Slide 1

Chapter 6 Value and Risk Management:Multi-Attribute Utility TheoryComparison of strengths and weaknessesEnhance Value to increase scoreManage RiskMost of the chapters figures are included in the file.Instructor must decide how many and which examples to use.Chelst & Canbolat Value-Added Decision Making1Figure 6.1: MAUT process - Analysis

29/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingSteps in AnalysisCheck for data errorsInputsRanges and preferencesAnalysis of uncertainty, strengths, and weaknessesRobustness of optimal - weights changeValue Added and Hybrid Improve values of highly weighted objectiveReduce risk39/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.2: Objectives Hierarchy High Ceiling Kitchen FixturesAmount of Light 0.274Dimmable 0.055Type of Light 0.205Max Light Quality 0.534Operating 0.219Purchase 0.137Min Cost 0.356Change Bulbs 0.110Min Hassle 0.110Best Lighting System 1.00049/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingDiscuss weightsLight quality is more than 50% of weight amount is most important with Type at .21 .Cost is a little more than 1/3 rd of total with operating outweighing purchase cost. Operating cost is also 0.22.4High Ceiling Data: 20 bulbs5Bulb :Amount of Light (Lumens)Replace Bulbs DimmableOperatingPurchaseType of Light65 Watt basic62010 or moreNo27050Incandescent75 Watt basic9006 to 9No31576Incandescent65 Fluorescent7505 or fewerNo7090Fluorescent75 Fluorescent Dim9005 or fewerYes80160Fluorescent75 Halogen Dim10206 to 9Yes315150HalogenReplace BulbsType of LightCategoryUtilityCategoryUtility10 or more0Fluorescent06 to 90.5Incandescent.755 or fewer1Halogen19/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingNot linear with 3 categories with regard to type. Incandescent is 0.75 as good as halogen true colors.Use lumens because watts has little meaning.75 watt fluorescent is based on standard packaging that lists equivalence. The actual wattage is only one-sixth. The actual wattage is used in calculating operating costs.5Errors in Input Check Ranking Results GraphSymptom 1 One line goes above 1 or below 0Data input error in that alternative too large or too small added a zero or left off a zeroSet range too narrow to include all valuesSymptom 2 All lines on one measure outside rangeForgot to reset range on that measure. LDW uses default range of 0 to 1. Symptom 3 Ranking of all alternatives on a measure seems upside downMost preferred and least preferred settings are reversed.

69/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.3: Ranking results graph for lighting system example data input error (figure corrected from text)Utility 1.000 0.000Best Lighting SystemAmount of lightOperatingType of lightPurchaseChange bulbs Dimmable65 watt basic75 watt basic75 Halogen Dim65 Fluorescent75 Fluorescent Dim9/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.4: Wrong direction on operating cost measure reversed Fluorescents should have best operating costs and not worst (near 0)

89/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.5: Results graph for lighting system example (figure corrected from text)Utility 1.000 0.000Best lightingMax. qualityMin. costMin. hassle75 Halogen Dim65 Fluorescent75 Fluorescent Dim65 watt basic75 watt basic9/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.5: Results graph for lighting system example ERROR in GRAPH - ReplaceUtility 1.000 0.000Best LightingMax. QualityMin. CostMin. Hassle75 Watt Fluoro Dim75 Watt Basic65 Watt Fluoro65 Watt Basic75 Halogen Dim109/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.6: Objective (3) stacked bar results for lighting system exampleRanking for Best Lighting System GoalAlternative75 Halogen Dim75 Fluorescent Dim75 watt basic65 Fluorescent65 watt basicUtility 0.618 0.584 0.542 0.526 0.359Max Light QualityMin CostMin Hassle119/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingHalogen earns most of its value from light quality75 fluorescent equal value from quality and cost11Figure 6.7: Measure (6) stacked bar results for lighting systemRanking for Best Lighting System GoalAlternative75 Halogen Dim75 Fluorescent Dim75 watt basic65 Fluorescent65 watt basicUtility 0.618 0.584 0.542 0.526 0.359Amount of LightPurchaseOperatingChange Bulbs Type of LightDimmable129/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingMore details12Figure 6.8: Pairwise comparison between the 75-watt halogen and equivalent fluorescent

