Operations Management – Decision Theory, Process Strategy

Quiz 2

Preference Matrix

A table for rating each alternative against multiple performance criteria, using assigned weights and scores to calculate a weighted total.

Performance Criteria

Measures such as market potential, unit profit margin, operations compatibility, competitive advantage, investment requirement, and project risk used to evaluate alternatives.

Weighted Score

The product of a criterion’s importance weight (1-100) and its score (1-10); alternatives below a threshold are rejected.

Decision Theory

A general approach to making choices when outcomes are uncertain, involving alternatives, chance events, payoffs, probabilities, and decision rules.

Decision Making under Uncertainty

Situation in which probabilities of states of nature cannot be estimated; evaluated with criteria like maximax, maximin, and Laplace.

Maximax Criterion

An optimistic rule that selects the alternative with the highest possible payoff (the “best of the best”).

Maximin Criterion

A pessimistic rule that chooses the alternative with the highest value among the worst payoffs (the “best of the worst”).

Laplace (Equally Likely) Criterion

A realistic rule that picks the alternative with the highest average payoff, assuming all states of nature are equally probable.

Decision Making under Risk

Decision environment where probabilities of states of nature are known; alternatives evaluated by Expected Monetary Value (EMV).

Expected Monetary Value (EMV)

The probability-weighted average payoff of an alternative, representing its long-run average return.

Decision Making under Certainty

Situation where the decision maker knows exactly which state of nature will occur—rare in practice.

Expected Value of Perfect Information (EVPI)

The maximum amount worth paying for perfect information; difference between expected payoff under certainty and under risk.

Decision Tree

A graphical tool for sequential decisions and chance events, drawn left-to-right and evaluated right-to-left using EMV.

Decision Node (Square)

A square symbol on a decision tree indicating a point where the decision maker selects among alternatives.

Chance Node (Circle)

A circular symbol on a decision tree representing a point where a probabilistic event occurs.

Process Strategy

The pattern of decisions that shapes processes to achieve a firm’s competitive priorities.

Process Structure

How resources are arranged and characterized within a process, including flow, layout, and resource partitioning.

Customer Involvement

The ways customers participate in a process and the extent of their interaction.

Resource Flexibility

The ease with which employees or equipment can handle a variety of products, volumes, and functions.

Capital Intensity

The relative mix of equipment and human skills in a process, influencing cost and flexibility.

Customer Contact

The degree of interaction between customer and service provider, often called the “moment of truth.”

Process Divergence

The extent to which a service process is customized and allows discretion in task execution.

Process Flow

The sequence and movement of work through a process; can be line flow or flexible (jumbled) flow.

Line Flow Process

A structured, linear flow where work follows a set path with little variation.

Flexible (Jumbled) Flow Process

A process where work can move in multiple directions, allowing diverse routing and customization.

Front Office

Service process with high customer interaction, high customization, and flexible flows (e.g., medical visit).

Hybrid Office

Service process with moderate interaction and mixed flows, combining standardization and flexibility (e.g., Starbucks order).

Back Office

Service process with low customer contact, standardized service, and line flows (e.g., data processing).

Job Shop Process

Manufacturing process for low-volume, highly customized products made to order.

Batch Process

Manufacturing process that produces goods in groups (small or large batches) with some customization.

Line Process

High-volume manufacturing with few major products and repetitive, connected workflow (e.g., automotive assembly).

Continuous Process

Very high-volume, highly standardized production with nonstop flow and heavy automation (e.g., bottling soda).

Mass Customization

Producing tailored products at near mass-production efficiency, often via modular components (e.g., custom T-shirts).

Make to Order (MTO)

Production strategy that manufactures items only after receiving a customer’s specifications, suited for low volume.

Assemble to Order (ATO)

Strategy that assembles standardized components after order receipt to offer variety quickly; basis for mass customization.

Make to Stock (MTS)

Strategy that builds products for inventory to enable immediate delivery, characteristic of mass production.

Flexible Workforce

Employees with broad skills who can perform multiple tasks, aiding service reliability and bottleneck relief.

Fixed Automation

Equipment designed for one product in a fixed sequence, offering efficiency but little flexibility.

Flexible Automation

Programmable equipment that can adapt to produce different products with minimal downtime.

Economies of Scope

Cost advantage achieved by producing multiple products together more cheaply than separately, enabled by flexible processes.

Priority Rule

Policy determining which customer in the queue is served next (e.g., first-come, first-served).

Service Facility

The personnel and/or equipment that provide service to customers within a waiting-line system.