©chelst & canbolat value-added decision making chapter 6 value and risk management:...

©Chelst & Canbolat Value-Added Decision Making

Chapter 6 Value and Risk Management:Multi-Attribute Utility Theory

Comparison of strengths and weaknessesEnhance Value to increase scoreManage Risk

Most of the chapter’s figures are included in the file.Instructor must decide how many and which examples to use.

©Chelst & Canbolat Value-Added Decision Making9/19/201

1

Chapter 6

Figure 6.1: MAUT process - Analysis

2


1

Chapter 6

Steps in Analysis

Check for data errors Inputs Ranges and preferences

Analysis of uncertainty, strengths, and weaknesses

Robustness of optimal - weights change Value Added and Hybrid

Improve values of highly weighted objective Reduce risk

3


1

Chapter 6

Figure 6.2: Objectives Hierarchy – High Ceiling Kitchen Fixtures

Amount of Light

0.274

Dimmable

0.055

Type of Light

0.205

Max Light Quality

0.534

Operating

0.219

Purchase

0.137

Min Cost

0.356

Change Bulbs

0.110

Min Hassle

0.110

Best Lighting System

1.000

4


1

Chapter 6

High Ceiling Data: 20 bulbs

5

Bulb :

Amount of Light (Lumens

)Replace Bulbs

Dimmable Operating

Purchase Type of Light

65 Watt basic 620

10 or

more No 270 50

Incandescen

t

75 Watt basic 900 6 to 9 No 315 76

Incandescen

t

65 Fluorescent 750

5 or

fewer No 70 90 Fluorescent

75 Fluorescent

Dim 900

5 or

fewer Yes 80 160 Fluorescent

75 Halogen Dim 1020 6 to 9 Yes 315 150 Halogen

Replace Bulbs Type of Light

Category Utility Category Utility

10 or more 0 Fluorescent 0

6 to 9 0.5

Incandescen

t

.75

5 or fewer 1 Halogen 1


1

Chapter 6

Errors in Input – Check Ranking Results Graph

Symptom 1 – One line goes above 1 or below 0 Data input error in that alternative – too large or

too small added a zero or left off a zero Set range too narrow to include all values

Symptom 2 – All lines on one measure outside range Forgot 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 down Most preferred and least preferred settings are

reversed.

6


1

Chapter 6

Figure 6.3: Ranking results graph for lighting system example – data input error (figure corrected from text)

Utility

1.000

0.000

Best Lighting System

Amount of

light

Operating

Type of light

Purchase

Change bulbs

Dimmable

65 watt basic75 watt basic

75 Halogen Dim65 Fluorescent

75 Fluorescent Dim


1

Chapter 6

Figure 6.4: Wrong direction on operating cost measure – reversed Fluorescents should have best operating costs and not worst (near 0)

Utility

1.000

0.000Best Lighting SystemAmount of Light Operating Type of Light Purchase Change Bulbs Dimmable

75 Halogen Dim75 Fluorescent Dim

75 watt basic65 Fluorescent

65 watt basic

Preference Set = NEW PREF. SET

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1

Chapter 6

Figure 6.5: Results graph for lighting system example (figure corrected from text)

