A company is concerned that spare parts inventories are too large. It has attempted to keep critical parts for its fleet in stock so that equipment will have minimal downtime. Management wants to know what the optimal spare parts inventory should be if downtime is estimated to cost $150 per day. Carrying cost and order cost have not been measured. You have been asked to make a formal recommendation on spare parts stocking levels. Which of the following techniques is most appropriate to use?
Answer(s): A
Operations research attempts to find optimal solutions using classical concepts such as statistics, simulation, logical thinking, and other scientific and mathematical techniques to develop and test hypotheses. This application closely fits the problem and charge given.
A company is deciding whether to purchase an automated machine to manufacture one of its products. Cash flows from this decision depend on several factors, interactions among those factors, and the probabilities associated with different levels of those factors. The method that the company should use to evaluate the distribution of net cash flows from this decision and changes in net cash flows resulting from changes in levels of various factors is
Simulation is a technique used to describe the behavior of real-world system overtime. This technique usually employs a computer program to perform the simulation computations. Sensitivity analysis examines how outcomes change as the model parameters change.
Managers must make decisions in many different situations. A manager must make a subjective decision when the environment is one in which
Uncertainly exists when the results of possible outcomes cannot even be estimated using the tools of statistical probability'. This environment is the most difficult for decision making because objective mathematical analyses cannot be made. Hence, creativity' is required in the decision-making process, and reliance on the educated guess rather than the probabilistically calculated estimate is necessary.
Behavioral scientists have identified human tendencies that can erode the quality of decision making. Which of the following best describes a behavioral decision error referred to as "framing error"?
How information is presented influences both its interpretation and the resulting behavior. Framing error is the tendency to evaluate positively presented information favorably and negatively presented information unfavorably.
The term "escalation of commitment" refers to
Answer(s): D
Consistency may be dysfunctional because it may result in inflexibility. The desire to avoid the inner conflict resulting from inconsistency may have adverse effects on decision making. For example, when a decision maker feels responsible for the failure of a course of action, (s) he may want to prove that the original decision was sound despite increasing evidence to the contrary. Thus, his/her commitment to a failed policy may escalate, and additional resources may be squandered.
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