Risks related to adequately defining the project, properly organizing resources, and organizing and committing team members
The process of adding resources (such as overtime labor or adding additional materials or equipment) to shorten selected activity times on the critical path. _____ time is the shortest possible time to complete an activity after accelerating resources.
How is the project completion time determined using Program Evaluation and Review Technique (PERT)?
Expected time of completion is determined by assigning a weighting of 1 for each of the optimistic and pessimistic estimates, a weighting of 4 for the most probable estimate, adding the assigned values together, and then dividing that sum by 6.
The longest path in the network. If any activity on the critical path is delayed, then the project will not be accomplished according to the original schedule. The ____ is specified by the sum of the mean completion times of each of the activities on the path.
How do the Program Evaluation and Review Technique (PERT) and the Critical Path Method (CPM) use relationships to assist with project management?
Each uses a precedence relationship that specifies a sequence for activities in the network.
How does the work breakdown structure assist with project management?
It defines the work to be completed by dividing project components into sub components and uses successive levels of specificity to define all activities of the project team, the resources involved, and their costs.
A series of related activities to achieve a defined output in a specified and finite amount of time using a temporary structure.
Theory of Constraints (TOC)
Identifies strategies to maximize income when the organization is faced with bottleneck operations. A bottleneck operation occurs when the work to be performed exceeds the capacity of the production facilities.
Lean Manufacturing process
Making small batches of a high variety of unique products usually with automated or otherwise sophisticated machinery and highly skilled labor (usually cross-trained)
Characteristics of Lean Manufacturing
- Flexible equipment
- Low setup times
- Highly skilled labor
Demand Flow Technology (DFT)
Uses mathematical methods to link materials, time, and resources based on continuous flow planning. The objective is to link process flows and manage those flows based on customer demand.
A quality improvement approach that is designed to systematically reduce defects. It is also a fact-based method to achieve cost reduction
Describe the five phases of the Six Sigma DMAIC (Define, Measure, Analyze, Improve, and Control) project methodology.
- 1) Define customers and their requirements
- 2) Measure defects and other items related to quality
- 3) Analyze to determine root cause of failures and the sources of variation
- 4) Improve through experimentation
- 5) Control results using TQM statistical process control tools (e.g. control charts)
Differentiate among strategic, operational, and market risk.
- 1) Strategic risk is relatively long term and can be managed by continually assessing the competitive space in which the organization operates.
- 2) Operational risk is short-term in nature and involves daily implementation issues.
- 3) Market risk is associated with large-scale economic events or natural disasters that, to some extent, influence all companies.
How is strategic risk best controlled?
Strategic risk is best controlled by vigorous forecasting and planning, and optimizing operating leverage.
How is operational risk best controlled?
Operational risk is best controlled by exceptional execution of the strategic plan. This is often enhanced by attention to customer credit checks, quality, employee training, and management expertise.
How is market risk best controlled?
Market risk can be controlled to some degree by insurance for specific hazard risks, but economic events often cannot be controlled. Thus, companies must assess their exposure to economic downturns and use sensitivity analysis to evaluate their position.
Describe the difference between gross margin (GM) and contribution margin (CM).
- GM = Revenue - Cost of goods sold
- CM = Revenue - Variable expenses
List the formula for operating profit margin.
Operating Profit Margin = Operating Income / Revenue
What purpose do asset-utilization metrics serve?
They examine the efficiency with which assets are used to maintain and generate wealth.
What purpose do liquidity metrics serve?
They are used to evaluate an enterprise's ability to meet its short-term obligations.
What purpose do debt-utilization metrics serve?
They provide measures of balance sheet risk (i.e. in terms of financial leverage). An enterprise is considered more leveraged, and thus more risky, if it has a comparatively high amount of debt versus owners' equity.
What purpose do market ratios serve?
They are used to evaluate the value of the enterprise as based on capital market reflections of stock price as related to earnings and book value.
Price elasticity of demand.
The percentage change in quantity demanded divided by the percentage change in price.
Describe the prevalent value-based management (VBM) themes and concepts.
- Accrual-based metrics are discredited.
- Cost of capital is increasingly emphasized.
- Shareholders and shareholder value as the primary element of interest is common.
- Relating VBM to strategy and making linkages to drivers of success is important.
List the formula for economic value added (EVA).
EVA = Net operating profit after taxes (NOPAT) - Weighted average cost of capital (WAAC) (Total assets - Current Liabilities)
List the formula for residual income (RI).
RI = Operating income - Required rate of return (invested capital)
Describe the DuPont approach to return on investment (ROI).
Separates ROI into two parts for analysis: Profit margin x Asset turnover
List the formula for return on investment (ROI).