Utility

1.000

0.000Best lighting Max. quality Min. cost Min. hassle

75 Halogen Dim65 Fluorescent

75 Fluorescent Dim65 watt basic

75 watt basic


1

Chapter 6

Figure 6.5: Results graph for lighting system example – ERROR in GRAPH - Replace

Utility

1.000

0.000Best Lighting Max. Quality Min. Cost Min. Hassle

75 Watt Fluoro Dim75 Watt Basic

65 Watt Fluoro65 Watt Basic

75 Halogen Dim

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1

Chapter 6

Figure 6.6: Objective (3) stacked bar results for lighting system example

Ranking for Best Lighting System Goal

Alternative

75 Halogen Dim

75 Fluorescent Dim

75 watt basic

65 Fluorescent

65 watt basic

Utility

0.618

0.584

0.542

0.526

0.359

Max Light Quality Min Cost Min Hassle

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1

Chapter 6

Figure 6.7: Measure (6) stacked bar results for lighting system

Ranking for Best Lighting System Goal

Alternative

75 Halogen Dim

75 Fluorescent Dim

75 watt basic

65 Fluorescent

65 watt basic

Utility

0.618

0.584

0.542

0.526

0.359

Amount of Light

Purchase

Operating

Change Bulbs

Type of Light

Dimmable

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1

Chapter 6

Figure 6.8: Pairwise comparison between the 75-watt halogen and equivalent fluorescent

Overall Utility for 75 Halogen Dim75 Fluorescent DimDifference

0.618 0.584 0.034

T otal DifferenceT ype of LightOperatingChange Bulbs Amount of LightPurchase

75 Fluorescent Dim 75 Halogen Dim


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1

Chapter 6

Figure 6.9: Sensitivity analysis for weight placed on Amount of Light => NOT sensitive

Utility

Percent of Weight on Amount of Light Measure

Best

Worst

0 100

75 Halogen Dim

75 Fluorescent Dim75 watt basic

65 Fluorescent65 watt basic


14


1

Chapter 6

Figure 6.10: Sensitivity to weight placed on Type of Light Sensitive to decrease

Utility

Percent of Weight on Type of Light Measure

Best

Worst

0 100

75 Halogen Dim

75 Fluorescent Dim

75 watt basic65 Fluorescent

65 watt basic

Preference Set = NEW PREF. SET 15


1

Chapter 6

Figure 6.11: Sensitivity to weight placed on Operating Cost Sensitive to increase

Utility

Percent of Weight on Operating Measure

Best

Worst

0 100

75 Halogen Dim

75 Fluorescent Dim

75 watt basic

65 Fluorescent

65 watt basic


16


1

Chapter 6

The Best Alternative So Far May NOT Be The Final Answer: Values

Enhance best alternative(s) or create better Hybrids through: Value Analysis & Management Enhance 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 alternative’s 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. 17


1

Chapter 6

Create a Lighting Hybrid

In best solution identify a weak measure with significant weight Operating cost - weight 0.22

Creative alternative: 50-50 High quality light where needed – half of

kitchen Fluorescent with lower cost where true

color quality does not matter

18


1

Chapter 6

Figure 6.12: Ranking – Hybrid Lighting System: 50-50 split in kitchen – Reduce operating cost

Rankin for Best Lighting System Goal

Alternative

75 Halogen Hybrid75 Halogen Dim75 Fluorescent Dim75 Watt basic65 Fluorescent65 Watt basic

Utility

0.640 0.618 0.584 0.542 0.526 0.359

Max Light Quality Min Cost Min Hassle

19

Bulb Amount of Light

Change Bulbs

Dimmable

Operating Purchase

Type of Light

75 Fluorescent Dim 900

5 or fewer Yes 80 160 Fluorescent

75 Halogen Dim 1020 6 to 9 Yes 315 150 HalogenHybrid – 50-50 split 960 6 to 9 Yes 200 160

Halogen - Fl


1

Chapter 6

The Best Alternative So Far May NOT Be The Final Answer: Values

Enhance best alternative(s) or create better Hybrids through: Value Analysis & Management Enhance 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 alternative’s 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. 20


1

Chapter 6

Figure 6.13: Stacked bar ranking for kitchen remodeling example

Alternative

Build Rite

Quality Build

Cost Conscious

Utility

0.651

0.630

0.462

Max. Quality Min. Cost Min. Hassle

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1

Chapter 6

Kitchen remodeler - weights

22


Kitchen remodeler - Data

23Chapter 5

MeasureBuild Rite Quality Build Cost

ConsciousTotal labor cost $34,000 $26,000 $25,000Total material cost $20,000 $12,000 $10,000

