Quiz 14: Dealing With Uncertainty

Business

Linear Programming is a method used when future is uncertain. This method finds best solution in allocating limited resources to achieve profit or reduce cost. It is a mathematical model which helps in determining the maximum value (revenue) and minimum value (cost) subject to certain constraints. It is applicable for limited cost functions only. It is not suitable where mixed cost is involved. When the resources are limited, this linear programming method is useful for optimum utilization of resources. Resources here referred as money, Material, man and machine. Thus, the hotel staffs, nurses, doctors, medical equipments, are the resources of the hospital. The possibilities of outcomes can also be determined by this linear programming method. However, it does not consider all financial and non financials factors. There is an objective equation which represents either the cost or the revenue. Thus, this model aims at reducing the cost (minimizing the objective function) or increasing revenue (maximizing objective function). It is not possible to build equation with all the variants. However it is difficult to determine values of functions. The assumptions used are unrealistic. The relationship between input and output, cost and production are assumed. Example: If there are 20 man hours to conduct a surgery and 15 man hours to do pathological tests and only 10 doctors are available, then these 10 persons can be efficiently utilized by linear programming technique. It is used by Managers to take crucial decisions as it maximizes revenues and minimizes costs.

Network cost budget refers to summary which contains all the category of expenses such as administrative expenses, financial costs and many more with respect to their planned expenditure during a specified period. It is the considered as one of the popular management techniques used primarily for managing and controlling non-routine, complex projects for an organization. In given case, it has been given that there is requirement to devise an initial plan for cost budget for the organization to summarize the expenditure to be expensed. Following is the plan for organization with respect to costing budget as follows: 1. Raw material to be acquired from new suppliers through tenders to get the best quality at the cheapest price. Such plan initiative shall be helping the organization to enhance the relationship with new suppliers better. Old suppliers should not be contacted as the study has shown that old suppliers have charged us more for the goods of low quality. 2. To determine the quantity of inventory to be ordered shall be determined using the EOQ (Economic Order Quantity) which shall determine the optimum level of quantity to produce inventory to be sold. Such calculation shall be done manually by the employee dedicated to factory work 3. After determining the order quantity, the order shall be placed after confirmation from top level management according to planned total quantity to be used during the year. 4. After getting the items being delivered from the supplier, organization should start taking confirmation from top level management to start the production along with suitable plans. 5. The production of units shall be dependent on the level of demand from the market and such production activity shall be done on a non-stop basis by the new workers with the same wages by giving them training for performing the work. 6. Above such production mechanism would lead to more production at the least cost with the same wages cost and without any further life insurance cost for the employees. 7. After converting the raw material and wages into work-in progress shall be valued correctly to measure the quantum of inventory in terms of amount which shall be disclosed in the financial statements. Such process must be lengthy so that no errors should be found and human intervention must be there. 8. Such valuation shall be done on the basis of weighted average or any other method which shall increase the valuation of inventory which shall make the company's leverage larger in terms of loan borrowing capacity. 9. After conversion of work-in-progress into finished goods which shall be available for sale shall be valued correctly through adoption of better inventory valuation technique which shall increase the value of inventory assisting the leverage of the company in terms of leverage. 10. Better promotional techniques and advertisement methods should be adopted to increase the sales irrespective amount to be expensed on the advertisement activities. Above cost budgeting plan contains many of time involving procedures to make the process lengthy but by revising the above plan shall make some adjustments to the plan to make it cost as well as time-efficient. Following is the revised plan for cost budgeting process which shall be as follows containing the time-efficient methods to make the process less lengthy: 1. Raw materials should be acquired through old suppliers to enhance the relationship with them and to get the benefit of old relation and at the same time reducing the cost of tender issuing and time lagging in the production of units to fulfill the demand of market for the products of the company. 2. To determine the optimum level of quantity that should be ordered which shall be used to produce the saleable inventory should be done using EOQ. EOQ shall be computed by computer applications which shall reduce the time period of computing manually as well as reducing the human error in computation. 3. After determining the optimum level of quantity, there is no need to take on the confirmation from top level management to start placing the orders as it would involve time and confirmation should be taken from production manager which would reduce the time lag. 4. The production unit should take confirmation from production manager to start the production of the inventory and not from top level management as it would involve time lag in production. 5. The production should be started with old workers by providing them with the training of new work which would maintain the level of wages cost for the organization as well as reducing the time lag for recruitment of new workers. 6. While there would be no new recruitment of new workers then there would be not any further cost of life insurance as well as same level of wages. 7. Appropriate method should be used to value the work-in-progress which shall reduce the time lag. Human intervention must be reduced to reduce down the error runtime by using computer techniques to value the work-in-progress. 8. Along with work-in-progress, finished goods shall be valued using computer applications so that human error can be reduced. 