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Although the prevention, appraisal and failure approach recognises that increasing the amount spent on prevention should mean that total costs reduce, it does not recognize that in the longer term, prevention costs themselves should be a target for reduction. The only division of costs that is valid is between the costs of conformance and the costs of non-conformance. Here are the definitions given in BS In effect absolutely everything that a business does can be described as a process. Try to think of an example of a cost of non-conformance due to the working environment.

There are many possible answers. One suggestion is the cost of time wasted because a document goes missing: If you address this problem by putting up more shelves and buying more folders those would be costs of conformance, because the expenditure makes your process es more effective. See if you can think of further examples under each category in Activity 9. The basis of the process cost model is to realize that both areas of cost conformance and non-conformance offer opportunities for improvement: Some processes exist only because of non-conformance in another process. For example, suppose that the job of Department B is to paint the output of Department A green.

Department B is very effective at painting things green, and the output of Department A conforms precisely to the standards set. So is there scope for improvement? There is, of course, because non-conformance occurs in the department that purchases non-green materials for Department A! If that were attended to there would be no need for Department B at all. The point is more obvious if it is the job of Department B to correct errors in the work of Department A. Improvements might come from one-off expenditure on things such as better training and better equipment, etc.

This takes us into the area of Total Quality Management: If a friend is dependable you know you can rely on them to be there when they promised to be there, or to do things that they promised to do. When it comes to a product or a service, a good simple definition would be that it is dependable if it functions properly whenever you need it. For example, a dependable car starts every time, and does not break down when you want to go from A to B.

If your dependable car is stolen, a dependable insurance company makes it easy to claim and pays out promptly. The life-span of a product, like that of a living creature, can be separated into three time periods: Look at the diagram below. It is a graph of the probability of failure rates for a number of products over their whole life-span.

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Useful life region Wear-out region Failure rate Burn-in region Time This is the typical bath-tub curve describing the life of most products and services the graph gets its name from its shape. You can see that the probability of failure drops during the burn-in period, and then is very low for a long time during the useful life region.

Towards the end of its life, the probability of failure of the product rises once more. This is what you might expect. There may have been faulty components or materials installed, or the product may have been incorrectly manufactured. During the useful life of the product fewer failures can be expected. Later, components and materials start to wear out, and the rate of failure increases again. Briefly jot down your ideas on this subject. If you work in a service industry, try to imagine what kind of reliability curve would be applicable, if any.

Suppose a local authority decides to set up a service to collect paper or other materials for recycling. It would perhaps need to let householders and firms know about the service, to distribute special containers, train staff, and so on. There would be many things to organize, and lots that might go wrong to start with: After the initial period, when things are going smoothly, we would expect the problem rate to be low.

Like a product, which can fail at any time, a service can cease suddenly, by being withdrawn. In the case of the paper collection, a new council might decide it could no longer afford to provide this service. For instance, the patients of a surgery might be unhappy if a doctor leaves and a new one arrives; they may experience a new settling-in period, as patients and doctor get to know one another.

A complex mechanical system will tend to wear out more quickly and more frequently than, say, an electrical one. The bath-tub curve for mechanical systems typically looks like the one shown below. Useful life region Wear-out region Failure rate Burn-in region Time 7. But dependability is also important for the manufacturer of the product. Most manufacturers and others who pass on the product, such as distributors are likely to be very concerned about dependability.

Similarly, service providers know that they will only continue to keep their customers by offering a dependable service. This will result in customers buying different products or services, or buying from competitors. Imagine you are responsible for the manufacture of an item of kitchen equipment, say, or for providing a school catering service. Knowing what you do about the way products and services fail, and thinking about the shape of the bath-tub curve, write down one action you might take to improve reliability.

There are a number of ways of trying to achieve high dependability. Oakland and Les Porter has further information on reliability management. This means that the service or product must be adequately checked and run in, or tried out, before it is delivered. Once a product is in use, or a service is running, the aim is or should be for there to be as few failures as possible. The supplier therefore needs to know how dependable its service or product is in normal use and how to make it more dependable.

Any organization concerned about dependability will study: For instance, a map may become out of date because new roads are built. A computer program may become out of date because of changes to the computers or operating systems that it runs on. The computer industry provides good examples. What are the likely consequences of a failure? The most serious possible consequence, as we discussed earlier, is that someone is hurt.

Health and safety is therefore a primary concern. Another is that one component in a product breaking down or being mishandled might cause other components to fail. For example, if a switch on a powered lawn-mower breaks, it should result in the power being kept off, not left on. A failure of a service might also result in a health or safety problem, and you could no doubt think of many obvious examples in medicine.

To get fresh fruit or vegetables half way round the world, and always in your local shop when you want to buy them, requires a great deal of co-ordination and organization, for example. So we can say that the dependability of goods and services is a complex subject. High levels of dependability, like other aspects of quality, can only be achieved through careful planning.

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That concludes our brief treatment of dependability. We switch subjects now, and look at quality standards and accreditation. In fact, it was the first national standards body in the world. There are now more than similar organizations in other countries. BSI publishes many thousands of standards and other publications, covering items as diverse as dentistry, computer languages and library buildings. There are several international bodies which attempt to ensure that national standards are equivalent to one another.

One of the aims of the European Union EU has been agreement on product quality standards. The intention is that goods which conform to the national standards of one member state will be accepted in all the other states. Since this date the following points apply. Except for these essential requirements, all member states have to recognize and accept test results and certificates issued by other EU national standards bodies. They are typically used: Quality system standards should not be confused with product or service standards. They do not specify what a specific item is or does; instead they are intended to ensure that agreed levels of quality are met for any product or service.

Some system standards apply to particular industries. For instance, the production, processing, distribution, retail, packaging and labelling of food stuffs are governed by a mass of laws, regulations, codes of practice and guidance. Some large organizations have developed their own standards. For instance, Ford Motor Company has launched a back-to-basics quality process, called QI , that requires continual improvement from its suppliers.

The most widely adopted general quality system standard is ISO The latest versions were published at the end of This describes basic concepts and gives the terminology for quality management systems. This sets out the requirements for a quality management system where an organization needs to show that it can provide products that fulfil customer requirements and the requirements of standards and other regulations.

