Download 8.00 Understand risk management, quality management, and

8.00 Understand risk management,
quality management, and project
management.
8.01 Acquire a foundational
understanding of risk management
to demonstrate knowledge of its
nature and scope.
Explain the role of ethics in risk
management (RM:041)
Discuss the interrelationship between
ethics and risk management.
• The theme "Ethics and Risk Management" signifies that each of
these two worthy disciplines—risk management and ethics—
depends on the other. Good risk management requires good ethics;
and good ethics require good risk management. This implies, from a
positive perspective:
– First, for an organization to manage its risks well, everyone who
represents that organization must practice good ethics.
– Second, for an organization to act ethically, everyone who represents
that organization must manage risk well.
• And, conversely, from a negative perspective:
– First, an organization that permits or encourages unethical actions by
anyone who represents it is not practicing good risk management.
– Second, an organization that permits or encourages anyone who
represents it to manage its risks poorly is acting unethically.
Identify types of risks to which unethical
behavior exposes businesses.
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First, for an organization to manage its risks well, all its people must act ethically. For example, if someone
misrepresents an organization's product, the organization is vulnerable immediately to products liability
claims and in the longer run may lose its reputation and market share. Again, if one of an organization's
executives treats any subordinate employee unethically, that employee (and a good number of his or her
fellows) may lose his or her enthusiasm for their work, may begin to take advantage of the employer in
any of hundreds of little ways, or may simply find another job. Or if one employee discovers that a second
employee is embezzling from the organization, the second employee's failure to report this dishonesty
causes financial loss to not only the organization and to each of its owners but, in the long run, also to
those who rely on that organization for their livelihood.
Second, if an organization is to act ethically, everyone who works for that organization must manage its
risks well. The maintenance staff who takes out the organization's daily trash must dispose of it properly;
otherwise, neighbors upon whom it is dumped may sue the organization and it, in turn, may face fines and
injunctions for environmental pollution. Furthermore, the organization's risk management staff must be
scrupulously honest in providing information to the organization's insurers, not only to be sure that the
organization has a good reputation among underwriters (and therefore favorable premium rates, an
element of good risk management) but also to be confident that the organization pays its ethically fair
share of the loss exposures that are pooled through insurance.
These examples also illustrate the third and fourth, converse, negative implications bulleted above. The
third implication—that permitting unethical behavior within an organization is poor management of that
organization's loss exposures—is demonstrated by the careless conduct of the trash-disposal crew. Their
actions are likely to bring on lawsuits and, in time, a loss of reputation and market share for the
organization.
Fourth and finally, if an organization's most senior executives allow, worse encourage, its risk management
personnel to withhold or misrepresent information in dealing with underwriters to purchase insurance this
year on unfairly favorable terms, then—come renewal times for perhaps a decade to come—senior
management's short-range misconduct jeopardizes the organization's insurance protection in the long run.
Explain internal ethical issues that
should be addressed by risk
management.
• Marketing
– Avoid over-reliance on customers or products
– Develop multiple distribution networks
– Test marketing for new products
• Operations
– Hold spare capacity
– Quality assurance & control
• Finance
– Credit insurance to protect against bad debts
– Investment appraisal techniques
• People
– Key man insurance – protects against loss of key staff
– Rigorous recruitment & selection procedures
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Discuss external ethical issues that
should be assessed by risk
management.
Competition
Customer Changes
Industry Changes
Customer Demand
Identify ways in which risk managers act unethically
when working with insurance companies.
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Buying commercial insurance is an excellent test of an organization’s ethical
culture and its risk manager’s integrity. While risk managers can state that they
prescribe to a code of ethics, the moment of truth will come when they must
balance economic reward for their organization against an organizational code of
ethics. Which is more important—to save the organization money by providing
incomplete or inaccurate data to insurers (and thereby enjoy lower premiums) or
to be honest and have the organization pay the higher premiums it deserves?
Some risk managers fail to make the ethical grade when negotiating commercial
insurance contracts. Examples of such unethical behavior includes, but is not
limited to:
– understating loss experience to the underwriter;
– providing loss information with known inconsistent valuation dates;
– understating loss exposures (payrolls, revenue, head count) and property or business
interruption values;
– concealment of information or operations;
– omitting reasons for leaving prior insurance companies and changing insurers frequently;
– knowing the insurance broker or agent is acting untruthfully to gain an economic advantage
for the organization;
– attempting to profit on property and business interruption claims by changing trends in
revenue and not revealing discounted expenses;
– influencing the outcome of workers’ compensation and third-party settlements;
– dealing with insurance intermediaries that have an unethical history;
– agreeing to but not implementing loss control recommendations; and
– providing incomplete information and data on premium audits.
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Explain what risk managers can do to
encourage corporate governance and
management to behave ethically.
Corporate governance is "the system by which companies are directed and controlled" It
involves a set of relationships between a company’s management, its board, its shareholders
and other stakeholders; it deals with prevention or mitigation of the conflict of interests of
stakeholders.
Rights and equitable treatment of shareholders: Organizations should respect the rights of
shareholders and help shareholders to exercise those rights. They can help shareholders
exercise their rights by openly and effectively communicating information and by
encouraging shareholders to participate in general meetings.
Interests of other stakeholders: Organizations should recognize that they have legal,
contractual, social, and market driven obligations to non-shareholder stakeholders, including
employees, investors, creditors, suppliers, local communities, customers, and policy makers.
Role and responsibilities of the board: The board needs sufficient relevant skills and
understanding to review and challenge management performance. It also needs adequate
size and appropriate levels of independence and commitment
Integrity and ethical behavior: Integrity should be a fundamental requirement in choosing
corporate officers and board members. Organizations should develop a code of conduct for
their directors and executives that promotes ethical and responsible decision making.
Disclosure and transparency: Organizations should clarify and make publicly known the roles
and responsibilities of board and management to provide stakeholders with a level of
accountability. They should also implement procedures to independently verify and
safeguard the integrity of the company's financial reporting. Disclosure of material matters
concerning the organization should be timely and balanced to ensure that all investors have
access to clear, factual information.
Student Activity
• Using the “Can We Risk It?” review the
following article and complete the handout
from the business viewpoint.
• An offer you can’t really accept—or refuse.
http://www.irmi.com/expert/articles/2005/he
ad11.aspx
8.01 Acquire a foundational
understanding of risk management
to demonstrate knowledge of its
nature and scope.
Discuss legal considerations affecting
risk management (RM:043)
Define the terms captive insurer and
risk retention group.
• The main business of any captive insurance
company (captive insurer) is to insure or reinsure
the risks of its owners or other companies
affiliated with its owners through common
ownership, management, or control. It serves a
limited pool of insureds and is usually licensed in
the domicile where it’s located.