9. Advertisement shall be employed to augment the current promotional efforts subject to amount of benefits that would be yielded by the advertisement expenses. In other words, cost of advertisement must not outweigh the benefits of advertisement. Following are the explanation to the aforementioned plans would yield time-savings with the respect to production plan so suggested which includes following: 1. If organization would involve new suppliers through tenders then it would be more time-involving requirement to produce the units as tender issuing and offering is much lengthy process. Hence it would be more robust plan to see out inventory from old suppliers as well as seeking for greater discount for new projects and plan. 2. EOQ (Economic Order Quantity) should be computed using computer applications as it would reduce time and human error involved in the calculations of the optimum level of quantity that a company should hold for production. 3. For placing the order and starting the production, there should be a method that production unit would tackle out all the confirmations and authorizations procedure and there is no need to take up the confirmation from top level management as it would involve more time as well as it might distort the authenticity of the methods that would yield positive results. 4. The production should be started with old workers after providing them with the requisite training instead of recruiting the new work-force and providing them with the training. The common element providing the training shall be eliminated to both the work-force and still working with old work force shall be beneficial in terms of cost and time. 5. Work-in-progress as well as finished goods should be valued correctly using the computer applications by using the human intervention and error in the calculation and valuing the inventory for disclosure process. 6. Advertisement and promotional efforts cost and benefits should be and projected analyzed to get a real picture that whether cost of advertisement would not outweigh the benefits of the advertisement. Critical path is considered as the most important part of network analysis as it involves determining the correct and time-efficient path to achieve the objectives of plan. Critical path method uses following steps to depict itself for a particular plan which are as follows: 1. Summary of particularly all activities which are pre-requisite to accomplish the Project. 2. Time involved for each activity. 3. Degree of interdependent between these activities. 4. Outputs of the each activities. Following is the critical path for the aforementioned plan that has been given as below: Step: 1 Summary of activities that are required to complete the project taken up: 1. Raw materials should be acquired through old suppliers to enhance the relationship with them and to get the benefit of old relation and at the same time reducing the cost of tender issuing and time lagging in the production of units to fulfill the demand of market for the products of the company. 2. To determine the optimum level of quantity that should be ordered which shall be used to produce the saleable inventory should be done using EOQ. EOQ shall be computed by computer applications which shall reduce the time period of computing manually as well as reducing the human error in computation. 3. After determining the optimum level of quantity, there is no need to take on the confirmation from top level management to start placing the orders as it would involve time and confirmation should be taken from production manager which would reduce the time lag. 4. The production unit should take confirmation from production manager to start the production of the inventory and not from top level management as it would involve time lag in production. 5. The production should be started with old workers by providing them with the training of new work which would maintain the level of wages cost for the organization as well as reducing the time lag for recruitment of new workers. 6. While there would be no new recruitment of new workers then there would be not any further cost of life insurance as well as same level of wages. 7. Appropriate method should be used to value the work-in-progress which shall reduce the time lag. Human intervention must be reduced to reduce down the error runtime by using computer techniques to value the work-in-progress. 8. Along with work-in-progress, finished goods shall be valued using computer applications so that human error can be reduced. 9. Advertisement shall be employed to augment the current promotional efforts subject to amount of benefits that would be yielded by the advertisement expenses. In other words, cost of advertisement must not outweigh the benefits of advertisement. Step: 2 Time involved in each of the activity: 1. This would involve hardly time as it would require less time to order the new inventory that are required from old suppliers. This would involve 2 days approximately to deal with all matters related to intimating the old supplier to order new inventory. Otherwise tender method would take half month or more approximately as it shall also include legal procedures and online bidding process. 2. Determining the EOQ on the basis of computer applications and at the same time reducing the human intervention would result in savings of time as well as reducing the human error in the process. This computation would involve hardly 1 day whereas through computation by employees it would involve 5 to 7 days as it would require many data to be sorted before calculating and computer would do it just by providing them with the command. 3. Confirmation from top level management would take lot of time as it would totally depend upon seriousness of senior level management involvement in such processes whereas it would take less time for production manager to confirm the production schedule. Confirmation from production manager would be taken up within 1 to 2 days whereas from top level it might take a week or more. 4. Production with old workers would be started as it would take less time to make old worker understand whereas the recruiting the new people would take more time. If the common element of providing the training to both the workforce shall be eliminated then time required for recruiting the new work force shall be saved. Normally, organization would take more than a month to recruit the new workforce along with making them comfortable with the organization schedule which does not include the training part as it has been eliminated initially. 5. Valuation of work-in-progress as well as finished goods shall be valued using correct valuation approach for disclosure requirements. Identifying the correct valuation approach requires more time as it is a subjective measure. 