ROI = Net Income / Total assets
Product differentiation strategy
Competitive strategy in which the organization strives to produce a product that is perceived to offer unique features or benefits to the customer that therefore commands a higher price.
Cost leadership strategy
Competitive strategy in which the organization seeks to gain an advantage by selling a high volume of low-cost products.
What is the key to revenue maximization under constrained resources?
Produce the product that offers the highest contribution margin per unit of the constrained resource (e.g. if production in a bakery is constrained by the amount of oven time available, produce the product that maximizes the contribution margin per hour of oven time).
A process in which the organization continuously gathers and evaluates information that could impact its ability to compete using its current organizational strategies.
List the five forces outlined in Michael Porter's framework for industry analysis and business strategy development.
- 1) Bargaining power of customers
- 2) Bargaining power of suppliers
- 3) Threat of new entrants
- 4) Threat of substitute products
- 5) Intensity of competition
Customizing the market to meet the demands of a specific customer group; also known as niche marketing or focus strategy.
What does the acronym SWOT stand for?
Strengths, weaknesses, opportunities, and threats
A process in which organizations compare their own processes and performance with the processes and performance of business leaders within or across competing industries.
List some examples of measures of performance from the customer perspective.
- Market share
- Product returns as a percentage of sales
- Number of new customers
- Percentage of repeat customers
- Sales trends
List the four evaluation perspectives for a balanced scorecard.
- Internal business processes
- Learning, innovation, and growth
List four features of a good balanced scorecard.
- 1) Articulates a company's strategy
- 2) Assists in communicating the strategy
- 3) Limits the number of measures
- 4) Highlights sub-optimal trade-offs that managers may take
List five pitfalls that should be avoided with a balanced scorecard.
- 1) Don't assume all linkages to be precise.
- 2) Don't seek improvements across all measures all the time.
- 3) Don't use only objective measures on the scorecard.
- 4) Don't fail to consider both costs and benefits of initiatives, such as spending on information technology and research and development.
- 5) Don't ignore non-financial metrics when evaluating managers and employees.
List three important points and features of benchmarking.
- 1) A company can't be the best at everything
- 2) Benchmarking should be an ongoing process within the organization
- 3) Don't try to focus on improving in every benchmark area all the time
What is commonly considered the best method to use to minimize failure costs?
Explain the difference between quality of design and conformance quality.
Quality of design is about meeting or exceeding the needs and wants of customers, while quality of conformance is the degree to which a product meets its specifications.
How is quality tied to just in time (JIT)?
Raw materials must be of consistently high quality. Because, there is little or no excess inventory to fall back on, the entire production process may be delayed if any materials are faulty.
Pull inventory models
Pull models do not do any work until demanded by customer orders. Thus, customer demand "pulls" material orders, labor, and all other manufacturing activity through the plants.
Economic order quantity model
A push model that specifies the most efficient quantity to order to minimize inventory costs.
A just-in-time (JIT) product costing approach in which costing is delayed until goods are completed or, in some cases, until the goods are sold.
The benefit that is forgone as a result of making one choice instead of an alternative (in transfer pricing, usually of selling internally rather than selling externally)
A price that is mutually agreeable to both the selling and purchasing unit.
In intra-company sales, the product price charged by the selling division to the buying division.
What is the primary focus of international transfer price setting, other than goal congruence?
Minimizing income incidence to reduce tax liability.
In the context of transfer pricing, what is dual pricing?
Dual pricing is where the prices for the buying and the selling divisions are different as established by top management to achieve specific goals that differ between the buyer and seller.
What should the transfer price be when the selling division has excess production capacity?
The transfer price should be equal to the additional costs incurred to produce each unit.
What is the general transfer pricing rule?
Transfer price per unit = Additional outlay cost per unit + Opportunity cost per unit
What is usually the most important criterion used by top management in establishing transfer pricing mechanisms?
Achieving goal congruence
What items should be considered relevant for a special order decision if there is adequate excess capacity to fill the order?
If the special order can be completed using existing capacity, only sales revenues and the (avoidable) variable costs of producing the order need be considered.
What items should be considered relevant for a special order decision if there is no excess capacity to fill the order?
Sales revenues, avoidable/variable costs of producing the order, and the opportunity cost of not providing the special order need to be considered.
What items should be considered relevant for a make-or-buy decision?
Only avoidable costs (i.e., costs that go away when accepting the decision to buy) and any new revenues are relevant to the make-or-buy decision.
Future costs that do not differ between alternatives
Costs that can be eliminated by choosing one alternative over the other
These are costs that are historical/in the past and are irrelevant for decision making going forward since they cannot be changed.
When deciding whether to process a product further, what costs are relevant?
The only relevant costs are the differential future costs and benefits.