139/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingAlmost all of positive difference involves type of light. Fluorescents are bad with true light color13Figure 6.9: Sensitivity analysis for weight placed on Amount of Light => NOT sensitive

149/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingVertical line is current weight 0.27Halogen is best at that pointAs weight increases best solution becomes even better relative to others since it provides the most lightDecrease it would have to decrease by more than 50% to change ranking.Conclusion not sensitive to this weight change14Figure 6.10: Sensitivity to weight placed on Type of Light Sensitive to decrease

159/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingNot sensitive to increaseHowever if weight assigned to type of light decreases below approx 0.18 solution changes fluor with dimmer is bestWith zero weight fluorescent becomes much better. Remember fluorescents are the worst at producing true colors15Figure 6.11: Sensitivity to weight placed on Operating Cost Sensitive to increase

169/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingEven small increases in weight on operating cost sends halogen to 2nd and then 3rd place. Steep decline.16The Best Alternative So Far May NOT Be The Final Answer: ValuesEnhance best alternative(s) or create better Hybrids through: Value Analysis & ManagementEnhance Best or 2nd beat Alternative Identify a highly weighted but weak measure level in the best alternative(s).Creatively identify a way to improve the alternatives measure level and specify associated changes in other measure levels such as added cost.Hybrid: combine two alternatives in a way that builds on the strengths of the best alternatives. Evaluate the newly formed alternatives.179/19/2011Chapter 6Chelst & Canbolat Value-Added Decision Making17Create a Lighting HybridIn best solution identify a weak measure with significant weightOperating cost - weight 0.22Creative alternative: 50-50High quality light where needed half of kitchenFluorescent with lower cost where true color quality does not matter189/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.12: Ranking Hybrid Lighting System: 50-50 split in kitchen Reduce operating costRankin for Best Lighting System GoalAlternative75 Halogen Hybrid75 Halogen Dim75 Fluorescent Dim75 Watt basic65 Fluorescent65 Watt basicUtility 0.640 0.618 0.584 0.542 0.526 0.359Max Light QualityMin CostMin Hassle19Bulb Amount of LightChange Bulbs DimmableOperatingPurchaseType of Light75 Fluorescent Dim9005 or fewerYes80160Fluorescent75 Halogen Dim10206 to 9Yes315150HalogenHybrid 50-50 split9606 to 9Yes200160Halogen - Fl9/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingHybrid was based on the weakness in operating cost for halogen. - 19The Best Alternative So Far May NOT Be The Final Answer: ValuesEnhance best alternative(s) or create better Hybrids through: Value Analysis & ManagementEnhance Best or 2nd beat Alternative Identify a highly weighted but weak measure level in the best alternative(s).Creatively identify a way to improve the alternatives measure level and specify associated changes in other measure levels such as added cost.Hybrid: combine two alternatives in a way that builds on the strengths of the best alternatives. Evaluate the newly formed alternatives.209/19/2011Chapter 6Chelst & Canbolat Value-Added Decision Making20Figure 6.13: Stacked bar ranking for kitchen remodeling exampleAlternativeBuild RiteQuality BuildCost ConsciousUtility 0.651 0.630 0.462Max. QualityMin. CostMin. Hassle219/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingStrength in quality and not as good on cost21Kitchen remodeler - weights22

