost or setup cost, time between orders (TBO), and
carrying / holding cost. The formula to calculate EOQ is:

EOQ = 2 DS / H

Where D = Total demand which is 936 units for company X,


S = Ordering cost, which is 45 rupees for company X,
H = Holding cost, which is 15 rupees for company X,
which is expressed as % of unit cost,
suppose H = 0.25 (Rs 60) = Rs15.

EOQ = 2 DS = 2 (936)(45) = 74.94 or 75 units


H 15
The annual cost = 75 ( Rs15) + 936 ( Rs45) = Rs562 + Rs562 = Rs1124
2 75
TBO is calculated usually in months and days. The formula is:
TBO EOQ = EOQ ( 12 months / year) = 75 (12) = 0.96 months or 1 month
D 936
TBO EOQ = EOQ ( 52 weeks / year) = 75 (52) = 4.17 weeks or 4 weeks
D 936

14. Economic Lot Size and Quantity Discount: The ideal lot size is a size of units of products in a
batch that fulfills periodic demand, which may be quarterly, monthly, and even daily for business
like bakeries and restaurants. A firm may be offered a bulk quantity-buying discount. Consider the
example:

Price from 1 to 99 units: Rs12/ unit,


100 – 199 units: Rs11/ unit,
200 – 400 units: Rs10/ unit.

Here the firm will find a bulk quantity order affordable and advantageous when the inventory cost i.e. extra
investment is available and the holding/ carrying cost basis slightly but the gain through cost saving is greater,
otherwise the decision is disadvantageous. For instance, a company might buy an inventory of one year at a
time, if the items’ demand is confirmed and the company receives a substantial cost saving like receiving 40%
discount, which is far greater amount than the holding cost. For further references, see the book of Operations
Managements, Strategy and Analysis by Krejewsiki /Ritzman, 4th edition, page 573-579, or any advanced
edition of the book.

Waiting Line Models: A waiting line is a line /queue /row of customers waiting to receive a good or service.
Companies plan to keep customers waiting lines to an acceptable limit, if it goes beyond control, the costumers
will be dissatisfied. In order to minimize waiting lines, some numerical models are developed to assess
customers increasing levels and number of staff members, machines and tools required to serve additional
customers with increased demand for inventory or service.

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Simulation Analysis: Simulation is copying, imitating or reproducing a behavior or situation that resembles an
actual situation. Just like pilots are trained to fly the plane in an artificial cockpit before the real plane, sales and
customers service staff is trained to deal with varying numbers of customers in an artificial setting. Similarly,
operations staff of fast food restaurants is trained to serve every order in a pre–planned or fixed time frame. For
instance, an order of a zinger, burger, French fries, and cold drink can be served within 2 minutes.

Supplement: Computer Integrated Manufacturing (CIM)

Computer Integrated Manufacturing (CIM) is a computerized system to integrate product design and
engineering, process planning, production planning, inventory control, and scheduling. Various technologies
that comprise CIM include the following:

1. Computer–Aided Manufacturing (CAM): CAM systems are used to design production process and to
control machine tools and materials flow through programmable automation.

2. Computer–Aided Design (CAD): CAD is a system for designing new products or parts or altering
existing ones. It replaces traditional drafting done by hand and with the help of desktop computer and
graphics softwares, the designers manipulate geometric shapes.

3. Numerically Controlled (NC) Machines: These are large scales machines programmed to produce
small to medium size products. They follow a programmed sequence of instructions and can drill, turn,
bore, and mill many different parts of products in various sizes and shapes. Computerized numerically
controlled (CNC) machines are usually stand alone pieces of equipment, each controlled by its own
micro computer. CNC machines tent to be more advanced, automatic and flexible than NC machines.

4. Industrial Robots: Industrial robots are versatile, computer controlled machines programmed tom
perform various functions. These “steel-collar” workers operate independently without a human control;
when needed, they can be reprogrammed as well. The industrial robot joined the General Motors (GM)
production line in USA in 1961.

5. Automated Materials Handling: Materials handling covers the process of moving, packaging, and
storing a product. Material handling compares of two of the following technologies that are concerned
with computerized transport system.