• The purpose of a risk retention group is to enable
a group of purchasers to form a mutual riskfinancing organization, similar to a group captive
to assume liability business.
Discuss the importance of an up-to-date
knowledge of laws and regulations to effective
risk management.
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Interest in risk retention and purchasing groups has increased over the past two
years as prices for insurance have climbed. Some have suggested that Congress
needs to expand the narrow exception that was made in the 1980s in order to
expand the supply of insurance in areas outside of the liability coverage allowed
under the current law.
An assessment of risk retention and purchasing groups also may offer insight into
wider questions involving the federal role in insurance regulation. Particularly since
the passage of the Gramm-Leach-Bliley Act, some have advocated for an increased
federal role in insurance regulation, up to complete federalization of regulation for
all interstate insurers. Others have suggested some lesser federal role to address
specific problems they see caused by the multiplicity of state regulators, such as
slow approval times for products and overly burdensome rate or form regulation.
The Risk Retention Acts are an example of one way previous Congresses have tried
to solve supply problems arising from, or exacerbated by, the insurance regulatory
system. The answer provided by these acts was essentially a system of enforced
mutual state recognition without broad federal regulation of insurance. As such an
example, these acts might provide some insight into how the current Congress
considers addressing problems in the insurance regulatory system today.
Discuss the role of risk management in
reducing liability exposure and
avoiding negligence lawsuits.
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Large corporations often employ a full-time "risk manager" to identify and analyze possible
exposures to loss or liability. The risk manager then takes steps to protect the firm against
accidental and preventable loss and to minimize the financial consequences of losses that
cannot be prevented or avoided. But most small businesses can't afford the services of a risk
manager, even part-time, so the business owner often has to take on that responsibility.
Identifying exposures is a vital first step: until you know the scope of all possible losses, you
won't be able to develop a realistic, cost-effective strategy for dealing with them. The last
thing you want to do is come up with a superficial BandAid approach that may cause more
problems than it solves.
It is not easy to recognize the hundreds of hazards, or perils that can lead to an unexpected
loss. Unless you've experienced a fire, for example, you may not realize how extensive fire
loss can be. Damage to the building and its contents are obvious exposures, but you should
also consider:
– the damage or destruction that smoke or water from dozens of fire hoses can create.
– damage to employees' property (coats, tools and personal belongings) and to property
belonging to others (data-processing equipment you lease or customers' property left
with you for inspection or repair, for example).
– the amount of business you'll lose during the weeks (or months) it takes to get back to
normal again.
– the loss to competitors of customers who may not return when you reopen for business.
Explain legal regulations pertaining to
captive insurers.
• Captives are usually permitted to cover most insurable
risks other than health and life. However, each
domicile has the right to limit what a captive in its
jurisdiction may insure. I the US, most states enforce
similar laws with respect to the risks that a captive may
insure but offshore captives may be subject to different
definitions of insurable risk that vary by domicile.
• Captives commonly insure property and casualty risks
that include:
– Property damage, business interruption, commercial
liability, automobile liability, workers’ compensation,
professional liability, fiduciary liability, employee practices,
surety, environmental, employee benefits, etc.
Discuss the income tax treatment of
captive insurers.
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Onshore captives may consolidate its earnings with the parent company, if it is
a Pure Captive, for tax purposes. If it is a group captive, it is treated as a
taxable entity in its own right. You will need to consult with appropriate tax
and legal consultants and a qualified captive manager to navigate these tax
issues appropriately.
Primary tax advantages for captives are the potential deductibility of
premiums and deferred taxation of insurance income. Under certain
circumstances, an insured may deduct premiums paid to a captive that are not
otherwise deductible under a self insurance arrangement.
Due to complexities of tax law it is best for captives to seek qualified tax and
legal advice before establishing a captive. Tax issues can be a major
consideration in forming a captive, but it should not be the sole reason for
establishing a captive. If tax sheltering is the driver, the captive may not
withstand the scrutiny of taxing authorities.
Persons or organizations will need to consult with their tax consultants to
obtain complete and up-to-date information to comply with the federal and
state tax laws involved in the organization and operation of a captive
insurance company. You will need to consult with appropriate tax and legal
consultants and a qualified captive manager to navigate these tax issues
appropriately.
Discuss the impact of federal and state
laws on risk retention groups.
• The Risk Retention Act allows Risk Retention Groups to be formed and to
be exempt from state laws.
• The passing of the Liability Risk Retention Act in 1986 made this possible
providing that each group was licensed under the laws of at least one
state.
• Risk Retention Groups today are normally exempt from the state laws that
apply to private insurers however in certain states where they are not
chartered they may be subject to state laws, premium taxes and
participation in market plans.
• The Federal Liability Risk Retention Act of 1986 A Risk Retention Group
may therefore either be a group captive with its own capital stock or a
mutual insurer licensed under the laws of a single state. An important
feature of the 1986 Act was to give members protection from the
prohibitions against anti-trust but only provided that groups restricted
their activities to the management of their own participants' liability
exposures.
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Discuss ways in which risk managers
act illegally when working with
insurance companies
Misrepresentation of claim information
Concealment of facts on claims
Misuse of insurance money
Compensation benefits when the fraud
involving claims from the insurers suppose
staging damages blamable on the local
authorities (mostly falls and trips on council
owned land) or inflating the value of existing
damages.
Student Activity
• Students should conduct online research to locate articles
that discuss the impact of BP’s risk management policies on
the company’s massive oil spill in the Gulf of Mexico in the
spring of 2010. They should also review articles that
describe civil and criminal investigations of the company in
the months after the disaster.
• Ask students to answer following questions:
– Should BP should be held accountable and legally punished for
the oil spill and resulting damage?
– Is there anything that BP could have done to prevent the
disaster?
– What impact did BP’s risk management policies have on the oil
spill and resulting cleanup?
8.01 Acquire a foundational
understanding of risk management
to demonstrate knowledge of its
nature and scope.
Describe the use of technology in risk
management (RM:042)
Define the terms
• Risk modeling is about modeling and quantification of
risk. For the financial industry, the cases of credit-risk
quantifying potential losses due, e.g., to bankruptcy of
debtors, or market-risks quantifying potential losses
due to negative fluctuations of a portfolio's market
value are of particular relevance.
• Risk management information systems (RMIS) are
typically computerized systems that assist in
consolidating property values, claims, policy, and
exposure information and provide the tracking and
management reporting capabilities to enable you to
monitor and control your overall cost of risk.
Explain how technology facilitates risk
management
• RMIS facilitates the consolidation of information related to
insurance, such as claims from multiple sources, property values,
policy information, and exposure information, into one system.
Often, RMIS applies primarily to “casualty” claims/loss data
systems. Such casualty coverage's include auto liability, auto
physical damage, workers' compensation, general liability and
products liability.