It also covers how to show that an organization is aiming to enhance customer satisfaction. Quality management standards began in the UK with BS in The version has been entirely superseded by the version. The numbers and are no longer used. If an organization wishes to obtain certification of its quality system it will be audited and assessed according to the requirements set out here.

Guidelines for performance improvements. This is a more detailed version of ISO It is used for guidance purposes, not for assessment for certification. This is under development at the time of writing. It will provide guidance on auditing quality and environmental management systems. There are also a number of subsidiary standards on more specialist topics such as requirements for measuring equipment, requirements specific to automotive suppliers, and so on. As an analogy, think about driving a car.

What things might you be prevented from doing until you get your licence? Here are some suggestions. You may have thought of other things. You will come across this most often in government contracts. Central and local governments employ many private sector organizations and pay them large amounts of public money to provide services such as cleaning, building works, road repairs and so on. If an organization were certified under the version of ISO and wanted to retain ISO certification, it would have until 15 December to convert its systems to comply with the new standard.

To become certified the organization has to develop a quality management system that meets the requirements specified by ISO Once the quality system has been fully developed and implemented, the organization must ask an independent registrar to audit it. All being well, the registrar will issue an official certificate. Potential customers will accept this as proof of compliance with ISO Activity 14 3 mins What do you think would be the benefits to an organization of accreditation to ISO ? Try to list two benefits. If your own organization already has accreditation, you may find this question fairly easy.

The following diagram gives an indication of how much companies have benefited from accreditation. Buying from accredited suppliers gives the customer an assurance that the required level of quality of product or service will be reached — this is particularly important in view of the implications of consumer protection law. ISO provides a foundation upon which to build future quality improvements. Many larger customers demand ISO accreditation of suppliers before they will award contracts.

The version of ISO received a good deal of criticism, and until the version is better known you may still encounter opposition of the following kind. Once ISO requirements are laid down, it is unlikely that demanding targets for any further improvement will be set. These criticisms were valid for the version of the standard particularly because of the rigid way in which many registrars interpreted it.

Some companies that clearly had excellent quality systems did not achieve certification because they did not get enough ticks on audit checklists! Some companies that merely paid lip-service to the standard, with no real commitment to quality, found it easy to get certified. Hopefully many of the problems have been addressed in ISO In the revised standard, quality planning activities include objectives at each relevant function and level within the organization.

In general the new standard has fewer rigid rules than the old standard. It is often seen as being complementary to ISO It focuses on the management of people, and the contribution that this management makes both to the overall business mission and strategy, and to delivering high quality. Recruitment, development of staff and communications are among those aspects covered. The process uses four key principles: Because Investors in People highlights the people in the organization, it is regarded as a way of humanizing the concentration on systems in ISO You may have mentioned some of the following.

Absenteeism is reduced where staff are better motivated, leading to continuity and reliability of the service or product. Good communications mean that important information is shared more easily and quickly, so that changes can be quickly implemented. Investors in People recognition is attractive to employees and may attract reliable and talented employees to work for the organization. Quality assurance QA What a product looks like, and how it feels, sounds, tastes, and smells.

Dependability The degree to which the product or service, when it is transferred to the customer, conforms to specifications. Design quality All those planned and systematic actions necessary to provide adequate confidence that a product or service will satisfy given requirements for quality. Aesthetics This is concerned with the operational techniques and activities that are used to fulfil requirements for quality. Quality control QC The probability that a product will not fail within a certain period of time, or that a service will be of a consistently high standard.

Session A 3 Identify the three regions in the diagram below. The dimensions of quality include: It is a serious mistake to think that quality assurance is the business of one group or department. Non-competitive organizations usually have other pressures acting upon them to drive up quality. Also, it does not take into account the costs of non-conformance and the savings that can be made across all areas of the business by improvements. Modified forms of the curve apply to products and services of all kinds.

There are four principal standards. Fundamentals and vocabulary describes the basic concepts and terminology for quality management systems. Requirements specifies requirements for quality management systems for organizations wishing to demonstrate ability to provide products that fulfil customer and regulatory requirements.

Guidelines for performance improvements is a detailed version of ISO Benefits of accreditation to ISO include: The new ISO family attempts to be more flexible, places more responsibility with senior management and concentrates on continuous improvement and exceeding expectations. It focuses on the management of people, and the contribution that this management makes to the overall business mission and strategy, and to delivering high quality. Quality means conformance to requirements; Quality is obtained through prevention; Quality has a performance standard of zero defects; Quality is measured by the price of nonconformance.

You do not have to do this — survival is not compulsory. Oakland and Les Porter. In the last 20 years or so, many organizations began to adopt a new approach to quality management. This approach is a result of the increasing emphasis on the importance of quality in products and services.

If an organization wants to ensure the quality of its products, it has to ensure the quality of all the designs and processes that are used to make those products. This means that every person and every activity in an organization becomes involved in quality. It is this exciting perspective on quality that we look at in this session of the workbook. The quality assurance manager was held to be responsible for the quality of all goods and services. Philip Crosby says in his book Quality is Still Free: Quality managers proudly stood up and announced that they personally were responsible for quality in a particular operation.

As a project quality manager, I was berated each week by the program director in his staff meeting for not meeting desired goals while the real culprits from engineering, manufacturing, and sales hid their yawns and wished the whole thing would go away so they could return to their important work. As we have already discussed, getting the quality right is the only way for a company to be successful.

And to do that, a whole new approach is required. Quality management has to: We mentioned the term total quality management TQM in the last session, and you may well have heard it talked about. But what is it? Like other aspects of quality, TQM is, to some extent, open to interpretation. It has been described as a philosophy of quality that links policy and operational practice.

Some people would say that TQM is more than a philosophy: From another point of view, total quality management is a natural extension and development of quality systems — quality assurance and quality control — to cover all aspects, areas and people of an organization. Management Key concepts, central to TQM, are: A good definition of TQM would therefore be as follows.

But not everyone agrees: Write down what you think their main argument would be. You may put up the argument used by one company executive when attending a lecture on TQM. Competition is the main driving force behind quality. But an organization needs to be better than the competition. To do that it has to go on improving — or else get left behind. And to do that an organization needs total commitment.