5.1 AVGs: An automatic guided vehicle (AGV) is a small driverless, battery driven truck /vehicle that
moves materials from one place of operations to another, by following instructions of a computer. Earlier
models followed a path where a cable was installed below the floor but the latest models follow the
optical paths and can go any where on a smooth floor.

5.2 AS/RS: An automated storage and retrieval system (AS/RS) is a computer controlled method of storing
and retrieving materials and tools using racks, bins, and strikers. If optical sensors of AS/RS confirm that
the materials placed will fit in, the automatic system moves them to the proper location.

6. Flexible manufacturing system (FMS): A FMS is a configuration of computer controlled, automatic


manufacturing system where materials are automatically handled and machine loaded and unloaded at
various work stations. It involves the least labor involvement to operate because it employs CNC
machines, robots, AGVS, and AS/RS to perform operations almost without human labor.

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Chapter 9, Location

Locations decisions are very salient in operations management, whether it is about locating a new facility,
expanding its subsidiary and branches or relocating its facilities. Think of a situations that why New Castle
Restaurant in USA locates its restaurant near factory areas? Because its major customers are blue-collar
workers. Why do car showrooms or shops of electronic products cluster near one another? The reason is their
customers do comparative shopping. A company determines its location or a geographic site for its operations
by considering the factors enlisted below:

i. availability of labor at a cheap cost (and with desired level of skillfulness),


ii. availability of raw material and supplies (at an affordable/ cheap rates),
iii. proximity to market (which will save shipping / transportation cost and time),
iv. reasonable cost of utilities, finance, taxes, and real state, and
v. quality of life having all the basic amenities of life.

A company compares the cost of doing business at one place or the other. It collects the relevant data, analyzes
the information, and make the wise decision. A company can also opt to locate its facilities in industrial estates/
parks, or tax free industrial zone, or export processing zones (EPZs) to avail low cost of financing and tax
holidays for a certain period. Many companies apply “the transportation method” to evaluate and compare the
shipping cost of products from one location to another.

Relocation Decisions

Historically the rich nations like Americans, Europeans and Japanese companies have relocated their facilities
to Asian countries like China, Hong Kong, Taiwan, South Korea, Thailand, India and South American countries
like Mexico and Brazil to take advantage of cheap labor, cheap raw material and resources in abundance, lower
real estate cost and so forth. Japanese car manufacturers moved to USA and produced and marketed their
automobiles from US to avoid quota or trade barriers and customers negative reactions.

Globalization: Reasons for Globalization and Difficulties

Companies go global and extend their operations world wide when they feel the local market isn’t large enough,
or to sell the surplus stock, or to sell their products in highly profitable markets. World wide exports now
accounts for more than 30% of the world wide gross national product (GNP). Companies go global to avail
improved transportation and communication technology, avail cheap labor, raw material, supplies and finance,
avail tax benefits, lower real estate taxes, exploit demand for imported products, and lowered international trade
barriers.

Managing global operations may not be so easy, the international managers have to face foreign language
barriers, different norms and customs, managing diverse work-force, unfamiliar laws and regulations and
strange preferences of customers. But the global companies conduct business feasibility studies; they survey the
market and develop marketing and business plans. They estimate total demand, or market size, competition,
price levels and other costs, make sales forecast, and the profit potential or return investment. The companies
that adapt their products to local norms are called gloco-local, means globally local. One example of popular
multinational fast food restaurant chains; they have many regular dishes worldwide but many of the dishes at
their menu are locally adapted to suit local tastes. Another example is of HSBC bank whose slogan is, “World’s
local bank.”

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Chapter 10 Managing Complex Projects

A project is a set of interrelated activities that has a definite starting and finishing point and that result in a
product or service, a business, or an establishment. Examples of projects include constructing a building, road,
dam, park, water supply system, electric cars, running a publicity campaign, offering micro credit facilities,
charity school, and so forth. A program is a set of projects or the world program is also interchangeably used
with the word project.

Project management is goal-oriented: project teams are often temporary teams who are hired to perform a set
of activities or tasks and when they accomplish their goal, the team disbands, team members either more to
other projects or join their regular jobs. Envisage a hotel project whose members construct the building,
decorate it, and then their job is over. A new team arrives to run the hotel on permanent basis. Despite potential
difficulties, working on projects offer substantial reward for the team like attractive remuneration, the
excitement of dynamic work, the satisfaction through solving challenging problems, the status of membership
of an elite team, and the opportunity to work with and learn from other skilled professionals with diverse
backgrounds.

