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Spreadsheet supplement for case 171-303.

An "imperfect tester" problem involving the decision of how to produce batches of plastic strapping, given uncertainty about the length of the molecular chain in the raw material. A decision on whether to test the raw material and a choice of production process must be made; the latter choice, combined with the length of molecular chain, will affect costs and quality of output. For one process, there is additional uncertainty about pressure. Intended for use early in that portion of a decision theory course involving Bayes Theorem. Involves many decision theory techniques, and can also be used as an examination.

Companies should develop contingency plans aimed at preserving and managing the flow of funds to handle the problem of the unforeseen event. Companies should first maximize the amount of available reaction time by conducting a contingency analysis of possible events that would affect the company's performance. A computerized model of the company's finances can simulate contingency events and explore a range of alternative actions. The company should then make an inventory of resources it could draw upon to cover unexpected deficits.

The use of preference theory facilitates more consistent decision making and helps management convey a better understanding of the desired corporate attitude toward risk taking. The process of obtaining decision makers' preference curves consists of two stages: 1) the assessment of preliminary curve, and 2) the verification and correction of that curve. Preference theory helps managers not only to enhance their own decision making, but also to gain insights into the thinking of other decision makers in the organization.

This sequel to Can You Analyze This Problem? (May-June 1965) describes the Kepner-Tregoe concepts and procedures for problem analysis. The main steps of a systematic approach to problem analysis include defining the problem, outlining the specifications, spotting the distinction, seeking the cause, and, if necessary, respecifying the problem. The use of a specification worksheet allows managers to draw a boundary around the problem and to limit the information needed for the problem's solution to only the relevant facts. In solving the problem of the case study, precise specification and careful problem analysis uncover a previously overlooked cause and prevent action which might have produced an even more serious problem.

The Kepner-Tregoe approach replaces hit-or-miss methods with a systematic method of problem solving and decision making. Managers who train in this concept of problem analysis often discover that their reasoning methods in handling problems and decisions are faulty. Readers test their own reasoning powers against the problems presented in a case history, based on an actual situation, and can then compare the results of their analysis with the solutions presented in a subsequent article, How to Analyze That Problem (July-August 1965). The main issues of the case involve questions concerning production, labor relations, and personnel.

The "decision tree" is an analytical tool which helps business managers resolve uncertainties in making investment decisions. It clarifies the choices, risks, objectives, monetary gains, and information needs involved. Whether simple or complex in layout, the decision tree always combines action choices with different possible events or the results of action affected by uncontrollable circumstances. The decision-tree helps management to determine which alternative, at any particular point, yields the greatest monetary gain.

The critical path method (CPM), one of a variety of quantitative tools for business decision-making, is a simple technique for analyzing, planning, and scheduling large complex projects and for completing them at minimum cost. Analysis by CPM may be applied to a host of projects that have three common characteristics essential for that analysis: the project consists of a well-defined collection of jobs; the jobs may be started or stopped independently of each other, within a given sequence; and the jobs must be performed in technological sequence. A step by step analysis demonstrates critical path scheduling and the process of constructing a graph.

Productive business managers are those who obtain optimum economic results from the prevailing resources. A series of primary steps, which have proven to be highly effective for managers in actual business situations, include: 1) analyzing the facts in terms of opportunities and costs of products, as well as the contributions of staff, and the "cost streams"; 2) allocating resources, according to projected results, by analyzing present and future resource allocations; and 3) prioritizing decisions with respect to area of greatest potential for opportunity and results.