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In fact, it has been said that customers want more than to be satisfied — they want to be delighted! That means that you have to check everything carefully. Getting quality right is attention to detail, not high-flown theories. Many would agree with this. Getting quality right is certainly all about attention to detail, as we will shortly discuss. The customer Continuous improvement is often referred to by its Japanese name, kaizen. It is characterized by: The accumulation of these small increments brings about large-scale advantages to the organization.

According to the philosophy of kaizen, everyone has two parts to his or her job: The attention is on the detail. Continuous improvement is not simply a vague notion implying good intentions: There are actually two different concepts involved. First is the popular one that says it is okay to drop six babies this week as long as we only plan to drop five next week. The second is that once we learn how to do things right, we are going to learn to get better all the time. Very few like the second. It is a lot of work. You go into a shop, ready to spend your money, and the shop assistants ignore you.

You buy an expensive item of furniture and discover that the quality of finish is pretty dreadful. Or you stand in a queue for half an hour, only to find yourself face to face with a sour-faced and unhelpful counter clerk. Session B 2 mins Activity 17 Describe how you feel when you are on the receiving end of poor quality products or services. Just one sentence will do! Now say how you are likely to act when you experience excellent quality — when you find yourself delighted by the services or goods you buy.

You may also agree that when they buy inferior quality products, or receive bad service, most people tend to react by going somewhere else in future. It is estimated that up to 96 per cent of unhappy customers do not complain to the supplier, but these same people are very likely to convey their bad experiences to other potential customers. What about the opposite kind of experience? If you are actually delighted by the quality of your purchase, you are surely much more inclined to go back to the same supplier for your next purchase.

Successful commercial organizations recognize that building up customer loyalty has to be a key element in their marketing strategy. How can this be done? Some of the ways are in: Whoever is the next person or group to benefit from the work you do is your customer. Everyone in the workplace has customers. Imagine a large corporation with a wide range of services and products. Not a very important task, you might say. Only employees eat in the canteen, not customers.

How can the work that this team does have any possible effect on the prosperity of the organization? Suppose they do a less than good job — perhaps waste is left in and around the kitchens for much longer than it should be, for example. There are several possible consequences of the poor quality of their work, including the following. The kitchen staff may become accustomed to seeing waste lying about. They in turn may do less than their best, and so will probably make their customers dissatisfied.

The kitchen supervisors, struggling to do a good job, may become frustrated with the service they are getting. If nothing is done about the problem, some may even want to leave. If they do, the corporation will need to pay out more for recruitment and training. You can see that there is a kind of chain reaction taking place. The chain works the other way, too. High quality work — whatever it is — nearly always results in: High quality and high standards, and satisfied customers. High quality and high standards. An essential concept of TQM is that: This means that quality concerns: Many programmes have failed, not because the fundamental ideas were wrong, or because initial enthusiasm was lacking, but that: Three essential management tools for maintaining commitment are: The book is listed on page When TQM is introduced, it entails a change of attitude and approach on the part of everyone.

When people are asked to participate actively in such a programme, they will naturally look to managers for leadership. A certain amount of scepticism can be expected. Jot down two questions. They will need to: No single person or department can make TQM operate successfully: Answers to these questions can be found on pages 93— This can be done by: Internal customers are nearly as important as external ones. There is no simple magic formula for quality. High quality goods and services are not an automatic outcome of any system or routine process. Even total quality management, if it is applied half-heartedly, or without full commitment, will not ensure that your customers will be delighted with the quality of your goods or services.

You have to keep up the effort and enthusiasm all the time, over and over again. But before we do that, we should compare two different approaches to quality improvement. We have already discussed continuous improvement, or kaizen. Kaizen is characterized by: The innovation approach involves: Which is the right way? Long-term competitive advantage is achieved through the application of both improvement and innovation.

Most companies therefore need to understand and combine both the techniques. Surely, it is true to say that most organizations know where their quality problems exist. If you are making a product, such as garden gnomes, electric saws, or skin cream, or else providing a service, such as hairdressing, newspaper delivery, or financial consultancy, you would obviously know what quality problems you have. There are several possible reasons. An organization might not: One way is to make use of the knowledge and skills of the people who are closest to the work, that is, first line managers and their teams.

First line managers are therefore well placed to report, record and quite often help the team to rectify these problems. More senior managers must keep the larger picture in mind, and often have insufficient knowledge of the detail to identify quality problems, with little time to learn it. In recognizing this fact, many organizations have introduced team-based quality improvement programmes. The term originally used was quality circles. The concept — continuous improvement through teamwork — is a basic component of total quality management, and this is only one way that it may be implemented.

Quality improvement groups are also sometimes called quality action groups. Their purpose is to encourage active employee participation in solving quality problems. The team leader is often a front line manager.

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People belonging to quality improvement teams are volunteers. There can be no question of instructing people to join. This is important, because each problem should be one the members have to face in their working lives — ones they are aware of and can get information about. They solve their own problems wherever possible. If more resources are needed, they may call upon others in the organization to help. It has to be said that implementing the idea is not without difficulties.

Jot down two reasons, if you can. Bear in mind the kind of support they need and the difficulties they face. The subject of roles in teambuilding is covered in the Super Series workbook Working in Teams. There may be a number of reasons why quality improvement teams do not work as well as expected, including the following. This is especially true of people with no experience of group problem-solving.

There is insufficient training of team members, which is likely to prevent them being able to get to grips with the problems they are trying to solve. Training is needed in how to approach the task, how to collect evidence, how to analyse data, how to present results, and so on. There is poor communication between the circle and management, so that nobody is quite sure what the circle is up to.

As we have already discussed, communication is a key factor in improving quality. The team tries to solve problems which they have insufficient information about, and perhaps jump to conclusions rather than taking the time and trouble to find this information. A group may be able to solve some problems without too much effort.

It may then assume — mistakenly — that any problem can be solved in this fashion. Clashes of personality occur within the team, including perhaps some people trying to dominate the discussions, while others are ignored. This is a difficult one, requiring considerable managerial skills on behalf of the team leader. Volunteer teams do not always attract the ideal mixture of personalities and talents, so that all the required team roles are not covered.