The challenge for the project managers is to get the job done within estimated schedule and keep the costs
within budget. The project managers starts the project activities from planning (of resources, materials,
equipments, time and information), organizing (the activities into departments, jobs, hiring people, assigning
them work responsibilities, and allocating resources to them), leading includes communicating, directing, and
motivating or stimulating people for higher performance, and finally controlling the activities by monitoring
and evaluating the progress on regular basis. The purpose of controlling is to make sure that the project gets
completed within due course of time and budget and achieves its objectives. However, unexpected problems
can cause delays, require rescheduling and reallocation of resources – and often result in severe financial
repercussions. Several examples of problem in projects or project failures can be quoted from everyday life.

Network Planning Models: These models help managers control activities by evaluating time and cost trade–
offs. Scheduling and budgeting techniques are indeed controlling tools. Several scheduling and budgeting
techniques are delineated below:

Schedule & Scheduling Techniques: Schedules are time tables to perform activities on time and achieve the
dead lines or the final schedules to deliver a job or project. Some of the scheduling techniques are:

1. Work Breakdown Structure (WBS): WBS is breaking the work components and activities into
smallest components, which aids in determining their timing, total time required to finish, and deciding
to whom to assign those activities.
2. Flow Charts: They exhibit/ show the sequence of activities in a chart, from activity A to Z, which also
aids the same way as WBS does.
3. Program Evaluation & Review Technique (PERT): It comprises of a sequence of activities in a flow
chart. In other words, it’s the combination of WBS and flow charts.
4. Critical Path Method (CPM): It shows the activities whose delay will cause delay in the whole project,
so that maximum care should be taken to perform particular activities in time.
5. Gantt Charts: These charts measure the difference between planned results versus actual results, so that
the differences in timing or even budgeting can be evaluated for review.
Budget & Budgeting Techniques: Budget is a financial statement or plan that shows from where the
resources/ income will come and where it will be spent. Or budget is a statement of projected income and
expenditure for a particular period, usually one year. Or budget is the allocation of sources for different
activities in a given period.

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Budget estimates are made monthly, quarterly, and annually or periodically. Companies ask their divisions and
departments to furnish budgets depending on their projects, objectives, tasks, and activities. Finally,
top management approves the budget. The budgeting techniques include:

1. Affordability method: It is based on low or high affordability position of a firm.


2. Percentage-of-sales method: In case of advertising budget, such budgets are made, for example 2 to 10% of
annual or periodic sale is allocated for advertising or any other promotional program.
3. Equal to last year’s budget method: It may or may not be effective.
4. Smaller or greater than last year’s budget method: It is revising last year’s budget and then increasing or
decreasing the budget.
5. Competitor’s budgeting method: It is done by matching the budget with the budget of a particular
competitor, may be the brand leader or any other.
6. Objectives and task method: This is the best method because it addresses precisely to the objectives and
tasks of the advertising.

Project Proposal and Study: Before a company resumes a project, it commissions its proposal to study its
feasibility or viability report to determine its effectiveness and survival. It’s a technical and financial proposal,
which is also called a business plan when it is pertinent/ concerned with a business or project study when it is
non–business or not for profit in nature. A project proposal contains a title page, table of contents with page
numbers, covering letter to the organization that commissions it, executive summary, which includes major
points from all the chapters, introduction that includes background information about from where the problem
started or an opportunity identified, objectives, scope, resources limitations, especially time and budget
constraints, findings comprising the results of surveys, tests, statistical data, and other data obtained, the
conclusion and recommendations, and references or bibliography.

If the project proposal relates to a business, a business plan estimates the total demand or market size and
potential of products, competition, price level, marketing and other costs, making sales forecasts (by taking
input from a company’s own or other professional sales and marketing staff), and estimating the project
potential or return on investment to ensure its viability.

Diagramming the Network: It requires establishing sequential relationship between various activities. Nodes/
circles and arcs/ arrows are used to identify activities. For instance, activity A starts and finishes, from there
activity B starts, but then appears activity D, because C is an independent activity, when it finished, activity E
starts. In this manner, diagrams are drawn to plan and schedule the sequence of activities.

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