• This information is essential for managing individual claims,
identifying trends, marketing an insurance program, loss
forecasting, actuarial studies and internal loss data communication
within a client organization. They may also provide the tracking and
management reporting capabilities to enable one to monitor and
control overall cost of risk in an efficient and cost-effective manner.
• RMIS automates risk assessment, alerts key personnel of security
issues immediately, tracks and enforces compliance, etc.
Describe limitations of riskmanagement technology.
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while technology, and computing power in particular, has enabled mankind to
achieve great things, there are limitations. Human skill and judgment cannot be
eradicated from the mix.
It’s only fair to say that there have been many failures of technology over the
years. But in many cases, these can be put down to unrealistic expectations and a
failure to recognize the limits of technology – or indeed the additional risks it may
pose.
All too often, people have a rather naïve faith in the power of technology. Take the
case of the “unsinkable” Titanic which led to the risk of icebergs not being
sufficiently recognized. And then fast forward to the highly sophisticated risk
models in today’s financial markets that made it both difficult and politically
incorrect to challenge the outputs.
It’s easy to get carried away with technological capabilities but, also remember,
the type - and complexity - of modeling should be appropriate, not only to the
nature and materiality of the risk, but also to the amount and quality of data
available. Otherwise, it risks giving an unrealistic view of the robustness of the
model outputs and potentially will lead to a false sense of security.
Explain how relational databases are
used in risk management.
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Relational databases rely on a fairly simplistic way of representing data in a tabular form with
data in rows and columns. Data elements in a given row is assumed to have an implicit
relationship to each other, while each row contains information that is not explicitly related
to any other row. This representation is called a table. Typical databases have many tables
with data about different subjects. For example, a credit risk database may have a table
representing counter-party data and another representing positional data.
Traditional RDBMS - Relational Database Management Systems - technology works very well
when queries are well-understood, and the result-sets are small, such as a bank branch
application where tellers repetitively look-up customer and account information. On the
other hand, analytically demanding applications like risk management usually push
traditional RDBMS' to (and beyond) their limits. These applications usually perform complex
computations across a wide range of data elements and time-periods. The queries are usually
not repetitive, and often the result-sets are large.
So where do RDBMS' feature in risk management? Pretty much everywhere, it turns out.
Relational databases are at the heart of all large data-warehouses that are used for such
purposes as Basel II reporting, market and liquidity risk analysis. Traditional RDBMS
technologies have largely been used for this purpose. But driven by factors such as regulatory
reform and a heightened need for risk management, risk databases have been challenged to
become bigger and faster to a point where such databases cannot function effectively. As a
result, larger financial firms are turning to MPP - Massively Parallel Processing- databases to
fill their needs.
Discuss technology used to analyze
and model risk.
• There are four main areas where it has a role
to play in our view:
1. Data collection and storage
2. Risk analysis and modeling
3. Risk monitoring and control
4. Risk information and communication
Describe a risk management
information system’s reporting
capabilities.
• Most commonly, RMIS products allow
individual claim detail look-up, basic trend
report production, policy summaries and ad
hoc queries. The resulting information can
then be shared throughout the client's
organization, usually for insurance program
cost allocation, loss prevention and effective
claim management at the local level.
Describe the use of specialized riskmanagement software tools
• for supply chain management
• company web sites
• information system security
Student Activity
• After reviewing these sites (all three)
• http://fmea-fmeca.com/nasa-risk-management.pdf
• http://mn.gov/oet/governance/planning-tools/risktools.jsp
• http://www.riskmanagementtools.net/
• How is technology being used in risk management?
• Describe the selected tools (software) that appear to
be most beneficial for a business to use.
8.02 Understand the role and
function of quality management to
obtain a foundational knowledge of
its nature and scope.
Explain the nature of quality
management (QM:001)
Define the term quality management.
• “Quality Management” refers to any systematic, datadriven approach that organizations use to improve
operations. Since the mid-1980s, a number of specific
methodologies for Quality Management have emerged,
including Six Sigma,® ISO, TQM, and others.
• Although Quality Management has been traditionally
associated with manufacturing or IT, the philosophy of
Quality Management delivers tangible benefits to any
process, such as greater cost-control, visibility, and
alignment with strategic objectives.
• Consequently, other industries and departmental groups,
from marketing to customer help desks, have adopted
Quality Management techniques as organizations strive to
meet the challenges of increasing complexity and
competition.
Distinguish among quality control,
quality assurance, and quality
improvement.
• Quality assurance (QA) refers to the planned and systematic
activities implemented in a quality system so that quality
requirements for a product or service will be fulfilled
• Quality control, or QC for short, is a process by which entities
review the quality of all factors involved in production. This
approach places an emphasis on three aspects:
– Elements such as controls, job management, defined and well
managed processes, performance and integrity criteria, and
identification of records
– Competence, such as knowledge, skills, experience, and qualifications
– Soft elements, such as personnel integrity, confidence, organizational
culture, motivation, team spirit, and quality relationships.
• Quality Improvement is the systematic approach to reduction or
elimination of waste, rework, and losses in production process.
Explain how businesses benefit from
quality management.
• Is driven by customer wants and needs
• Makes significant contribution to business success
• Matches organization’s unique resources with
opportunities
• Is durable and lasting
• Provides basis for further improvement
• Provides direction and motivation
• Improved quality of design
• Higher perceived value
• Increased market share
• Increased revenues
• Improved quality of conformance
• Lower manufacturing and service costs
Discuss costs associated with quality.
• All projects operate within the time/cost/quality triple
constraint. As with any planning activity, there is a cost
in performing quality checks but this is offset by not
having to fix problems down the track. Experience tells
us that the later you find a problem, the longer it takes
to fix or the larger the impact.
• Sorting it out later might be easier and less costly,
however, this may not be an option depending on the
nature of the project, or the project objectives. For
example, a project involving organizational change
would see satisfied or fully-engaged stakeholders as
critical and as such things need to be right first time
irrespective of the cost.
Identify characteristics associated with
quality
• Quality is grounded on three core principles: focus on
customers; participation and teamwork; and continuous
improvement and learning.
• These are supported by the organizational infrastructure that
includes: customer relationship management, leadership and
strategic planning, human resources management, process
management, and data and information management, as well
as a set of management practices and tools.
Explain issues associated with quality.
• Despite the promised benefits, however, many organizations
experience pain when implementing Quality Management
processes due to resistance to change, inadequate tools, and poor
internal communication
• The quality of the outputs is at risk if any of the three aspects in
Quality Control (slide #30) is deficient in any way.