Team members are not given the time to do the necessary work in collecting and analysing data. The team leader is uncommitted, too inexperienced, or simply incompetent. Training for the leader may be needed, too. Teams may tackle problems that are too large for them to deal with adequately. Over-ambition is a common failing. The team does not have a suitable place to meet.

This is a basic error. It stems from lack of management support. But making quality improvement teams work in practice needs commitment and good management. The starting point for quality improvement team activities is to identify and select a problem for the team to tackle. Problems may be brought to the attention of the circle in a number of ways, but they should be ones which members can become involved in and get information about.

The team has then to decide on ways of tackling the problem. The technique of brainstorming may be used. The essential steps of a brainstorming session are as follows. The subject is introduced by the leader, and then anyone can make any suggestion, however far-fetched, as a solution to the problem. Once the quality improvement team has decided on an approach to a problem, there will probably be a need to collect information about it.

Often, one person is given the task of fact-finding and analysis of the problem. When the member reports back to the circle, the ideas and results are discussed. The solution may already be apparent. If a solution has been found, it is presented to management for approval. There is certainly no harm in getting your team involved in talking about quality and about the problems they face, and we will discuss ways of doing this next.

To be fully effective, it needs the full commitment and backing of management. You may think it advisable to discuss the idea with your manager first. Many quality techniques are described in another workbook in this series: Quality goals can be expressed as simple general catch phrases like: All task-related goals should be: Specific Measurable Achievable Relevant Time bound Specific goals help the team to focus their activities, by defining exactly what must be achieved.

In manufacturing, quality requirements are usually written down: Making goals measurable means that there is some way of deciding whether or not, or to what extent, the goal has been reached. And it is not sensible to require delivery within a certain time period if you have no means of knowing when a delivery is late.

Quality goals should ideally be achievable. It must be possible to physically achieve the goals, but there is more to making goals achievable — the agreement of the team is vital. The people who have to reach the goals need to have some say in setting them. More organizations are encouraging teams to set their own goals and make their own decisions.

Adequate resources are also important. For example, if all telephone calls are required to be answered before the third ring, there must be enough staff waiting to answer those calls. Quality goals should be relevant to the overall task and make a necessary contribution to its completion. Goals should also be time bound. This means that achievements should be assessed at the end of a predetermined period. People need to know how well they are doing; even if the goal is an on-going one. At regular intervals, the team needs to look back and review progress, and to re-evaluate their goals in the light of past performance.

So, in order to achieve quality goals, the team leader has to try to ensure that they are specific, measurable, achievable, relevant and time bound. By completing the next activity, you can assess your own performance in helping to achieve quality goals. If you are intending to take this course of action, it might be better to write your answers on separate sheets of paper. Give an example of a specific quality goal you set your team.

Explain how you measure achievement against this goal. Do the team have a say in setting this and other goals? If so, explain how they are brought into the discussions. If not, explain what actions you intend to take to help the team set their own goals in future. Explain how you might do more to confirm that each individual understands his or her quality commitments. It is difficult to produce high quality work in poor conditions.

Fairly obviously, work conditions should be healthy and safe — this comes before all other requirements. If your team is handling food, then you will need to ensure that appropriate levels of hygiene are met consistently. Zero defects in food preparation may include the goal of zero contamination by unhealthy bacteria; to achieve this, the work environment must be kept immaculately clean. In other jobs, achieving the right work conditions for quality may be a matter of carrying out activities such as checking on the ambient temperature, or insisting that the work area be kept clean and tidy.

People will work at less than their full potential if they: Give two examples of the kind of information your team members need, in order to meet their responsibilities for maintaining healthy, safe and productive work conditions. What kind of training do your team members need to receive to ensure that they will meet quality standards or goals in the conditions under which they have to work? What steps do you intend to take to ensure this training is appropriate and sufficient?

Explain the steps you have taken, or intend to take, to ensure that team members are given every opportunity to make recommendations for improving work conditions. Provide an example or a copy of an actual document in your portfolio , of your record-keeping with regard to work conditions, especially any that relate to organizational or legal requirements. How many of each product should LF Ltd make to maximize profit? Use a separate sheet for your answer. The answer to this Activity can be found on page Complex models will need a specialized computer package, but the familiar spreadsheet can often be used for day-to-day problems.

For example, a spreadsheet may be used to develop a cash flow model, such as the one below. With a spreadsheet model, the answers to questions like these can be found simply and quickly, simply by changing the variables shown as percentages. The different scenarios give managers a better understanding of what the cash flow position in the future might be, and what they need to do to make sure the cash position remains reasonable. For example, if the company has not agreed an overdraft facility it is going to get into trouble in its very first month!

The only cells that should contain a number are the cells in column B the variables , cell C2 5, and cell C13 0. To help you here are the formulae for Month 2.

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Once you have done this, save your spreadsheet. Your answers should state the bank balance at the end of Month 3. For instance, suppose two in every hundred products you sell are returned by customers because of a fault. Or to put it another way, it seems that the probability that a component in the product will be faulty is 0. So how many returns would we expect to get if we sold 5, products? Units Probability 0. The EV of daily sales is calculated by multiplying each possible outcome volume of daily sales by the probability that this outcome will occur, and then adding the results together.

In the example above, we do not expect sales on any one day to be units, but in the long run, over a large number of days, and assuming we have the probabilities correct, average sales should equal units a day. This means that, on the balance of probabilities, it could offer a better profit than A, and so is arguably a better choice.

So project A might be a safer choice. Decision trees are a useful way of working through and visualizing such problems. Decision trees are drawn from left to right, and so a decision tree will start like this. For example, your choices might be A to use cash to buy new computer equipment; B get a loan to buy it; C hire the equipment; or D continue to use existing equipment. Usually, though, the choice will have several possible outcomes. We show this on a decision tree by putting in an outcome point a circle with each possible choice shown as a subsidiary branch.

The probability of each outcome occurring is written on the relevant branch. In the example above, there are two options facing the decision-maker, A and B. If A is chosen there is only one possible outcome, but if B is chosen, there are two possible outcomes, high profits 0. Which is the best option to choose? For example, sometimes, a decision taken now will mean that other decisions have to be made in the future.