Cost 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 unavailable

13 weeks 10 weeks 9 weeks

Weeks of delay

On 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 scale Clean Messy DirtyFollow-up and resolution scale

Adequate Highly responsive

Adequate

Creativity scale Highly creative Creative MundaneBrand & store reputation scale

Top of line 2nd Best Brand 2nd Best Brand

Percent use of subcontractors

25% 40% 65%

Fit and finish scale Excellent Good GoodYears in business 12 (Good) 8 (OK) 22 (Excellent)Quality of references scale

Excellent Good OK


1

Chapter 6

Figure 6.14: Comparison of top two kitchen remodelers

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1

Chapter 6

Enhance 2nd best – Best on CostSpend a little more money and improve In 2nd best solution identify a weak

measure with significant weight that can be improved Fit and finish (0.12 weight) Cleanliness and percent use of

contractors (minor) Creativity and References can NOT be

improved Creative alternative: Spend money to

improve fit and finish (and other benefits) Less subcontracting Cleaner

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1

Chapter 6

Improve Quality Build on Fit-Finish & add cost

26

MeasureQuality Build Quality Build +

Value EnhancementTotal Labor Cost $26,000 $29,000Total Material Cost $12,000 $12,000

Cost 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 Unavailable 10 weeks 10 weeks

Weeks 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 Scale Messy CleanFollow-up and Resolution Scale

Highly responsive Highly responsive

Creativity Scale Creative CreativeBrand & Store Reputation scale

Moderate price Moderate price

Percent Use of Subcontractors 40% 20%Fit and Finish Scale Good ExcellentYears in Business but Grouped Good GoodQuality of References Scale Good Good


1

Chapter 6

Figure 6.15: Stacked bar results after value enhancement: kitchen remodeler

Alternative

Quality Build + Value Enhancement

Build Rite

Quality Build

Utility

0.678

0.651

0.630

Max. Quality Min. Cost Min. Hassle

27


1

Chapter 6

The Best Alternative So Far May NOT Be The Final Answer: Risks

Enhance best alternative(s) through: Risk Analysis & Management Identify 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.

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1

Chapter 6

Value Analysis & Risk Management Conformal Coating Process – Printed Boards

Global 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.

29


1

Chapter 6

Goals Hierarchy & Weights: Coating Process Selection

Select Best Coating Process

(1.000)

Performance

(0. 213)

Cost(0.324)

Time(0.14

8)

Reliability(0.315)

Flexib

ilit

y

(0.1

57

)

Weig

ht

(0.0

56

)

Coati

ng C

ontr

ol

(0.1

30

)

Mate

rial

(0.1

67

)

Labor

(0.0

37

)

Faci

litie

s &

To

olin

g

(0.0

93

)

Develo

pm

ent

Tim

e

(0.1

48

)

Scr

ap

(0.0

28

)

Fore

ign

M

ate

rial

(0.1

85

)

30


Coating Process: Development Time Uncertainty (Risk)

Selective Spray Sil-Gel Potting Coat and Extract

DT Pr DT Pr DT Pr

28 0.15 16 0.40 28 0.10

32 0.45 20 0.50 30 0.20

36 0.35 24 0.10 34 0.60

48 0.05 40 0.10

31Chapter 6


Measure Selective Spray

Sil-Gel Potting

Coat and Extract

Flexibility High Medium Low

Weight (Gr) 6 230 20

Coating Control 0 1 1

Foreign Material Superior Excellent Good

Facilities & Tooling C. 300000 25000 110000

Labor Cost ($) 40000 10000 20000

Material C. ($) 17000 615000 63000

Scrap C. ($) 95000 0 11000

Development Time (W) 34.19 18.99 33.48

Alternatives & Data: Coating ProcessRed cells illustrate expected value of probabilistic

data

32Chapter 6


Results: Coating Process Selection

Selective Spray: most preferred alternative Best alternative affected by uncertainty.

