Decisions in Business Areas

Copyright 1994-1996 by Jerry Post

Chapter 9

Decisions inFunctional Areas

Fin

ance

Mod

els

Acc

ount

ing

Mod

els

Pro

duct

ion

Mod

els

Mar

ketin

g M

odel

s

Hum

an R

esou

rce

Mod

els

Strategy

TacticalDecisions

Operations

Company

Models as ObjectsModel Attributes

Inputs Outputs Problem Characterization

Model Methods Optimization Prediction Simulation Analysis

Accounting

Accounting Models Transaction Processing & Tactics

Accounting systems are models Standards for reports Decisions & Data

Control Systems Accuracy Fraud

Strategic Support Information Customization

Activity Based Costing

Salaries 371,917

Fringes 118,069

Supplies 76,745

Fixed Costs 23,614

Total 590,345

Traditional Cost Accounting

File: C09E01a.xls

Activity Based Costing

Process SalesOrders

SourceParts

ExpediteSupplierOrders

ExpediteInternal

Processing

ResolveSupplierQuality

ReissuePurchase

Orders

ExpediteCustomer

Orders

ScheduleIntra-company

Sales

RequestEngineering

Change

ScheduleParts

ResolveProblems

Data Flow DiagramIdentify Subsystems

Assign costs to each subprocess by category (salaries, fixed costs . . .)

Finance

Finance

Balance Sheet for 1996

Cash 33,562 Accounts Payable 32,872 Receivables 87,341 Notes Payable 54,327 Inventories 15,983 Accruals 11,764 Total Current Assets 136,886 Total Current Liabilities 98,963

Bonds 14,982 Common Stock 57,864

Net Fixed Assets 45,673 Ret. Earnings 10,750 Total Assets 182,559 Liabs. + Equity 182,559

File: C09E02a.xls

FinanceIncome Statement for 1996

Sales $97,655 tax rate 1993 40%Operating Costs 76,530 dividends 1993 60%Earnings before interest & tax 21,125 shares out. 1993 9763

Interest 4,053 Earnings before tax 17,072 taxes 6,829 Net Income 10,243

Dividends 6,146 Add. to Retained Earnings 4,097

Earnings per share $0.42

Corporate Finance

Results in a Circular calculation.

Cash $36,918Acts Receivable 96,075Inventories 17,581

Net Fixed Assets 45,673

Total Assets $196,248

Accts Payable $36,159Notes Payabale 54,327Accruals 12,940

Total Cur. Liabs. 103,427

Bonds 14,982Common Stock 57,864Ret. Earnings 14,915

Liabs + Equity 191,188

Add. Funds Need 5,060

Bond int. rate 5%

Added interest 253

Balance Sheet projected 1997Income Statement projected 1997

Sales $ 107,421Operating Costs 84,183

Earn. before int. & tax 23,238Interest 4,306

Earn. before tax 18,931taxes 8,519

Net Income 10,412

Dividends 6,274

Add. to Ret. Earnings $ 4,165

Earnings per share $0.43

Tax rate 1997 45%Dividend rate 1997 60%Shares outstanding 9763

Sales increase 10%Operations cost increase 10%

Forecast sales and costs.

Forecast cash, accts receivable, accts payable, accruals.

Add gain in retained earnings.

Compute funds needed and interest cost.

Add new interest to income statement.

1

2

3

4

5

12

4

2

3

5Total Cur. Assets 150,576

Marketing

Marketing Data Sources Internal

Sales Warranty cards Customer service Coupons Surveys Focus groups

Purchase Scanner data Competitive market analysis Mailing & phone lists Subscriber lists Rating services Shipping records

Government Legal documents

Drivers license Marriage Housing/construction Business/legal notices

Census Income Demographics Regional data

WeekOursales ($)

Competitionsales ($)

Customersurveyrating

no promo 1 36725 86524 452 37564 87349 463 35835 86783 424 38256 88653 485 38698 89875 476 37865 85762 43

promo 1 1 38854 87654 472 38933 88534 473 39452 92576 464 38762 93765 465 38896 91543 476 37602 89243 46

promo 2 1 38210 89456 482 39786 90765 523 42986 88976 544 43140 89653 555 43976 89763 566 43786 89076 54

promo 3 1 47532 88753 422 43876 90753 413 42087 92764 384 40123 93765 365 38742 94109 376 35673 93875 36