Say you have to choose between option A and option B, and depending on the outcome of that decision, you will later have to make a choice between C and D or else a choice between E and F. The diagram helps you to visualize and understand this problem much more clearly than the words. Activity 16 15 mins Arbor Ltd is considering developing a new product. The company can either test market the product or abandon it. The market response could be either favourable or unfavourable with probabilities of 0.

If the market response is favourable the company could market the product full scale, or they could still abandon the product. If it markets the new product full scale, the outcome might be low, medium or high demand. Without looking at our answer see if you can draw a decision tree for the problem faced by Arbor Ltd. Include figures for cost, loss or profit on the appropriate branches of the tree. You might need to try several times, so use a separate sheet of paper for your answer. The outcome of the abandon option is known for certain: There are two possible outcomes of the option to test market: Depending on the outcome of the test marketing, another decision will then be made, to abandon the product or to go ahead.

This is the decision tree. Now we have a nice tree-like diagram, and it helps us to understand the logic of the problem much more clearly. We need to evaluate the tree using expected values. The basic rules are as follows. We start on the right-hand side of the tree, which represents the future, and work back towards the left-hand side, the decision we have to make now. This is called the rollback technique. At each outcome point we calculate the EV. You may like to write the EV on the decision tree itself, at the appropriate outcome point point E. At decision point C, the choice is as follows.

At decision point D, an unfavourable market reaction, the choice is as follows. The later decisions have therefore been made. If the original decision is to test market, the company will market the product if the test shows favourable customer response, and will abandon the product if the test results are unfavourable. Now we need to calculate the EV at outcome point B. But there is a lot less in it than you may have thought.

Managers may not be willing to take risks if they may result in losses. The probabilities are guesses, and they may well be wrong.

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That means much information , but too , because the costs of it can be greater than its value. What are the three steps? The model will consist of. A model allows you to try out to see. Fill in the missing words. You may need to use some terms more than once while you may not use others at all. The branches from A decision tree is evaluated from is used as the symbol for is used as the symbol for a decision have probabilities assigned to them.

Answers to these questions can be found on page The type of information used by senior managers is different from the type used by operational managers. The costs should be weighed up against the benefits. Facts and figures are called data. Information is processed data. Items of data do not usually convey any meaning on their own. Here is an example of data. The best that most people could say is that there are five numbers rising by different amounts and ranging from to They could mean almost anything: They could be dates 21 March, 24 February, February , and so on. Information is data that has been analysed or processed in some way so as to become meaningful, like this.

Country name Algeria Congo Greenland Bulgaria Guyana International dialling code This data has simply been organized into a table with column headings and labels, but now you know exactly what it means. Businesses generate extensive amounts of numerical data, for example number of products sold, number of hours worked.

Most of it also has a price, so that it can be expressed in terms of money, and a date, so that we know that we are talking about events this year or month or week , not some other period. In most organizations this information is collected by the accounting system, and modern accounting software has highly sophisticated reporting capabilities.

Analysing numerical data on a day-to-day basis may often simply be a case of knowing which buttons to press. In this section, we are concerned with the less routine tasks of management. One example is analysing a collection of data that is not formally recorded by the accounting system, for example how long it takes to do a set of tasks in a new way. You may need to analyse it so that you can make some decision.

For this you need to know a little about statistics. Statistics is a word that frightens many people, and at an advanced level it can get very difficult. Most business statistics, however, involve simple techniques such as adding, subtracting multiplying and dividing. You did a fair bit of that in Session A.

And as you probably know, a spreadsheet can take almost all the effort out of handling numbers. To start off your folder create a spreadsheet that demonstrates that you have the following basic skills. If necessary use the Help system in your spreadsheet to find out how to do them. Print out any help pages you use. Select cells, copy and paste their contents and drag them to other parts of the spreadsheet. Sum a column of numbers. Automatically fill in data based on adjacent cells. Last year the ratio was By reducing all the ratios to the same numerical base i.

This information shows us that the business is using its floor space more efficiently than last year, but not as efficiently as its competitors. One of the best-known ratios is profitability, which is profit: Work out the profitability ratio and profit percentage and enter the figures in the blank columns. Calculate ratios to the nearest whole number and percentages to one decimal point. We have done the first calculation for you.

You will probably realize, having done this Activity, that percentages are often easier to understand than ratios, though the calculation is much the same. Ratios and percentages are both ways of presenting relationships so as to make it easier to compare figures. Here is another example. We can probably assume that this is a seasonal business which performs strongly in the period up to Christmas and experiences a sharp fall afterwards. Extra staff members are taken on for the Christmas quarter. On their own, these figures tell us nothing about the efficiency of this business.

However, if we create a ratio of revenue per headcount in other words divide revenue by headcount , the picture becomes much clearer. Productivity is another good example of the value of ratios. We calculate it as a measure of output against a measure of labour. Output is usually measured in units, while labour may be measured in various ways, such as: These four ratios may produce somewhat different results, as the next Activity will show.

Show your answers to two decimal places. What do the indexes and averages show? The correct version of the table, and our interpretation, can be found on page Note that measuring, recording and producing indexes from this data — that is, analysing it — has resulted in: Managers can learn a lot from figures using the simplest of techniques: Usually this involves putting data into some kind of table and working out totals and averages.

The staff members work a five-day, Work out the totals and enter them in the blank column of the table below. Do the average to one decimal place. These calculations can easily be done by hand using a calculator, but if you have access to a spreadsheet, this is a better option.

Next we add some extra data for comparison purposes, showing target performance — the number of interviews each person is expected to carry out. Activity 24 6 mins Work out these percentages and averages and enter them in this table to show performance against target.

Work to one decimal place. How each person is performing against the departmental average. The new figures also reveal some unexplained oddities. There are two obvious points. Managers are always looking for deviations from what is expected, so these two oddities need to be explained. An investigation may discover, for instance, that Dela was sick for an afternoon, and that David is a trainee who has been set lower targets initially.

Or perhaps Dela spent an afternoon sitting with David, helping with training. If you have three values, 1, 2 and 3, the total is 6 and so the arithmetic mean is 6 divided by 3, which equals 2: The performance figures we just looked at for Dela are a case in point. It is important for her manager to know her typical performance against target, but averaging her across five days does not give an accurate idea of what is typical. Because Dela only worked for half the day on Thursday, her average performance over five days comes out as The mean can easily be distorted by the inclusion of one or more untypical figures, so it sometimes helps to use a different measure of centrality.