Sil-Gel a close second: 7% less At 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

Ranking for Select the Best Coating Process Goal

AlternativeSelective SpraySil-Gel PottingCoat and Extract

Utility 0.702 0.650 0.596


Utility uncertainty summary for Select the Best Coating Process Goal

Alternative

Coat and ExtractSelective SpraySil-Gel Potting

Mean Std. Dev. Median Min. 5%P 95%P Max.

0.598 0.012 0.594 0.566 0.566 0.614 0.614 0.703 0.018 0.710 0.619 0.694 0.722 0.722 0.651 0.004 0.649 0.641 0.641 0.655 0.655


33Chapter 6


1

Chapter 6

FOCUSHybrids: Both Risk and Value Management

Risk Management Significant uncertainty in development time of best

alternative Invest $40,000 to eliminate risk of unusually long PD

time Value Management

Coating Control is a weakness of the highest ranked alternative

Invest $60,000 to improve coating control reduce scrap

Risk and Value Management Create hybrid that combines both risk and value

management Slightly improved overall score Dramatically reduce chance of lower performance.

34


Risk Management: Coating Process Selection

Global 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)

Probability

28 0.15

32 0.45

36 0.35

48 0.05

Development Time (Weeks)

Probability

28 0.40

30 0.40

32 0.20

OLD NEW

35Chapter 6


Risk Management Coating Process Selection (Cont.)

$40000 more investment reduces uncertainty significantly Amount added to the Facilities and Tooling Cost of new

alternative. Overall average score only slightly improved but less

downside risk Selective Spray + Risk Mng. is the best alternative


AlternativeSelective Spray+Risk Mng.Selective SpraySil-Gel PottingCoat and Extract

Utility 0.705 0.702 0.650 0.596


36Chapter 6


1

Chapter 6

Hybrid Alternative Through Value & Risk Management

The 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 1

Coating 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 function 1: Problem areas don’t affect function

Reduce scrap cost from $95,000 to $10,000 per year Asks $40000 to reduce development time to a

range of 28 weeks to 32 weeks

37


Create Hybrid AlternativeThrough Value Analysis & Risk Management

Generate a new alternative that is a hybrid of the Selective Spray and the supplier’s new offer

Improve coating control, reduce scrap cost and development time Pays $100000 (=$40,000+

$60,000) that increases facilities and tooling cost to $400,000

Measure Selective Spray

Selective Spray + Value Mng.

Flexibility High High

Weight 5.6 5.6

Coating Control 0 1

Foreign Material Superior Superior

Facilities & Tool 300000 400000

Labor Cost 40500 40500

Material Cost 17780 17780

Scrap Cost 95000 10000

Development T. 34.19 29.66

38Chapter 6


Enhanced Alternative: Higher Value and Less Risk

Selective Spray+Value&Risk Mng. is the most preferred alternative


AlternativeSelective Spray+Value&Risk Mng.Selective Spray+Value Mng.Selective Spray+Risk Mng.Selective SpraySil-Gel PottingCoat and Extract

Utility 0.850 0.839 0.705 0.702 0.650 0.596

Foreign MaterialDevelopment TimeWeight

Material CostCoating ControlLabor Cost

FlexibilityFacilities&Tooling CostScrap Cost



AlternativeSelective Spray+Value&Risk Mng.Selective Spray+Value Mng.Selective Spray+Risk Mng.Selective SpraySil-Gel PottingCoat and Extract