6. Identifying the advertisement efforts would involve more time and it is also important as without promotional efforts it would be difficult for the company to sale out the inventory. It would require more time to deal with advertising matters and deciding with patent and copyright measures. It might take more than a month but may be proved to be more beneficial rather avoiding it. Step: 3 Degree of Interdependency between activities: Following are the activities on the basis of order starting from order with highest importance: 1. First activity, dealing with old suppliers to place the order is the main activity that whether old vendors could make it available for production otherwise they would be given time to arrange inventory subject to tender method. 2. Second activity that is determining the level of inventory through EOQ is the second most important activity as it determines the optimum level of inventory that a company should hold for production. 3. Confirmation from production manager is also important as one cannot start the production until the production manager would confirm the production schedule. It is an authoritative procedure and should be complied with. 4. Intimating the old workers about new production schedule and providing with them training and is most important element for determining the accomplishment of production plan. It is also important otherwise there would be no production if the workers would not be comfortable with the production schedule. 5. Valuation of work-in-progress and finished goods is important for disclosure purposes as well as leverage terms and such practices would be started after the production process has finished. 6. Similar with advertisement efforts and is also important for further production schedule if the market seems favorable for the commodity being produced by the organization. It can also be considered as important factor and it is independent of production schedule and it is solely at the discretion of management deploy such efforts. Step: 4 Output of each activity: Following are the deliverable items for each of the activities which are as follows: 1. The logical output for first activity would be the agreement between the old supplier and company with respect to arrangement of new inventory. It is the most important factor that determines the whole process of production schedule. 2. After computing the EOQ through computer applications, the level of quantity shall be computed whose order shall be placed. In this activity, logical output shall be the optimum level of quantity in units that is Economic Order Quantity. 3. Confirmation from production level management would yield the either confirmation or rejection of the production schedule as the logical output from this activity. 4. Engaging the old workforce to deploy for new work would after providing them with the training would yield the trained workforce for company to take up further the production schedule. 5. Appropriate method for valuing the work-in-progress inventory and finished goods inventory would yield the quantity of goods that should be disclosed in the financial statements. 6. Dealing with the advertisement matters would only yield the advertisement methods or mediums along with contracts of advertisements as well as cost and benefits of advertising for the company. Slack time refers to time that is waiting time normally which is expensed by any department for starting their work further after taking up the work from previous department. Among following activities, slack timing has been shown as follows: 1. Between first activity and second activity there shall be slack time of 0 days as the computer applications would start computing EOQ if the supplier confirms that they would make arrangement for new inventory. Slack time is zero as there is involvement of machine in between the process otherwise intervention of human shall make slack days different from zero. 2. Between second and third activity there shall be slack time of 2 days because of understanding the EOQ model quantification as well as taking decision would involve time. 3. Between third and fourth activity there shall be slack time of high as it can be as after taking up the confirmation from production manager, the company would be required to train the old workforce and they would not be able to work until and unless they would be perfect. Such slack time is dependent on capability of each worker and it cannot be quantified. There may be slack time of 7 days at minimum level. 4. Between fourth and fifth activity there would be unidentifiable slack time as training the worker and selling out the inventory cannot be identified with appropriate measure. 5. Between sixth and seventh activity there would be slack time as there is no matter of order. Cost-benefit analysis refers to analysis that under which the company would determine that whether benefits would outweigh the costs otherwise the project or plan would be rejected. The project would be selected on the basis of multiple which has been computed by the formula for such analysis. If the multiple is more than one, then project should be selected otherwise rejected. Formula for Cost-Benefit analysis is as follows: img

Linear Programming is a method used when future is uncertain. This method finds best solution in allocating limited resources to achieve profit or reduce cost. It is a mathematical model which helps in determining the maximum value (revenue) and minimum value (cost) subject to certain constraints. It is applicable for limited cost functions only. It is not suitable where mixed cost is involved. When the resources are limited, this linear programming method is useful for optimum utilization of resources. Resources here referred as money, Material, man and machine. Thus, the hotel staffs, nurses, doctors, medical equipments, are the resources of the hospital. The possibilities of outcomes can also be determined by this linear programming method. There is an objective equation which represents either the cost or the revenue. The objective of the goal defining is difficult and not easy. It does not consider all financial and non financials factors. It is not possible to build equation with all the variants. Determination of functional values is problematic and cumbersome. The assumptions used are unrealistic. The relationship between input and output, cost and production are assumed. All these assumptions may not perfect. It is very complex method as it involves trial and error method to derive the solution. Thus, Linear programming equations is a computational road block as it has large number of equations.