Decision Making Tools - Essay Example

This is a formal technique used in organizations where there are many possible causes that are competing to be implemented. In this respect, the Pareto Analysis is used as a problem solver that estimates each course of action’s benefits to the project. After the estimation, the analysis will then find the most effective actions that will bring a total benefit that is closest to the optimal possible benefit (Mullen 1991, p. 56). Where managers are interest in finding the causes of the problems, the Pareto analysis offers a creative way that enables a team to stimulate their thinking and though organization.

This decision making tool is inhibited by important problems which initially were small but continue to grow as time passes by. The Pareto analysis is thus more practical when combined with other analytical tools such as the fault tree analysis and failure mode and effects analysis. The Pareto Analysis helps organization in the identification of the top 20% causes of problems that the management needs to address in order to resolve 80% of the problems facing the organization. After the identification of the top 20% causes, other analytical tools are used in the identification of the root causes of the organization’s problems.

Some of the tools that are used for the analysis include the Fish-bone analysis and the Ishikawa diagram which are effective in looking for the root causes of problems. When the Pareto Analysis is applied in risk management, the management are given the opportunity to concentrate on the risks that have adverse effects on the project’s operations (Perrow 1986, p. 69). Advantages of Pareto Analysis One of the advantages of Pareto Analysis is realized in the undertaking of knowing the relevance of each stock keeping unit.

A stock keeping unit’s relevance is helpful in determining the resources that are need in managing the stock keeping unit. The resources are mainly considered in the context of money and time that are allotted to one particular stock keeping unit. The nature of an organization determines the importance of a stock keeping unit by using different data that will be applicable to the organization. If the company is a small retail company, the Pareto Analysis will generally be used focusing on the units sold or the sales in dollars.

Pareto Analysis in this instance will be used to identify the bottom selling unites and the top selling units by using the sales data of the organization (Rodrigues 1991, p. 15). Larger manufacturing companies will generally apply the Pareto Analysis with a focus on the cost of goods sold. A manufacturing company will thus apply the Pareto Analysis on cost of goods sold to concentrate its efforts in ensuring that the costs of the most expensive materials are lowered. The production planners of an organization will use the Pareto Analysis to keep a very close control on the spending part for the production of a particular stock taking unit that has a higher beneficial perspective to the organization in the context of the yearly cost of goods sold.

The production planners will also seek to lessen the yearly expenditures for that particular part by looking for an