Two alternatives to the mean are the median and the mode. The mode is the value which appears most often in a series. Activity 26 2 mins In the nine-value series above, determine the average arithmetic mean , the median and the mode. What formulae would you use to determine the arithmetic mean average , the median, and the mode if these figures were entered in cells A1 to A9 of a spreadsheet? This question is much easier than you might think! For instance, in the following results there were two days when daily demand was Daily demand Frequency 14 22 24 27 30 31 32 33 39 50 2 2 1 1 3 6 2 1 1 1 How can you calculate the average?

One way, of course, is not to group the data like this in the first place. You could simply list out a value for each of the 20 days and divide the sum by A quicker way, however — and sometimes the only way, depending on the data — is to multiply daily demand by frequency and then divide by For instance, using the previous example data might have been shown as follows. Daily demand 1 11 21 31 41 to to to to to Frequency 10 20 30 40 50 0 2 7 10 1 20 This makes it more difficult to find the average because a certain amount of detail has been lost.

To calculate the average when we have grouped data like this we need to decide which value best represents all of the values in a particular class interval. It is a convention in statistics to take the mid-point of each class interval, on the assumption that the frequencies occur pretty evenly.

Because our assumption that frequencies occur evenly within each class interval was not quite correct, this answer is not exactly right, but it is pretty close to the actual average of In such a case we need to look at the spread of the data. Measures of spread or dispersion give you some idea of how widely the data you have is spread about its average.

The range, for instance, is simply the difference between the highest value and the lowest value. Activity 28 20 mins Calculate the mean and the range of each of the following sets of data. The first set of data is more widely dispersed than the second set. The lower the range, the less widely spread the data is.

A percentile is a number that a certain percentage of the values are less than or equal to. Out of the remaining ten numbers two are lower, so 71 is called the 20th percentile. Quartiles are a commonly-used way of identifying the range within which the values in a set of data occur. Quartiles often are used in sales and market research, and in education.

How would you calculate the lower quartile, the median and the upper quartile using spreadsheet facilities? B,1 will give you the lower quartile. B,2 will give you the median. B,3 will give you the upper quartile. Activity 30 15 mins Here is a set of sales results for a week in December and a week in June for 15 sales staff. The product is a seasonal one, which sells much better in the summer.

Identify the lower and upper quartiles and the median for each sitting and suggest how these figures might be used. December 4 14 16 18 20 22 23 25 26 29 31 33 39 42 47 June 39 40 48 54 55 67 69 73 78 78 78 80 81 94 97 Identify the lower and upper quartiles and the median for each period and suggest how these figures might be used. Lower quartile Median Upper quartile December June 19 25 32 In December you might set the target at the median figure of 25 units. In June , however, anyone who was selling at a rate of about 25 units in December might be expected to sell around 73 units.

Any of the sales staff who sold fewer than 55 in June would be falling seriously below target, while anyone who achieved sales of more than 79 units might be eligible for a high sales for the month award. Similar figures could be calculated for December rates of sales.

The inter-quartile range is the difference between the values of the upper and lower quartiles and hence shows the range of values of the middle half of the set of data. The smaller the inter-quartile range, the less dispersed the data. Because values at the ends are not taken into account, the inter-quartile range is not affected by extreme values. This shows that the range of values of the middle half of the population is 5 units. The standard deviation SD is a measure of the amount by which the values in a set of numbers differ from the arithmetic mean. It is calculated using all of the data, not just half of it.

You can calculate the SD manually or using a scientific calculator, but the easiest way is to use a spreadsheet. Work to two decimal places. Although this might not look like a very meaningful number the standard deviation is actually an incredibly useful statistic because it can be proved that: Once you know this, the SD can be used in a wide variety of business situations, simply by collecting a relatively small sample of data: In this case the arithmetic mean is The only value that is beyond 2 standard deviations is the very extreme value How can an organization estimate how much it is likely to sell?

There are several mathematical techniques for sales forecasting such as regression analysis and exponential smoothing, which are a bit too complex for this book. Here we will concentrate on moving averages and time series analysis. The idea behind calculating a moving average is to eliminate seasonal variations. Suppose that sales of a product for the past four years have been as follows.

But how can this organization forecast sales for ? Using the moving averages technique, you begin by establishing what the seasonal cycle is. Here it is the four seasons of the year and a one year cycle. In another situation, it might be a weekly cycle of seven days. Next, you calculate the moving average of monthly sales, and from this, the moving average of seasonal sales. Moving averages are matched against the mid-point of the time period to which they relate.

The figures in the table are explained below it. This shows the underlying longterm movement in the values. In this example we can now see clearly that there is an underlying upward trend in sales. However, to make the data easy to set up on a spreadsheet, it is better to set it out as shown below. To obtain a best estimate of the future variation in sales each season, we now take the simple average of these figures, as follows figures in round brackets are negative numbers. Spring Summer Variation Total Then enter formulae to calculate the remaining figures shown above.

You will have to give some further thought to layout to do this effectively. For instance, if you wanted to know what parts were used in what products it would be better to re-sort the data in ascending order of column B. To do this you simply select all the data, click on Data. Sort and change the Sort by column. Save your spreadsheet because you will use it again in the next Activity. You should get the following result. Usually, though, you would have a lot more data than this — perhaps thousands and thousands of rows — and it may very well be inconvenient to resort to it all the time.

You would probably want to leave it in part number order. To use this, all you have to do is select your data and click on Data. AutoFilter, and the following happens. The little downward pointing arrows at the head of each column allows you to choose exactly what data is shown. For instance, if you just want to see what parts are used in product D, you can just click on the arrow in column B and select D. Sort the data by Part number and then AutoFilter it.

Using the downward arrows find out which parts are used only in product D and how much the materials for product D cost in total. You can use the SUM button to find the total cost if you like. Although in this case you could probably see the answer without doing any filtering, imagine if there were 20, different parts and products and each product needed 50 or so components!

To restore the original data all you need to do is click on the arrow in column B again and select All. It is also well worth learning how to do a custom filter. To do this click on the arrow in column D and select Custom. The following dialog is displayed. You have lots of filtering options here: What are the part numbers? You should get the answer and It is well worth spending a few more minutes experimenting with filters. PivotTables are useful when there are several different ways to analyse the data you have in front of you.