• Quality control emphasizes testing of products to uncover defects
and reporting to management who make the decision to allow or
deny product release, whereas quality assurance attempts to
improve and stabilize production (and associated processes) to
avoid, or at least minimize, issues which led to the defect(s) in the
first place. For contract work, particularly work awarded by
government agencies, quality control issues are among the top
reasons for not renewing a contract.
Describe factors that influence quality
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Parterning
Learning systems
Adaptability and speed of change
Environmental sustainability
Globalization
Knowledge focus
Customization and differentiation
Shifting demographics
Discuss levels of quality
• Organizational level: meeting external
customer requirements
• Process level: linking external and internal
customer requirements
• Performer/job level: meeting internal
customer requirements
8.02 Understand the role and
function of quality management to
obtain a foundational knowledge of
its nature and scope.
Discuss the nature of continuous
improvement of the quality process
(QM:003)
Define the term continuous
improvement.
• Continuous improvement means there is always
room to improve the way you do business by
reducing time, cost, space, mistakes or effort.
• Ever-changing customer expectations, new
procedures and technologies, and the desire to
run a better, faster and cheaper organization
drive the need for continuous improvement. The
process never stops. In order to make continuous
improvement work, you need to have clear
objectives and identify all problem areas.
Discuss the purpose of continuous
improvement of the quality process.
• Continuous improvement leads to excellence. It is a subset of
continual improvement, and the two terms are often used
interchangeably, but whereas continual improvement is generally
described as a global, almost philosophical approach to making
changes for the better, continuous improvement tends more to get
to the nitty-gritty of things, employing statistics and various other
tools and methods, with the ultimate objective of producing
excellence in specific areas.
• Continuous improvement can result in significant breakthroughs as
far as product (and service) quality and excellence are concerned.
These breakthroughs seldom happen overnight. They usually occur
over a period of time, incrementally, but sometimes appear to
happen suddenly. With continuous improvement and incremental
improvement, success breeds success.
Describe continuous improvement methods
Despite the popular perception that lean production is a complex and highly costly process, this renowned management approach
can be simplified and customized for entrepreneurs depending on their needs. Here are some common lean manufacturing
tools or approaches used today.
– Push-pull system The conventional push system keeps people and machines occupied, literally pushing the product
along the production line to the next operation. But working in this fashion creates waste. When you implement a pull
system where the customer controls or pulls what is produced, the results are higher customer satisfaction, lower
inventory, reduced costs and product design that is constantly evolving to meet changing customer needs.
– Benchmarking This enables you to measure your performance and compare it with similar companies in your
industry. An important part of benchmarking is measuring how you perform in terms of time, cost and resources. By
comparing your processes, you can make the necessary adjustments to improve and set higher standards. Evaluate
different departments within your business and ask: Why is one group always meeting deadlines vs. the other? What
processes do they have in place that enable them to be more organized? Once you've benchmarked and identified
problem areas, work with managers and employees to identify ways of improving things.
– Kanban A method for maintaining an orderly flow of material, Kanban cards are used to indicate points at which
material should be ordered, how much is needed, where it's ordered and where it should be delivered. It is one of the
primary tools of the JIT (Just-in-Time) system.
– 5S Another tool used today is 5S, which helps ensure you lose no time when looking for materials. A clean and wellmaintained factory can help you delay or avoid the need for a larger facility since you should be able to gain 15% more
free space after implementing 5S. Following the implementation, businesses benefit from an increase in production
quality and productivity.
• Sort: get rid of all clutter so we can find the things we need.
• Straighten: Be sure everything is in its place and materials stay where they belong. Systematically arrange the
plant.
• Sweep: Make sure your premises are clean, and install systems to keep them that way.
• Standardize: Establish procedures to maintain workplace organization. Assign duties.
• Sustain: Manage your system on an ongoing basis.
– SMED SMED (Single Minute Exchange of Die) is a technique to reduce setup time for tooling changes. It's also known
as quick changeover, where you eliminate waste from the process. This method helps you identify counterproductive
elements and determine which operations you can perform while equipment is running and those for which
equipment must be stopped. This method is ideal in smaller manufacturing settings; businesses can benefit from
faster delivery, lower inventory and higher overall equipment efficiency.
Describe continuous improvement methods
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Kaizen , or ‘Continuous Improvement’ (Japanese theory) is a policy of constantly introducing small
incremental changes in a business in order to improve quality and/or efficiency. This approach assumes
that employees are the best people to identify room for improvement, since they see the processes in
action all the time. A firm that uses this approach therefore has to have a culture that encourages and
rewards employees for their contribution to the process.
Kaizen can operate at the level of an individual, or through Kaizen Groups or Quality Circles which are
groups specifically brought together to identify potential improvements. This approach would also be
compatible with Team working or Cell Production, as improvements could form an important part of the
team’s aims.
Key features of Kaizen:
– Improvements are based on many, small changes rather than the radical changes that might arise
from Research and Development
– As the ideas come from the workers themselves, they are less likely to be radically different, and
therefore easier to implement
– Small improvements are less likely to require major capital investment than major process changes
– The ideas come from the talents of the existing workforce, as opposed to using R&D, consultants or
equipment – any of which could be very expensive
– All employees should continually be seeking ways to improve their own performance
– It helps encourage workers to take ownership for their work, and can help reinforce team working,
thereby improving worker motivation
As Kaizen is characterized by many, small improvements over time, it contrasts with the major leaps seen
in industry when radical new technology or production methods have been introduced. Over the years,
the sheer volume of Kaizen improvements can lead to major advances for a firm, but managers cannot
afford to overlook the need for radical change from time to time. For example, many UK manufacturers
and service companies have found it necessary to outsource processes to cheaper centers such as India
and China – these changes would be unlikely to arise from Kaizen.
Describe continuous improvement
methods
• Total quality management or TQM is an integrative philosophy of
management for continuously improving the quality of products
and processes.
• TQM functions on the premise that the quality of products and
processes is the responsibility of everyone who is involved with the
creation or consumption of the products or services offered by an
organization. In other words, TQM capitalizes on the involvement of
management, workforce, suppliers, and even customers, in order to
meet or exceed customer expectations. Considering the practices of
TQM as discussed in six empirical studies, Cua, McKone, and
Schroeder (2001) identified the nine common TQM practices as
cross-functional product design, process management, supplier
quality management, customer involvement, information and
feedback, committed leadership, strategic planning, crossfunctional training, and employee involvement.
Describe continuous improvement
methods
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Six Sigma is a business initiative, not a quality initiative. Six Sigma is an umbrella term for a
philosophy and way of running a business that improves quality and productivity and
increases profits. There are three major components to Six Sigma:
The environment or culture of the organization as established by the senior leaders in the
organization
The improvements tools such as SPC, design of experiments, process mapping, data display
and analysis, problem-solving, and root cause analysis, and
The infrastructure which includes systems that support the use of the tools.