9/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingKitchen remodeler - Data23Chapter 5MeasureBuild RiteQuality BuildCost ConsciousTotal labor cost$34,000$26,000$25,000Total material cost$20,000$12,000$10,000Cost overrun history0% (p=0.33) 2% (p=0.34)7% (p=0.33)2% (p=0.33) 5% (p=0.34)9% (p=0.33)6% (p=0.33) 9% (p=0.34)15% (p=0.33)Duration kitchen unavailable13 weeks10 weeks9 weeksWeeks of delayOn time (p=0.33),1 week late (p=0.34)2 weeks late (p=0.33)1 week late(p=0.33)2 weeks late(p=0.34)3 weeks late (p=0.33)2 weeks late (p=0.33)3 weeks late (p=0.34)4 weeks late (p=0.33)Cleanliness scaleCleanMessyDirtyFollow-up and resolution scaleAdequateHighly responsiveAdequateCreativity scaleHighly creativeCreativeMundaneBrand & store reputation scaleTop of line2nd Best Brand2nd Best BrandPercent use of subcontractors25%40%65%Fit and finish scaleExcellentGoodGoodYears in business 12 (Good)8 (OK)22 (Excellent)Quality of references scaleExcellentGoodOKChelst & Canbolat Value-Added Decision MakingIn these data the uncertainty associated with contractor is independent of the other contractors experience.In some instances the uncertainties are linked. For example in the bulb example the uncertainty regarding hours of oepration would be the same for all 3 bulbs and would have a commensurate impact on operating cost. 23Figure 6.14: Comparison of top two kitchen remodelers

249/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingQuality build Weak but not correctable (creativity and references) Weak and correctable (fit and finish)24Enhance 2nd best Best on CostSpend a little more money and improveIn 2nd best solution identify a weak measure with significant weight that can be improvedFit and finish (0.12 weight)Cleanliness and percent use of contractors (minor)Creativity and References can NOT be improvedCreative alternative: Spend money to improve fit and finish (and other benefits)Less subcontractingCleaner259/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingImprove Quality Build on Fit-Finish & add cost26MeasureQuality BuildQuality Build + Value EnhancementTotal Labor Cost$26,000$29,000Total Material Cost$12,000$12,000Cost Overrun History2% (p=0.33), 5% (p=0.34),9% (p=0.33)2% (p=0.33), 5% (p=0.34),9% (p=0.33)Kitchen Unavailable10 weeks10 weeksWeeks of Delay1 week late (p=0.33),2 weeks late (p=0.34),3 weeks late (p=0.33)1 week late (p=0.33),2 weeks late (p=0.34),3 weeks late (p=0.33)Cleanliness Created ScaleMessyCleanFollow-up and Resolution ScaleHighly responsiveHighly responsiveCreativity ScaleCreativeCreativeBrand & Store Reputation scaleModerate priceModerate pricePercent Use of Subcontractors40%20%Fit and Finish ScaleGoodExcellentYears in Business but GroupedGoodGoodQuality of References ScaleGoodGood9/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.15: Stacked bar results after value enhancement: kitchen remodelerAlternativeQuality Build + Value EnhancementBuild RiteQuality BuildUtility0.6780.6510.630Max. QualityMin. CostMin. Hassle279/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingThe Best Alternative So Far May NOT Be The Final Answer: RisksEnhance best alternative(s) through: Risk Analysis & ManagementIdentify a highly weighted measure with significant uncertainty in the best alternative(s).Assess the impact on the MUF of reducing downside risk on that measure.Develop a strategy for reducing the downside risk even if it changes other measure levels. Evaluate any newly formed alternatives.289/19/2011Chapter 6Chelst & Canbolat Value-Added Decision Making28Value Analysis & Risk Management Conformal Coating Process Printed BoardsGlobal Electronic will install a new conformal coating process because the upcoming Powertrain Control Module (PCM) design requirements are incompatible with the existing coating process at the plant. These coatings are applied to the printed wiring boards to protect circuitry from environmental exposure after the installation of all surface mount devices, but before final assembly of the module. The process should ideally be capable of selectively applying the coating to various areas of the circuit board, coating some areas while avoiding others. Pre-screening of a wide variety of available processes has reduced the number of viable candidates to three. The team realized that these processes vary widely in ability to accommodate design changes (flexibility), weight, initial investment costs, material costs, etc. 299/19/2011Chapter 6Chelst & Canbolat Value-Added Decision Making29Goals Hierarchy & Weights: Coating Process SelectionSelect Best Coating Process (1.000)Performance (0. 213)Cost(0.324)Time(0.148)Reliability(0.315)Flexibility (0.157)Weight(0.056)Coating Control(0.130)Material (0.167)Labor (0.037)Facilities & Tooling (0.093) Development Time (0.148)Scrap (0.028)Foreign Material(0.185)309/19/2011Chapter 6Chelst & Canbolat Value-Added Decision Making30Coating Process: Development Time Uncertainty (Risk)Selective Spray Sil-Gel Potting Coat and Extract DTPrDTPrDTPr280.15160.40280.10320.45200.50300.20360.35240.10340.60480.05400.1031Chapter 6Chelst & Canbolat Value-Added Decision Making31MeasureSelective SpraySil-Gel PottingCoat and ExtractFlexibilityHighMediumLowWeight (Gr)623020Coating Control011Foreign MaterialSuperiorExcellentGoodFacilities & Tooling C. 30000025000110000Labor Cost ($)400001000020000Material C. ($)1700061500063000Scrap C. ($)95000011000Development Time (W)34.1918.9933.48Alternatives & Data: Coating ProcessRed cells illustrate expected value of probabilistic data32Chapter 6Chelst & Canbolat Value-Added Decision Making32Results: Coating Process SelectionSelective Spray: most preferred alternativeBest alternative affected by uncertainty. Sil-Gel a close second: 7% lessAt the extreme it may be better than the best.Development time involves significantly more uncertainty in the best alternative (Selective Spray) than for the 2nd best

