1.7. Organisational Planning Tools (HL only)

Ishikawa Fish Bone Diagram

The diagram looks like the skeleton of a fish, which is where the fishbone name comes from.

How to Create a Cause and Effect Diagram

A cause and effect diagram can be created in six steps...

• Draw Problem Statement
• Draw Major Cause Categories
• Brainstorm Causes
• Categorize Causes
• Determine Deeper Causes
• Identify Root Causes

Draw Problem Statement

The first step of any problem solving activity is to define the problem. You want to make sure that you define the problem correctly and that everyone agrees on the problem statement.

Once your problem statement is ready, write it in the box on the right hand side of the diagram.

Fishbone Diagram - Problem Statement

Draw Major Cause Categories

After the problem statement has been placed on the diagram, draw the major cause categories on the left hand side and connect them to the "backbone" of the fishbone chart.

In a manufacturing environment, the traditional categories are...

• Machines/Equipment
• Methods
• Materials
• People

In a service organization, the traditional categories are...

• Policies
• Procedures
• Plant
• People

You can start with those categories or use a different set that is more applicable for your problem. There isn't a perfect set or specified number of categories. Use what makes sense for your problem.

Cause and Effect Diagram - Major Cause Categories

Brainstorm Causes

Brainstorming the causes of the problem is where most of the effort in creating your Ishikawa diagram takes place.

Some people prefer to generate a list of causes before the previous steps in order to allow ideas to flow without being constrained by the major cause categories.

However, sometimes the major cause categories can be used as catalysts to generate ideas. This is especially helpful when the flow of ideas starts to slow down.

Categorize Causes

Once your list of causes has been generated, you can start to place them in the appropriate category on the diagram.

Ideally, each cause should only be placed in one category. However, some of the "People" causes may belong in multiple categories. For example, Lack of Training may be a legitimate cause for incorrect usage of Machinery as well as ignorance about a specific Method.

Ishikawa Diagram - Categorize Causes

Determine Deeper Causes

Each cause on the chart is then analyzed further to determine if there is a more fundamental cause for that aspect. This can be done by asking the question, "Why does it happen?"

This step can also be done for the deeper causes that are identified. Generally, you can stop going deeper when a cause is controlled one level of management removed from your group. Use your judgment to decide when to stop.

Key Points

Gantt charts are useful for planning and scheduling projects. They help you assess how long a project should take, determine the resources needed, and plan the order in which you'll complete tasks. They're also helpful for managing the dependencies between tasks.

Gantt charts are useful for monitoring a project's progress once it's underway, too. You can immediately see what should have been achieved by a certain date and, if the project is behind schedule, you can take action to bring it back on course.

Advantages of Gantt Charts

● It creates a picture of complexity. I am quite a fan of diagrams and charts. We think in pictures. Therefore, if we can see complex ideas as a picture, this will help our understanding.

● It organises your thoughts. I am also a big fan of the concept of dividing and conquering. A big problem is conquered by dividing it into component parts. A Gantt chart will force you to do this.

● It demonstrates that you know what you’re doing. When you produce a nicely presented Gantt chart with high level tasks properly organised and resources allocated to those tasks, it speaks volumes about whether you are on top of the needs of the project and whether the project will be successful.

● It (should) help you to set realistic time frames. The bars on the chart indicate in which period a particular task or set of tasks will be completed. This can help you to get things in perspective properly. And when you do this, make sure that you think about events in your organisation that have nothing to do with this project that might consume resources and time.

● It can be highly visible. It can be useful to place the chart, or a large version of it, where everyone can see it. This helps to remind people of the objectives and when certain things are going to happen. It is useful if everyone in your enterprise can have a basic level of understanding of what is happening with the project even if they may not be directly involved with it.

Disadvantages of Gantt Charts

● They can become extraordinarily complex. Except for the most simple projects, there will be large numbers of tasks undertaken and resources employed to complete the project. There are some very good software programs that can cope with all this complexity (e.g. Microsoft Project). However, when the project gets to this level, it must be managed by a small number of people (perhaps one) who manages all of the details. Sometimes this does not work so well in a business that is not used to this type of management. Big businesses will frequently employ one or more project managers who are very skilled in this. For a range of reasons, this may not work so well in a smaller enterprise.

● The size of the bar does not indicate the amount of work. Each bar on the chart indicates the time period over which a particular set of tasks will be completed. However, by looking at the bar for a particular set of tasks, you cannot tell what level of resources are required to achieve those tasks. So, a short bar might take 500 man hours while a longer bar may only take 20 man hours. The longer bar may indicate to the uninformed that it is a bigger task, when in fact it is not.

● They need to be constantly updated. As you get into a project, things will change. If you’re going to use a Gantt chart you must have the ability to change the chart easily and frequently. If you don’t do this, it will be ignored. Again, you will probably need software to do this unless you’re keeping your project management at a high level.

● Difficult to see on one sheet of paper. The software products that produce these charts need to be viewed on a computer screen, usually in segments, to be able to see the whole project. It then becomes difficult to show the details of the plan to an audience. Further, you can print out the chart, but this will normally entail quite a large “cut and paste” exercise. If you are going to do this frequently, it can be very time-consuming.