The reason that companies should use Six Sigma is to increase profitability. Sometimes
however, the impetus to get started on a Six Sigma process is brought on by customer
demands.
Six Sigma as a philosophy will create a heightened awareness of the need for on-going and
everlasting quality improvement efforts. Six Sigma as a process will provide employees with
the tools and skills they need to embrace the Six Sigma philosophy. By striving to achieve a
six sigma level of quality, companies reduce costs related to scrap, rework, inspection, and
customer dissatisfaction.
Six Sigma starts at the top of an organization and requires constant attention by senior
managers who are responsible for establishing the Six Sigma culture. In addition, senior
management must enable the creation of an infrastructure to support Six Sigma
improvement projects.
Explain tools used in continuous
improvement
•
•
In the United States, continual improvement got underway later in the 20th century under
the leadership and prompting of W. Edwards Deming, who having spent a number of years in
post-war Japan studying the Japanese approach to achieving product excellence, took those
ideas back to the United States. Deming's tool, still in wide used today, is a four-step quality
process, the plan-do-check-act or PDCA cycle. Although all four steps are equally important,
the key step, as far as continuous improvement methods are concerned, is "check", in other
words, provide feedback. Almost all, if not all of the methodologies in place today, Six Sigma,
Kaizen, and the rest, relay heavily on feedback to make improvement happen.
We still use the Deming PDCA cycle, even though many who use it know it by another name
and may never have heard of W. Edwards Deming. The beauty of continual improvement lies
in its underlying simplicity, no matter how complex the implementing tool may be. The
difficulty with the concept usually surfaces in the form of people being resistant to change.
Large corporations who have implemented continual improvement have mostly done so from
the top down, it being necessary for senior management to understand and buy into the
concept if it is to take hold and be practiced. When a continuous improvement program is in
place, the focus has shifted from slogans, and "lets do it right from now on" campaigns, to
carefully orchestrated and carefully monitored incremental change techniques. When a
change results in success, it is followed by yet another incremental change, with the goal of
achieving still greater success. If an incremental change is not successful, the reason is
determined, and a different approach may be taken.
Describe the role of audits in the
continuous improvement process.
•
•
•
There is a legitimate role for quality audits in today’s workplace. The success of
the audit depends on management’s guidance of the audit, selection and training
of auditors, and willingness to involve people in achieving the opportunities for
improvement identified by the audit. To be effective, the audit process must be
properly managed. A successful audit process is part of an overall plan for
continuous improvement and can become a vehicle for recognizing excellence in
an organization.
An audit is an expensive investment for any organization. There is the cost of the
auditor, the time that those being audited spend preparing for the audit, the cost
of conducting the audit itself, and the time spent for reports and meetings to
discuss audit findings. To maximize the return on such an investment, managers
must carefully consider the objectives they are trying to achieve through the
quality audit. The basic questions to be addressed are, What do you care about,
and what do you want to know about? A general assignment that asks the auditors
to roam about the organization and see if they can uncover any problems is
ineffective and creates problems for the auditor and auditees alike.
A well-defined audit will ask the auditor to examine how one specific practice is
being conducted across a large part of an organization. Or it will instruct the
auditor to examine several specific practices in one unit of the organization. Or it
will instruct the auditor to examine several specific practices in one unit of the
organization. In either case, there is a clear definition of mission for the auditor.
Describe factors impacting continuous
improvement.
• Strategic focus, management of continuous improvement and
learning/knowledge sharing were found to be the most influential factors
of sustainability of continuous improvement.
• The factor with strongest influence on sustainability was strategic focus
followed by learning or knowledge sharing and management of
continuous improvement. The results of the study are actually reflective of
what employees from executive level in manufacturing industries in
Penang viewed as important to sustaining improvement in their daily jobs.
• The three critical factors identified in this study shows that executive level
employees viewed that understanding of organizational goals,
management participation and a learning organization are crucial in
sustaining CI. Hence, top management should focus on these three factors
to ensure sustainable improvement capabilities.
• The constructs of the study are focused on the factors that are critical to
sustaining CI capabilities in manufacturing industries. However, CI is
critical to all industries and can be further researched to service
industries. Service industries are gaining pace in the market today and
factors impacting CI capabilities in this industry are particularly underresearched.
Distinguish between incremental and
breakthrough improvement.
• There are 2 general types of improvement activities:
breakthrough improvements and incremental
improvements.
• Breakthrough improvements typically are made by one or a
few individuals who bring a new theory, invention or
technology to solve an old problem.
• On the other hand, incremental improvements are
generally less significant improvements carried out by
many people over time in gradual and constant small steps.
Incremental improvement may not produce a dramatic
result, but the results are long lasting. The accumulation of
numerous small improvements is often equal to or greater
than the value of one or two breakthrough improvements.
Student Activity
• Divide the class into groups and assign a different
continuous improvement method
• Kaizen, Six Sigma, Lean: Push-Pull System, Lean:
Kanban, Lean: SMED, Total Quality Management (TQM)
• Students can create a report, news release, powerpoint, brochure, etc. regarding their form of continuous
improvement.
• Following the presentations, the class should discuss
the similarities and differences among the continuous
improvement methods and determine which method
might be best suited for the school-based enterprise,
the students’ employers, or other local businesses.
8.03 Implement quality-control
processes to minimize errors and to
expedite workflow.
Identify quality measures/techniques
(OP:163)
Discuss the influence of the ISO 9000
series standards on quality
management.
• The ISO 9000 family of standards represents an international
consensus on good quality management practices. It consists of
standards and guidelines relating to quality management systems
and related supporting standards.
• ISO 9001:2008 is the standard that provides a set of standardized
requirements for a quality management system, regardless of
what the user organization does, its size, or whether it is in the
private, or public sector. It is the only standard in the family against
which organizations can be certified – although certification is not a
compulsory requirement of the standard.
• The other standards in the family cover specific aspects such as
fundamentals and vocabulary, performance improvements,
documentation, training, and financial and economic aspects
Distinguish between big Q and little q
approaches to quality.
• Data might suggest that few organizations really have an effective
corrective and preventive action system or process. There may be a
framework for such a system that would satisfy a third-party auditor
during surveillance audits. Few companies, however, actually leverage the
corrective and preventive action process to make dramatic (a.k.a. the “Big
Q”) changes that may have a greater impact on the bottom line.
• If an organization has a corrective and preventive action system that is
effective and deployed across the organization, it might be one of the very
few organizations that really does. This is a systemic issue for most
organizations.
• If an organization is making significant improvements that drive
improvement up, then the issue of how fast to go remains and the
question still begs for an answer. The recipe that continual improvement,
over the long haul, one step or project at a time (a.k.a. “the little q”), will
get an organization farther than waiting for the long ball.