33Chapter 6Chelst & Canbolat Value-Added Decision Making33FOCUSHybrids: Both Risk and Value ManagementRisk ManagementSignificant uncertainty in development time of best alternativeInvest $40,000 to eliminate risk of unusually long PD timeValue ManagementCoating Control is a weakness of the highest ranked alternativeInvest $60,000 to improve coating control reduce scrapRisk and Value ManagementCreate hybrid that combines both risk and value managementSlightly improved overall scoreDramatically reduce chance of lower performance.349/19/2011Chapter 6Chelst & Canbolat Value-Added Decision Making34Risk Management: Coating Process SelectionGlobal Electronic contacted the Selective Spray supplier to reduce uncertainty in development time. The supplier asked $40000 more for tooling premium to work overtime and reduce development time to a range of 28 weeks to 32 weeks.Development Time (Weeks)Probability280.15320.45360.35480.05Development Time (Weeks)Probability280.40300.40320.20OLD NEW35Chapter 6Chelst & Canbolat Value-Added Decision Making35Risk Management Coating Process Selection (Cont.)$40000 more investment reduces uncertainty significantlyAmount added to the Facilities and Tooling Cost of new alternative.Overall average score only slightly improved but less downside riskSelective Spray + Risk Mng. is the best alternative

36Chapter 6Chelst & Canbolat Value-Added Decision Making36Hybrid Alternative Through Value & Risk ManagementThe Selective Spray supplier can not reduce facilities and tooling cost, or labor cost The supplier asks $60000 to upgrade coating application nozzles that Improve coating control from 0 to 1Coating control provides an assessment of the process ability to apply coating where it is needed, as well as preventing coating bleed into undesirable areas of the printed wiring boards. 0: Problem areas may affect function1: Problem areas dont affect functionReduce scrap cost from $95,000 to $10,000 per yearAsks $40000 to reduce development time to a range of 28 weeks to 32 weeks 379/19/2011Chapter 6Chelst & Canbolat Value-Added Decision Making37Create Hybrid AlternativeThrough Value Analysis & Risk ManagementGenerate a new alternative that is a hybrid of the Selective Spray and the suppliers new offerImprove coating control, reduce scrap cost and development time Pays $100000 (=$40,000+$60,000) that increases facilities and tooling cost to $400,000MeasureSelective SpraySelective Spray + Value Mng.FlexibilityHighHighWeight5.65.6Coating Control01Foreign MaterialSuperiorSuperiorFacilities & Tool300000400000Labor Cost4050040500Material Cost1778017780Scrap Cost9500010000Development T.34.1929.6638Chapter 6Chelst & Canbolat Value-Added Decision Making38Enhanced Alternative: Higher Value and Less RiskSelective Spray+Value&Risk Mng. is the most preferred alternative