For example, the spreadsheet below shows sales data by month, by salesperson, and by type of product sold. Some of the data is numerical, some is text. Once you have entered the data above in a spreadsheet select cells A1 to E6 and click on Data. An Excel Wizard then appears to take you through the steps. At Step 2 the Range A1 to E6 should already be entered because you selected those cells before you started so just click on Next. At Step 3 select Existing worksheet and click on cell G1.

Then click on the Layout button. The following dialog will appear. This is a bit confusing. The best way to learn is by following the simple instructions in Activity In other words analyse the data three ways: We will not include the All items field button for now, but only to keep things simple. All you have to do is drag and drop the buttons into the appropriate area of the layout grid until it looks like this. The result is a PivotTable. The PivotTable gives us a variety of information that it is not so easy to see at a glance from the original data, for instance: See if you can find out how to do that.

You should have produced a PivotTable that looks something like this. All you have to do once you have got back to the Wizard and selected Layout is drag the All Items button into the data area. As we said at the outset, this is only a very brief introduction to a very useful tool, but with this basic knowledge you should be able to experiment and learn more using data of your own.

Here we are talking about data in individual files or documents. There are several ways, and you could use them alone or in combination. In other words, in alphabetical order. A date is a sort of number, of course, and information such as correspondence is most usefully organized in strict date order. Dates are also used in a less precise sense, however. For instance, you may organize a list of tasks to be done into those that have to be done by the end of this week, those that must be complete by next Wednesday, and so on. This could be anything that items of information have in common with each other, for instance physical items may have a size or colour, staff could be categorized according to department or job title, and so on.

Many activities have to be done in a particular order. For instance, if you are making a cup of tea you put water in the kettle and then boil it before pouring it into the cup. The most important items of information should be put first: Session B 10 mins Activity 38 Here is some information about some of the members of a customer services workteam as at 3 March How else might it be organized?

How do you think it should be organized? This book, for instance, is full of information organized into sessions, which in turn are divided into sections, sub-sections, paragraphs, bullet points and activities. You may have to create or update some kind of procedures manual for your own team. Various techniques can be used to make the content of such a document easy to identify and digest.

The relative importance of points should be signalled by headings. Each point may be numbered in some way to help with cross-reference. A typical report structure has the following features. There is a hierarchy of headings. There is an overall title and the report as a whole is divided into sections. Within each section main points have a heading in bold capitals, sub-points have a heading in bold, lower-case and sub-sub-points have a heading in italics.

Three levels of headings within a main section is usually considered the maximum number that readers can cope with. It is better not to underline headings. Sections are lettered A, B, and so on. Main points are numbered 1, 2, and so on, and within each division paragraphs are numbered 1. Sub-paragraphs inherit their references from the paragraph above. For instance, the first sub-paragraph under paragraph 1. Word processors offer you a wealth of fonts these days, but it is best to avoid the temptation.

It is often a good idea to put headings in a different font to the main text, but stop there: Our example is not the only way of organizing a report, of course. You might choose to reference sub-paragraphs 1. You might use roman numerals, although we advise against this. If your report turns out to be longer than you expected and you get up to paragraph XLVIII you are likely to confuse many of your readers unless they happen to be Romans.

The longer the document the better structured it needs to be. Large-scale reports or manuals may run to hundreds of pages, and will therefore require the following. This is a set of rules that specifies details such as hierarchies of headings, paragraph numbering system, spacing between paragraphs, fonts to use, size and placement of company logo, acceptable colours, and so on. The best way to do this is to find an existing document that is five to ten pages long and define a style for each element. For instance, if paragraph 3.

However, ultimately everything is related to everything else and if you are not careful there could be no end to the cross-references. The best advice is to keep them to a minimum, otherwise your readers will be forever flicking from one page to another, and will most likely lose the plot. If too many crossreferences seem to be necessary it is probably time to consider re-arranging the information in your report.

Shorter documents should not usually need an index if there is good use of headings and a reasonably detailed contents page. If you start to feel that your document will be hard to follow without an index, it may be time to think about re-arranging the material into a more logical structure. Your first thought might be to do it by computer. Computers are both a help and a hindrance for indexing. It would be very quick and easy to compile an index listing every occurrence of every word in this session using a word processor.

But the list would include a massive amount of irrelevant information: If you need to prepare an index you need to exercise some discretion. You can easily do this with a word processor for example Microsoft Word by selecting one example of the word and choosing Insert. The result would be something like this note: Spreadsheet 34, 37, 39, 44, 45, 46, 48, 49, 50, 51, 52, 53, 54, 55, 63 3 mins Activity 41 How useful is a list like this to a reader? Can you suggest how the list might be improved?

And it would be very annoying for the reader to have to turn backwards and forwards through a document or book looking at each of 15 instances. The list would be much improved if it organized the information according to sub-topics that the reader might want to look up, like this. Data analysis with spreadsheet, 49 So, although indexing involves a little manipulating of words appearing in a document or set of documents which computers can do , it involves a lot more of understanding and organizing the ideas and information in the documents, and anticipating the needs of users which computers cannot do.

Self-assessment 2 1 Explain the relationship between information and data. We have worked out the first one for you. What are the missing words: For instance, ratios and percentages are both very simple ways of presenting relationships so as to make it easier to compare figures. The most common type of average is called the arithmetic mean: However, this can sometimes be misleading and two alternatives are the median the middle value and the mode the value that appears most often. However, the most useful figure for statistical analysis is the standard deviation, which is a measure of the amount by which the values in a set of numbers differ from the arithmetic mean.

Sorting and filtering can be done at the touch of a button. Very complex analysis is possible with a PivotTable. Longer documents will need to be structured with headings, paragraph numbers and the like. Indexes can be useful in longer documents, but the indexer needs to understand the information very well and be able to anticipate the needs of users.

This final session, therefore, contains a range of advice about the most common methods of visual presentation of data used in business.

This form of presentation makes it easier to understand large amounts of data. A railway timetable is a familiar example. Note down at least three things that this timetable tells you. There are lots of possible answers: Here are some possibilities. Since you know it is For instance, you can see that if you had arrived at London Bridge a few minutes earlier you could have got a fast train.