• Continual improvement usually involves making changes—and changes
often are disruptive and uncomfortable to an organization.
Explain quality tools
• Quality pros have many names for these seven basic tools of quality, first
emphasized by Kaoru Ishikawa, a professor of engineering at Tokyo
University and the father of “quality circles.”
• Start your quality journey by mastering these tools, and you'll have a
name for them too: "indispensable."
– Cause-and-effect diagram (also called Ishikawa or fishbone chart): Identifies
many possible causes for an effect or problem and sorts ideas into useful
categories.
– Check sheet: A structured, prepared form for collecting and analyzing data; a
generic tool that can be adapted for a wide variety of purposes.
– Control charts: Graphs used to study how a process changes over time.
– Histogram: The most commonly used graph for showing frequency
distributions, or how often each different value in a set of data occurs.
– Pareto chart: Shows on a bar graph which factors are more significant.
– Scatter diagram: Graphs pairs of numerical data, one variable on each axis, to
look for a relationship.
– Stratification: A technique that separates data gathered from a variety of
sources so that patterns can be seen (some lists replace “stratification” with
“flowchart” or “run chart”).
Explain the Taguchi method/approach
to quality control.
• Robust Design method, also called the Taguchi Method, pioneered
by Dr. Genichi Taguchi, greatly improves engineering productivity.
• By consciously considering the noise factors (environmental
variation during the product’s usage, manufacturing variation, and
component deterioration) and the cost of failure in the field the
Robust Design method helps ensure customer satisfaction.
• Robust Design focuses on improving the fundamental function of
the product or process, thus facilitating flexible designs and
concurrent engineering.
• Indeed, it is the most powerful method available to reduce product
cost, improve quality, and simultaneously reduce development
interval.
Discuss the use of statistical quality
control.
• Statistical control. Most manufacturing
companies will use statistical control to bring
the organization to Six Sigma levels of quality.
Traditional statistical process controls in
manufacturing operations usually proceed by
randomly sampling and testing a fraction of
the output.
Describe the role of process performance
management (PPM) in quality management.
•
•
•
•
•
•
•
•
•
•
•
•
An Effective Performance Management Process
(PMP):
Maximizes staff engagement, development, and
performance
Is consistent across units to enhance full
development and utilization of talent
Remains flexible, efficient, measurable, fair,
transparent
Provides better alignment of staff roles and
goals with the university’s mission
Promotes on-going and proactive succession
management
Cornell’s Performance Management Philosophy:
Addresses the relationship of employees to the
institution, from the time they are recruited,
through their growth and development, to the
time they depart
Engages and develops employees throughout
the year
Establishes goals and measures performance to
those goals
Depends on the supervisor giving clear,
developmental feedback
Includes a review of past performance and goals
and focuses on future development
opportunities that are aligned to individual,
unit, and university goals
•
The Performance Management Process Model
Explain lean production systems.
Fundamentals in Place
• There is a designated place for everything and everything is in its place. No time is
wasted while looking for things. The organization looks clean and everyone is
required, encouraged and motivated to keeping it organized.
• Quality is achieved by controlling the process, not by checking parts. Rework and
quality returns are rare occurrences.
Evident Flow
• Everyone is aware of the status of the subsequent operation/step.
Balanced Lines/Processes
• Everyone is aware of and executes to take time (pace of production required to
match demand from the next operation/step).
Organization Alignment
• There is an acceptance for trying new ideas and concepts. Desire for continuous
improvement is very strong. Maintaining status quo is not an option.
• There is constant communication channel between workforce and the management.
Award and recognition are based identifying, implementing and sustaining
improvements (on time, quality, customer service and/or cost).
Describe the impact of concurrent
engineering on quality.
• Concurrent engineering is a work
methodology based on the parallelization of
tasks (i.e. performing tasks concurrently). It
refers to an approach used in product
development in which functions of design
engineering, manufacturing engineering and
other functions are integrated to reduce the
elapsed time required to bring a new product
to the market.
Discuss inspection methods used to detect
if quality requirements have been met.
Sorting out failures The most common type of inspection that has been done for years on the assembly lines involves
sorting the defective items from the acceptable product. This method is sometimes referred to as "creating
quality by inspection" and is not considered an effective quality management approach.
•
Production line inspection For example, at the end of a production line the inspector gives final approval
whether or not parts are good. The rejects are put into scrap or are re-worked. This assures only quality material
reaches the next stage, but it does not address the cause of the failed parts nor does it correct that problem.
•
Office work inspection In another situation, office workers may complete reports only to have their manager
reject many of them as unacceptable. Those reports must be re-done until acceptable. Again, the reason for the
failures is not addressed, and the rejection rate remains constant.
•
Not a good approach In both cases, sorting out failures can be a wasteful and expensive method to get quality
goods.
Gathering failure information A more effective method to inspect consists of gathering information and using data
gained from inspection to control the process and prevent future defects. Statistical Process Control (SPC) is a
type of this type of inspection.
•
Inspections at intermediate stages Since work-in-process undergoes many operating steps as it is moved
through a manufacturing facility, inspections are often conducted at intermediate stages in the process. The
inspections give statistical information necessary to determine the cause of the quality problem, so that it can be
prevented in the future. SPC does not aggressively seek to eliminate defects and in some cases changes may be
implemented too slowly to be fully effective.
•
White collar examples One example in the office is that the boss may inspect a report at various stages, making
corrections. He may then see that perhaps there was a communication problem in stating the requirements that
may be rectified.
Inspection by workers One other inspection method is to have workers inspect the item from the prior operation
before proceeding. In this way quality feedback can be given on a much timelier basis. Each operation performs
both production and quality inspection.
Explain the use of house of quality
matrices during product planning.
• House of Quality is a diagram, resembling a house, used for
defining the relationship between customer desires and the
firm/product capabilities. It is a part of the Quality Function
Deployment (QFD) and it utilizes a planning matrix to relate
what the customer wants to how a firm (that produces the
products) is going to meet those wants. It looks like a House
with a "correlation matrix" as its roof, customer wants versus
product features as the main part, competitor evaluation as
the porch etc. It is based on "the belief that products should
be designed to reflect customers' desires and tastes". It also is
reported to increase cross functional integration within
organizations using it, especially between marketing,
engineering and manufacturing.
8.03 Implement quality-control
processes to minimize errors and to
expedite workflow.
Utilize quality control methods at
work (OP:164)
Explain the importance of being proactive versus
reactive when carrying out quality control
processes.
• Without quality control, your organization can't
survive for long. Successfully implementing,
maintaining, and evaluating quality control
standards is critical whether you're seeking ISO
certification or just keeping up with customer
needs. When implementing a quality control
process, you'll likely face resistance from people
within the organization. By staying vigilant and
addressing potential problems early, however,
your organization can function at a high level.