Utility 0.850 0.839 0.705 0.702 0.650 0.596


39Chapter 6


1

Chapter 6

Figure 6.28: MAUT SME/Decision makers meeting agenda

40


1

Chapter 6

More Examples from text

Warehouse location selection Coating – Value management figures Disposition of weapons grade

plutonium

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1

Chapter 6

Figure 6.16: Objectives hierarchy for warehouse selection example

Select Warehouse

Max. Space

Min. Distance to Key Facilities

Min. Loss of Employees

Min. Total Cost

Max. Operational Design

Distance to Headquarters

Distance to Niles Facility

% Loss of Employees

Lease and Maintenance Cost

Number of Parking Spaces

Number of Truck Docks

Truck Traffic Handling

Office and Lab Space

Warehouse Fl. Space

Material Handling Cost

Max. Building Appearance Appearance

42


1

Chapter 6

Figure 6.17: Non-linear utility functions for parking spaces

43


1

Chapter 6

Figure 6.18: Stacked bar ranking for warehouse site selection example

Alternative

FedCo PropertiesCenter DriveProspect ParkNorthbrook Business Center

Utility

0.600 0.579 0.421 0.377

Max. Operational Design

Min. Loss of Current Employees

Min. Total Cost

Min. Distance to Key Facilities

Max. Space

Max. Building Appearance

44


1

Chapter 6

Figure 6.19: Comparison of Center Drive and FedCo Properties facilities

Overall Utility for

FedCo Properties

Center Drive

Difference

0.600

0.579

0.020

Total Difference

Number of Truck Docks

Lease and Maintenance Cost

Office and Lab Space

Warehouse Floor Space

Appearance

Material Handling Cost

Number of Parking Spaces

Distance to Niles Facility

Center Drive FedCo Properties

45


1

Chapter 6

Figure 6.20: Stacked bar ranking after value management for warehouse site selection

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1

Chapter 6

Figure 6.21: Stacked bar ranking for the coating processes

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1

Chapter 6

Figure 6.22: Comparison of selective spray and sil-gel potting

Overall Utility for

Selective SpraySil-Gel Potting Difference

0.702 0.650 0.051

Total DifferenceMaterial CostCoating ControlFacilities&Tooling CostFlexibilityForeign MaterialWeight

Development TimeLabor CostScrap Cost

Sil-Gel Potting Selective Spray

48


1

Chapter 6

Figure 6.23: Stacked bar results after value management

49


1

Chapter 6

Figure 6.25: Ranking alternatives after value and risk management

50


1

Chapter 6

Figure 6.26: Ranking results including cutoff value in Logical Decisions

Alternative75 Halogen Dim

75 Fluorescent Dim

75 watt basic

65 Fluorescent

65 watt basic

Utility 0.618

0.584

0.542

0.526

0.359

Alternative failed at least one cutoff

51


1

Chapter 6

Figure 6.29: High-level objectives hierarchy for disposition of surplus weapons-grade plutonium

Pu Disposition

Operational Effect

Non-proliferation

Theft

ES&H

Diversion

Human H&S

Irreversibility

Int’l Cooperation

Timelines

Cost

Natural Environment

Soci-economic

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1

Chapter 6

Figure 6.29: Overall ranking for disposition of surplus weapons-grade plutonium

53


1

Chapter 6

Figure 6.31: Sensitivity analysis for Reactor alternatives for disposition of surplus weapons-grade plutonium

0 0.2 0.4 0.6 0.8 10.2

0.3

0.4

0.5

0.6

0.7

0.8

Exist LWR, Exist Fac

CANDU

Exist LWR, New Fac

Past Comp LWR

Evolutionary LWR

54


1

Chapter 6

Figure 6.32: Sensitivity analysis for Reactor alternatives for disposition of surplus weapons-grade plutonium

0 0.2 0.4 0.6 0.8 10.35

0.4

0.45

0.5

0.55

0.6

0.65

0.7

0.75

0.8Ceramic Can-in-CanVitrif. Can-in-CanBorehole (Direct)Borehole (Immob)Vitrif. Adj. MelterElectrometallurgical TreatmentCeramic GreenfieldVitrif. Greenfield

55

©chelst & canbolat value-added decision making chapter 6 value and risk management:...

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