Source - https://www.mindtools.com/pages/article/newPPM_03.htm

Task 2: Question on Gantt charts

ST is the operations director of F Bakery. He is in the process of putting together a project plan for the introduction of a new production plant that will enable the bakery to expand its product range, moving into high quality cakes and desserts. ST has identified a number of activities that must be undertaken to set up the new bakery production plant. He now intends to construct a network analysis to assist ST in the planning of the project. This will also enable him to provide an answer for the HR manager who has asked him to provide advice on when she can start the recruitment campaign to select new employees needed to work in the new part of the bakery.

The activities can be broken down as follows:

The first task is to add possible outcomes to the tree (note: circles represent uncertain outcomes)

Next we add in the associated costs, outcome probabilities and financial results for each outcome.

These probabilities are particularly important to the outcome of a decision tree.

Probability is

• The percentage chance or possibility that an event will occur
• Ranges between 1 (100%) and 0
• If all the outcomes of an event are considered, the total probability must add up to 1

Finally, we complete the Maths in the model by calculating:

Expected value:

The financial value of an outcome calculated by multiplying the estimated financial effect by its probability

Net gain:

The value to be gained from taking a decision.

Net gain is calculated by adding together the expected value of each outcome and deducting the costs associated with the decision.

Let's look at the calculations. What do they suggest is the best option?

Option: Launch loyalty card:

High sales: (0.6 x £1,000,000) = £600,000

Low sales: (0.4 x £750,000) = £300,000

Total expected value = £900,000

Net gain: £900,000 - £500,000 = £400,000

Option: Cut prices:

High sales: (0.8 x £800,000) = £640,000

Low sales: (0.2 x £500,000) = £100,000

Total expected value = £740,000

Net gain: £740,000 - £300,000 = £240,000

Both options indicate a positive net gain, suggesting that either would be better than doing nothing.

However, launching the loyalty card has a higher net gain & looks the best option of the two considered

Strengths of Decision Trees

a) The diagram may highlight possibilities that had not previously been considered

b) They require numerical values to be placed upon decisions – this tends to require research and thus improve the veracity of results

c) This method takes account of the risks inherent in decision making and makes the decision-maker aware of them

Limitations of Decision Trees

a) The time value of money may not be taken into account

b) Decision trees are not very suitable for use in complex situations

c) The outcome with the highest EV may have the greatest risks attached to it. Managers may be reluctant to take risks which may lead to losses.

d) The probabilities associated with different branches of the tree are likely to be estimates, and possibly unreliable or inaccurate.

e) Time lags may make the information used in the diagram obsolete

f) Process can be quite time-consuming.

Task 3: Question on Decision Trees and Decision Tree Analysis

Stockhausen, a German Clothing manufacturer, currently earns revenue of $150,000. It is earned mainly in the Bavarian retail sector in which it controls 30% of the market. It is contemplating extending its product range. If it decides to expand it has two options: expand small or expand large. The costs of individual options and expected profit for each option are:

a. Construct the decision tree

b. Determine the most appropriate for Stockhausen to choose

Task 4: Dowton Ltd needs to expand. It has identified three options:

● Option A Move to new premises at a cost of $40,000

● Option B Build an extension costing $25,000

● Option C Buy new, high-speed machinery to increase output at the same site cost $50,000

Fixed overheads and variable costs will be slightly in each case, so the profitability of each option depends upon the level of demand. The management believes that there is a 50/50 chance of demand being high or low. These forecasts have been made of the contribution of each option to Dowton’s profits:

a) Construct the decision tree

b) Calculate the expected payoffs and determine the best strategy

Task 5: Gralux plc must decide whether to use the €300 000 remaining in its marketing budget to launch a new product or to increase the advertising behind its top-selling brand.

If the new product is a great success, it should generate €1 200 000 of contribution; a moderate success will generate €600 000. But it may also fail, and achieve a contribution of only €60 000. Past experience leads Gralux to believe that the chances for each outcome are 0.1, 0.4, and 0.5 respectively.

The advertising campaign can be expected to yield €450 000 of extra contribution, though there is a 10% chance that the main competitor to Gralux may retaliate by doing the same. This would mean that the extra advertising would generate only €50 000 of contribution.

a) Construct a decision tree, carefully labelled with all the relevant figures.

b) Calculate the expected values and mark your decision on the diagram.

Task 6: Beethoven Ltd has a new wonder product, the vylin, of which it expects great things. At the moment the company has two courses of action open to it, to test market the product or abandon it. If the company test markets it, the cost will be $100,000 and the market response could be positive or negative with probabilities of 0.6 and 0.4.

(a) If the response is positive the company could either abandon the product or market it full scale. If it markets the vylin full scale, the outcome might be low, medium or high demand, and the respective net payoffs would be –$200,000, $200,000 or $1,000,000. These outcomes have probabilities of 0.20, 0.50 and 0.30 respectively.

(b) If the result of the test marketing is negative and the company goes ahead and markets the product, estimated losses would be $600,000. If, at any point, the company abandons the product, there would be a net gain of $50,000 from the sale of scrap.

a. Draw the decision tree

b. Evaluate what is the correct strategy to adopt

c. List the advantages and disadvantages of Decision trees

Supplementary question