Describe methods used to identify and
address potential problems/quality
issues quickly and effectively.
• A quality process must adhere to three basic
principles:
– Prevent errors from being introduced. At least as
much effort should be placed in preventing errors as
in finding the errors later.
– Ensure that errors are detected and corrected as early
as possible. Therefore, quality controls, which include
checking and back-checking procedures, must be
implemented during all phases of the work.
– Eliminate the causes of the errors as well as the errors
themselves. By removing the cause, the quality
process has been improved.
Describe quality control methods used
to minimize waste and clutter.
• Most company processes are wasteful in terms of time and
materials, which often results in poorer quality to the customer — a
concern for all businesses. Lean focuses on customer satisfaction
and cost reduction. Proponents of the technique believe that every
step in a process is an opportunity to make a mistake — to create a
quality problem, in other words. The fewer steps you have in a
process, the fewer chances for error you create and the better the
quality in your final product or service.
• You can apply the Lean techniques in the following sections to all
types of processes and in environments ranging from offices, to
hospitals, to factories. In most cases, applying Lean concepts
doesn't require an increase in capital costs — it simply reassigns
people to more productive purposes. And, oh yes, Lean processes
are much cheaper to operate.
Explain the impact that an understanding of
directions, decisions, and job requirements has
on quality control.
•
To implement a quality control plan, a project leader/manager:
– Selects and assigns qualified professionals to perform the project tasks.
– Assigns qualified specialists to oversee all elements of the work and carry out a
consistent, deliberate program of quality control.
– Instills a sense of ownership and personal concern felt by every person on the design
team towards quality and continually improving the quality process.
– Makes certain that all personnel involved in performing the work have a clear
understanding of the scope and intent of the overall project, and the appropriate design
criteria and environmental concerns, in order to ensure that the work product meets or
exceeds ODOT expectations.
– Makes certain that all personnel involved in performing the work are aware of the
project schedule, and understand the importance of meeting intermediate deadlines as
well as final completion dates.
– Makes certain that designers and reviewers have a clear understanding of the work
requirements and of their responsibilities.
– Arranges for peer reviews to be conducted by qualified personnel outside of the design
team.
– Documents the quality control process properly, to the degree appropriate to each
project.
Identify data to record and report for
quality control purposes.
• Determine what to measure (the items or processes you decide to
measure are called metrics).
• Determine your measurement process by selecting the best process
for your needs.
• Define exactly how you’ll use the selected measurement process.
• Train your employees on the proper measurement process.
• Perform gauge repeatability and reproducibility (R&R) tests to
determine measurement variation.
• Perform the measurements and compare to customer
specifications.
• Confirm the quality of your data with compare-and-review checks
and the help of a computer.
• Make sense of your data with coding and different data charts.
Carry out quality control processes.
• Quality control is an ongoing deliberate process, planned and carried out
by the provider of design services. Quality control is based on the belief
that:
– Quality control should ensure that the work is done correctly the first
time.
– Quality is achieved by focusing on preventing problems or errors
rather than reacting to them.
– Quality is achieved by qualified individuals performing all work
functions.
– Quality is achieved by providing proper training of personnel and
ensuring that all personnel remain current on the knowledge and skills
needed for their position.
– Quality is controlled by adequate planning, coordination, supervision,
and technical direction; proper definition and a clear understanding of
job requirements and procedures; and the use of appropriately skilled
personnel.
– Quality is verified through checking, reviewing, and monitoring of
work activities, with documentation by experienced, qualified
individuals who are not directly responsible for performing the work.
8.03 Implement quality-control
processes to minimize errors and to
expedite workflow.
Describe crucial elements of a quality
culture (OP:019)
Identify ways in which quality can
affect a business.
• Cheap prices may sell in the short run, but it is quality
that sustains a business in the long run.
• Commitment to quality is a culture to be consciously
developed, nurtured and constantly watched, if a
business organization wants long term success.
• The quality culture should be natural like water flow, as
it should percolate from the top down to bottom.
• Unless the top echelons in management have a
demonstrable commitment to quality, the same cannot
be expected to run in the lower rungs of the
organization.
Explain reasons that businesses focus
on quality strategies.
• What distinctly separates excellent companies from the mediocre ones is not
the healthy bottom lines nor large enviable market shares, but a strong qualityoriented corporate culture that is shared by everybody- from the CEO and
managers down to the lowly clerk , mechanic , receptionist, and security guard.
• This culture is reflected on everything the company has or does: quality
products, quality services, quality facilities, and of course, quality people and
management. The spread or extent of that culture does not stop inside the
company; it goes downstream with quality vendors, suppliers, and
subcontractors, and upstream with quality distributors, dealers, retailers, or
franchisees.
• It is an all-encompassing culture that binds everybody to work together in
harmony and in spirit that they may truly serve that one most important person
that matters: the customer.
• To sum up, the quality culture in an organization can be developed only through
a total moral commitment to quality by the top management. Through
transparent policies, education, training and visibly practicing what is preached,
the quality culture has to be nurtured in the organization on a continuous basis.
Explain considerations in developing a
quality culture
• involving everyone
• breaking down barriers among employees and
management
• eliminating numerical quotas
• instituting training
• developing leadership
• recognizing employees’ contributions to quality
• communicating the quality policy/message
Discuss the importance of top management
commitment in a quality culture.
• A quality-oriented corporate culture is the real TQC or Total
Quality Culture, and not just Total Quality Control, which suggest
something administrative, short-term, and imposed. TQC is not
sustained by an executive memo nor promoted by
compensation. It is a way of life resulting from everybody's
sincere commitment to provide quality service to the customer
and doing one's job right the first time and all other times. It is
everybody's conviction that TQC is the only way to make the
company survive indefinitely and stay competitive.
Describe the role of suppliers in a
quality culture.
• Since an organization and its suppliers are interdependent,
therefore a mutually beneficial relationship between them
increases the ability of both to add value.
• Suppliers recognize that quality can be an important differentiator
between their own offerings and those of competitors (quality
differentiation is also called the quality gap).
• In the past two decades this quality gap has been greatly reduced
between competitive products and services. This is partly due to
the contracting (also called outsourcing) of manufacture to
countries like India and China, as well internationalization of trade
and competition. These countries amongst many others have raised
their own standards of quality in order to meet International
standards and customer demands.
• The ISO 9000 series of standards are probably the best known
International standards for quality management.
Discuss the role of the customer in a
quality culture.
• Customers recognize that quality is an important
attribute in products and services.
• Since the organizations depend on their customers,
therefore they should understand current and future
customer needs, should meet customer requirements
and try to exceed the expectations of customers.