If you are not sure that six minutes is long enough to buy a cup of coffee and a bar of chocolate you can get a slightly later train to Lewisham which will give you 14 minutes. You can read across rows or down columns and compare values. For future reference you can note by reading right across the London Bridge row that from Tables are a simple way of presenting numerical information. Figures are displayed, and can be compared with each other: A table is two-dimensional rows and columns: Here are the key points to remember.

All columns and rows should be clearly labelled. Where appropriate, there should be sub-totals and a right-hand total column for comparison. A total figure is often advisable at the bottom of each column of figures also, for comparison. It is usual to double-underline totals at the foot of columns where the table is not presented in a grid. Decimal points should line up, either by using a decimal tab or by adding extra zeros the latter is preferable, in our opinion. Tables should not be packed with too much data; if you try to get too much in, the information presented will be difficult to read.

Often it will be obvious which information should go in the columns and which should go in rows. Here are some points to remember. It is usually easier to read across a short line than a long one. That means that it is usually better to have a long thin table than a short wide one: Product Large Medium Small A For example in the previous version of the sales figures it is easier to compare product totals, but in the version below it is easier to compare monthly totals.

Jan Feb Mar Apr May Product A Product B Product C Product D Total 2, 2, 1, 1, Jun Jul Aug Sep Oct Nov Dec Total 5, 5, 6, 4, 1, 2, 1, 2, 1, 1, 2, 22, If you are not sure what your readers will most want to compare it might be helpful to give them both versions, if practicable. Note that it is conventional to show time on the horizontal axis. This encourages us to ask questions: By using different symbols for the plotted points, or preferably by using different colours, several lines can be drawn on a line graph before it gets too overcrowded, and that means that several trends for example the sales performance of different products can be compared.

The scale of the vertical axis should be just large enough for you to tell with reasonable accuracy the sales figure at any given point during the period. In the example above we have used a scale of and you can tell, for instance, that sales of product A in April were a little less than check in the table given in part 2 of this session.

Activity 43 Looking at the graph, what do products A and B have in common? The answer to this Activity is on page Data is shown in the form of bars which are the same in width but variable in height. Each bar represents a different item, for example the annual production cost of different products or the number of hours required to produce a product by different workteams.

As you can see, here we are more interested in comparing a few individual items in a few individual months although you can still get a visual impression of trends over time. Our answer to this Activity is on page Horizontal presentation is also possible. However, these guidelines may help.

If you are showing differences at a single point in time the end of , for instance you might prefer horizontal bars. We cannot cover all the options in this book, but we will work through the basics for one type of chart. You should then have enough knowledge to be able to experiment on your own.

However, unless you understand the basics of the Excel Chart Wizard this can often produce unexpected or unwanted results. Currently it handles the careers of 5 models: Each model is rated each month on a scale of 1 to Here are the ratings for January to March. You should enter this data in cells A1 to F4 of your spreadsheet and then save your work. January February March White Red Green Yellow Blue 10 10 10 9 5 7 7 7 3 8 3 2 6 4 1 We are going to work on this data to produce a variety of bar charts.

This will create a chart in a separate spreadsheet called Chart 1. To get a bit more control you need to use the Chart Wizard. He lives in a little button near the top of the screen. There are all sorts of options here and we will look at several of them, but now we are going to create a column chart of the first sub-type, clustered column. When you get to step 4 you will see the following options. Your chart will appear on the same page as your data.

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  • Your chart should look like this. First we need to learn a bit of terminology. The horizontal line, labelled White, Red, etc.

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    The vertical line, labelled with numbers 0, 2, 4, etc. The X-axis is the one that is having a lie down: Excel also uses some other names: Activity 47 5 mins How do the three elements legend, X axis, Y axis relate to the original data? The X axis is derived from the column headings. The Y axis is derived from the minimum and maximum numbers in the body of the table of data. In fact the default behaviour in Excel is to derive the X axis from whatever there is more of, whether they are columns or rows.

    In this case we have more models than months, so the models go in the X axis. Do we have to change our original table of data? A menu appears, from which you can choose Source data. You will see the following options. Session C 2 The series is just another word for what appears in the legend box. Select Columns and you will immediately see in the preview shown in your Source data window that this has done exactly what you wanted: For instance, the bars representing the models will have come out in default colours chosen by Excel, but you can easily change this: This gives you the opportunity to change the colour to something more appropriate: Try this, and then see what other changes you can make to improve the appearance of your chart.

    In January, Ms Blue changed her name to Navy. After reappraisal it has been decided that Ms Navy should have scored 4 in March. And although it is quite unprecedented Ms White scored 11 in February. Activity 49 10 mins Make the above changes to your original data and watch the effect on the chart. It will update automatically. Select the Series in columns option. The new chart would look like this. This is all very peculiar. You know, for instance, that Ms White scored a perfect 10 in each month, but here it looks as if her score is getting higher, month after month.

    To make sense of this take a look again at the data. Most of their scores are getting lower and lower as time goes by. Prove this to yourself. Select cells G2 to G4 and then click on the AutoSum button at the top of the page. And that is exactly what is shown in the chart. You should now know enough to experiment with charts using some real data of your own. Have a go at creating line graphs and pie charts as well as bar charts. On the following pages there are some examples of this type of presentation.

    If you choose any of these forms of presentation here are some points to bear in mind. For instance, in our flow chart example a decision symbol is always a diamond with italic text; a YES decision always flows downwards; a NO decision always flows to the right. Keep the labels or other text brief and simple. Hand-drawn diagrams should be as neat and legible as possible.

    If they are likely to be seen by a lot of people not just your team it is better to use a business graphics programme like Microsoft Visio. Everyone can draw, but only so well. If you are not expert you can waste an enormous amount of time playing with computer graphics. If it needs to be really beautifully presented and you are not an expert sketch it quickly by hand and then give it to a professional. If you are intending to take this course of action, either use a computer software program and save the files, or use separate sheets of paper for your answer.

    A flow chart setting out how to do a work procedure that everybody on your team does regularly. Different pictures can be used on the same pictogram to represent different 98 Session C elements of the data.