39Chapter 6Chelst & Canbolat Value-Added Decision Making39Significant improvement in value and less riskFigure 6.28: MAUT SME/Decision makers meeting agenda

409/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingMore Examples from textWarehouse location selectionCoating Value management figuresDisposition of weapons grade plutonium419/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.16: Objectives hierarchy for warehouse selection example

429/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.17: Non-linear utility functions for parking spaces

439/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.18: Stacked bar ranking for warehouse site selection exampleAlternativeFedCo PropertiesCenter DriveProspect ParkNorthbrook Business CenterUtility 0.600 0.579 0.421 0.377Max. Operational DesignMin. Loss of Current EmployeesMin. Total CostMin. Distance to Key FacilitiesMax. SpaceMax. Building Appearance449/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.19: Comparison of Center Drive and FedCo Properties facilitiesOverall Utility forFedCo PropertiesCenter DriveDifference 0.600 0.579 0.020Total DifferenceNumber of Truck DocksLease and Maintenance CostOffice and Lab SpaceWarehouse Floor SpaceAppearanceMaterial Handling CostNumber of Parking SpacesDistance to Niles FacilityCenter DriveFedCo Properties459/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.20: Stacked bar ranking after value management for warehouse site selection

469/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.21: Stacked bar ranking for the coating processes

479/19/2011Chapter 6Chelst & Canbolat Value-Added Decision Making47Figure 6.22: Comparison of selective spray and sil-gel pottingOverall Utility forSelective SpraySil-Gel PottingDifference 0.702 0.650 0.051Total DifferenceMaterial CostCoating ControlFacilities&Tooling CostFlexibilityForeign MaterialWeightDevelopment TimeLabor CostScrap CostSil-Gel PottingSelective Spray489/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.23: Stacked bar results after value management

499/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.25: Ranking alternatives after value and risk management

509/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.26: Ranking results including cutoff value in Logical Decisions Alternative75 Halogen Dim75 Fluorescent Dim75 watt basic65 Fluorescent65 watt basicUtility 0.618 0.584 0.542 0.526 0.359Alternative failed at least one cutoff519/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.29: High-level objectives hierarchy for disposition of surplus weapons-grade plutonium

529/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.29: Overall ranking for disposition of surplus weapons-grade plutonium

539/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.31: Sensitivity analysis for Reactor alternatives for disposition of surplus weapons-grade plutonium549/19/2011Chapter 6Chelst & Canbolat Value-Added Decision MakingFigure 6.32: Sensitivity analysis for Reactor alternatives for disposition of surplus weapons-grade plutonium559/19/2011Chapter 6Chelst & Canbolat Value-Added Decision Making

Office and Lab Space

Truck Traffic Handling

Number of Truck Docks

Number of Parking Spaces

Lease and Maintenance Cost

% Loss of Employees

Distance to Niles Facility

Distance to Headquarters

Max. Operational Design

Min. Total Cost

Max. Building Appearance

Min. Loss of Employees

Material Handling Cost

Min. Distance to Key Facilities

Appearance

Max. Space

Select Warehouse

Warehouse Fl. Space

Soci-economic

Natural Environment

Cost

Timelines

Intl Cooperation

Diversion

ES&H

Human H&S

Theft

Non-proliferation

Operational Effect

Pu Disposition

Irreversibility