Marketing

Research and Forecasting

Customer Service

File: C09E03a.xls

Promotion AnalysisRegression Results

With no promotions:

sales = 20,865 + 342 * consumer + 339 * weekconsumer survey average = 45

Promotion 1:

sales = 42,370 - 62 * consumer - 211 * weekconsumer survey average = 47

Promotion 2:

sales = 13,448 + 501 * consumer + 545 * weekconsumer survey average = 53

Promotion 3:

sales = 44,808 + 98 * consumer - 2067 * weekconsumer survey average = 38

Promotion Results Graph

-10000

0

10000

20000

30000

40000

50000

60000

$ sa

les

1 3 5 7 9 11 13 15 17 19 21 23 week

No promo promo1 promo2 promo3

IkimasuPromotion Options

Human Resources

File: C09E04a.xls

Merit Pay Raise pool $10000

Performance Pct Salary range ($000) Current Merit Market TotalName r1 r2 r3 Perf High Low Avg Salary $100 Adjust. Raise Raise%Caulkins 9 7 6 73% 37.5 28.4 36.4 35.8 733 733 2.0%Jihong 3 6 7 53% 18.9 15.4 16.3 17.9 533 533 3.0%Louganis 8 7 7 73% 30.2 26.7 28.9 29.5 733 733 2.5%Naber 9 8 8 83% 23.2 19.5 21.4 19.8 833 833 4.2%Spitz 3 4 3 33% 22.4 17.3 18.4 17.5 333 333 1.9%Weissmuller 5 4 6 50% 60.4 32.5 45.2 53.2 500 500 0.9%Department 6 6 6 32.1 22.2 21.9 21.7 3665 3665 2.4%Corporate 5 6 5 124 9.2 18.9 18.9

Human Resources

Raises

0500

100015002000

2500300035004000

Caulkins Jihong Louganis Naber Spitz Weissmuller

dolla

rs

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

Raise Raise pct Performance

Production

Production ModelsProcess ControlInventories, MRPComputer Integrated ManufacturingProduct Design

Computers are used to track inventory levels, receipts, and shipments. Sophisticated warehouse information systems automatically route boxes to storage and switch conveyor systems to send packages to trucks waiting at the loading docks.

Integrated Manufacturing

shippingpackingproduction

rawmaterials

time

Q

forecast sales by product

production schedule

workers & materials

optimize schedule

Send EDInotices tosuppliers.

schedule changes

Information & Control

Suppliers

Customers

ProductionFile: C09E05a.xls

Production Queuing Model

Number of Repair Persons

backups 2 mean time to failure 15 days

loss per $ per day mean repair time 2 days

machine 500 avg daily repairer cost 150

# repairers 1 # repairers 2 # repairers 3

machines cost of Probability Probability Probability

waiting to lost # machines expected #machines

expected # machines expected

be fixed production wait to fix $ loss wait to fix $ loss wait to fix $ loss0 0 0.1324 0 0.3162 0 0.3422 0

1 0 0.1413 0 0.3373 0 0.3650 0

2 0 0.1507 0 0.1799 0 0.1947 0

Production Example

Parameters Number of backup

machines Number of repair workers Mean time to failure Mean repair time Cost additional workers Cost of lost production

Output: Total costs

Objective: Hire the number of workers

that leads to the least cost

Geographic Models

City 1980 pop 1990 pop

1980 per capita income

1990 per capita income

1980 hard sales

1980 soft sales

1990 hard sales

1990 soft sales

Clewiston 5219 6085 7645 13598 452 562.5 367.6 525.4Fort Myers 36638 45206 6483 16890 535.2 652.9 928.2 1010.3Gainesville 81371 84770 6150 13672 365.2 281.7 550.5 459.4Jacksonville 540920 635230 6767 15316 990.2 849.1 1321.7 1109.3Miami 346865 258548 6084 16874 721.7 833.4 967.1 1280.6Ocala 37170 42045 6175 12027 359 321.7 486.2 407.3Orlando 128291 164693 6735 16958 425.7 509.2 691.5 803.5Perry 8254 7151 5727 11055 300.1 267.2 452.9 291Tallahassee 81548 124773 6310 14578 595.4 489.7 843.8 611.7Tampa 271523 280015 6441 15081 767.4 851 953.4 1009.1

File: C09GISa.xls

Tampa

Miami

Fort Myers

JacksonvilleTallahassee

Gainesville

Ocala

Orlando

Clewiston

Perry

7000+

6700

6400

6100

5800-

1980 1990

17,000

15,000

13,000

11,000

9,000

per capita income

Red

3.2

Yellow

2.3

Blue

1.9

Green

2.3

Red

1.7

Yellow

1.1

Blue

1.0

Green

1.1

Red

2.1

Yellow

1.7

Blue

1.1

Green

1.4

Red

5.0

Yellow

4.2

Blue

3.2

Green

3.7

Red

1.8

Yellow

1.5

Blue

1.2

Green

1.4

Red

2.6

Yellow

3.0

Blue

1.9

Green

1.6

Red

3.6

Yellow

3.8

Blue

3.2

Green

2.9

Red

3.5

Yellow

3.8

Blue

2.5

Green

2.0

Red

1.4

Yellow

2.0

Blue

2.1

Green

1.7

Red

3.7

Yellow

4.8

Blue

3.2

Green

2.7

1990HardGoods

1990SoftGoods

1980HardGoods

1980SoftGoods