• An organization attains customer focus when all
people in the organization know both the internal and
external customers and also what customer
requirements must be met to ensure that both the
internal and external customers are satisfied.
Discuss barriers to the adoption of a
quality focus.
• Often front line staff are resistant to change. This
resistance is not because they want to keep the
status quo but because they have been through
multiple change programs, driven from the top
that had little impact and fewer results.
• Taking a practical approach that involves staff and
recognizes the value of their knowledge will
engage staff more quickly than a business wide
conceptual launch of a new change program.
Student Activity
• Freescale's Commitment to Quality
http://www.youtube.com/watch?v=0fh3GP7AGrs
• Each student should create a Venn diagram
depicting the similarities and differences between
(use the notes)
– Businesses & Suppliers
– Businesses & Customers
– Top Mgt.’s commitment in Quality Culture &
Businesses Focus on Quality Strategies
8.04 Utilize project-management
skills to start, run, and end projects
Explain the nature of project
management (OP:158)
Compare and contrast projects and
business operations.
• Projects are the business endeavors used to
accomplish a unique, specified purpose; they have a
definite beginning and end; the work is temporary,
although the outcomes may be long-term or indefinite.
Often, the project manager is not a high-level manager
and cannot make decisions and issue orders outside
the project’s parameters.
• Business operations, on the other hand, are ongoing
activities performed on a regular basis to keep the
business going, and they do not end. Business
operations rely on the use of a traditional managerial
hierarchy with management having the authority to
make decisions and issue orders, etc.
Identify the elements that make up
all projects (i.e., resources, schedule,
and outcomes).
• For projects to function effectively,
participants require a variety of resources (i.e.,
human, monetary, equipment, and materials);
a time frame, or schedule, in which the work
must be accomplished; and the outcomes of
the project activity. Project management is
the skills, tools, and processes used to
generate the desired outcome by planning,
executing, and controlling the elements of a
project.
Describe why businesses are
increasing their use of project
management.
• The business environment is dynamic (i.e.,
constantly changing). This is due to the global
economy and to technological change. Both
require businesses to be flexible so that they can
take advantage of new and different
opportunities the business encounters. Project
management gives businesses the agility required
to respond quickly, efficiently, and effectively to
these opportunities so that they can beat their
competition and get “to market” as quickly as
possible.
Explain the goal of project
management.
• The goal of project management is to ensure the efficient, effective
completion of a project with respect to quality, schedule, and budget.
• Discuss benefits associated with the use of project management.
• There are a variety of benefits associated with the use of project
management. It has helped businesses to accomplish their predetermined objectives within a specified time-frame, helped businesses of
all types make profitable decisions, and aided them in operationalizing
their strategies to complete their projects. These benefits have been
obtained because project management
– provides a framework for successful completion of a project,
– gives businesses a systematic approach to risk analysis,
– incorporates quality assurance techniques,
– focuses on the implementation of teamwork skills,
– provides a way to evaluate the feasibility of pursing a project,
– gives employees valuable skills that can be applied to any situation in
any industry, and
– provides a common language for all project participants.
•
Describe typical constraints on
project management (i.e., scope,
time,
and
cost).
Three factors are traditionally recognized as constraining projects:
scope, time, and cost. Scope designates what is and is not included
in the project. Since projects have a beginning and end, time is a
critical constraint on the amount of or the quality of work that can
be performed. Naturally, the cost is the amount of money that must
be paid to obtain a specific project scope within a specified
timeframe. If any of the three constraints is changed, the other
ones are impacted. As an example, if, as a project progresses, the
customer adds more aspects to the project (i.e., increases the
project’s scope), the project’s cost will be increased, and the time
scheduled will have to be re-evaluated to determine whether a
longer timeframe is needed or more employees can be effectively
added to do the work in the original timeframe.
Explain significant challenges to
project management.
• Significant challenges face project managers throughout a project’s life
cycle.
These challenges include:
a. Being able to clearly define the project’s purpose and outcomes
b. Having the monetary resources required to successfully complete a project
c. Accessing team members with the requisite skill sets
d. Limiting or avoiding project creep (i.e., the project’s scope becomes bigger
and bigger due to newly identified needs from stakeholders).
e. Having clear, ongoing communications with project participants
f. Estimating time and resource requirements accurately
g. Dealing with uncertainty
h. Having a trained project manager
i. Creating a risk-management plan
j. Monitoring project changes closely
Identify the stages of project
management (i.e., the project life
cycle).
• The number of stages in a project’s life cycle differs
from author to author. Some authors identify as few as
three stages, while others identify as many as seven.
From a review of the literature, we will identify four
stages of a project’s life cycle which encompasses all
activities in project management regardless of how a
specific author defines the stages in a project life cycle.
A project life cycle begins with the idea for the project
in the initiation stage, moves into the planning or
development stage, progresses into the execution and
control stage, and ends with the closure stage.
Discuss the activities involved in each
stage of project management (in its
life cycle).
• The initiation stage involves determining a project’s feasibility,
developing a statement of work (SoW), creating SMART objectives,
and developing a project charter.
• The planning stage involves in-depth project planning to ensure
that the project’s scope is clearly defined. This entails developing a
Work Breakdown Structure, identifying needed human and
nonhuman resources, developing a project schedule, and preparing
a project plan.
• The execution, or implementation, stage requires the project
manager to monitor and control project activities by maintaining
ongoing communication with all project participants, updating and
modifying the project plan, monitoring risks, controlling project
quality, gaining change approvals, and maintaining project records.
• The closure stage entails writing final project reports and preparing
a lessons learned document.
Describe types of projects (i.e.,
derivative, platform, breakthrough,
R&D).
• Derivative projects extend or replace existing
projects. They are very similar to the existing
projects.
• Platform projects are major departures from
existing projects; they represent a new
good/service, a new process, or both.
• Breakthrough projects involve the use of newer
technology than platform projects.
• R&D projects are visionary, representing new
directions or pursuits for a business.
Explain the role of project managers
in project management.
• Project managers handle a variety of tasks during their projects.
These include such tasks as:
– Developing and managing the direction of projects
– Defining, planning, and controlling project scope
– Developing project schedules, allocating resources, and managing
project funds
– Managing and motivating team members
– Managing communications between and among team members,
customers, and management
– Identifying and lessening the impact of risks
– Obtaining project resources
– Developing and managing the project schedule
– Managing project changes
– Ensuring project meets quality standards
Describe technology currently used to improve
the project management process (e.g., blogs,
wikis, collaborative groupware, etc.).
• Technology is used in developing a project schedule. A
variety of software applications have been developed to
enable project managers to generate scheduling tools in a
chart format. The use of the software makes it easier to
monitor and update project status.
• Essential to efficient project management is ongoing
communication with those involved in the project. A
number of tools can be used to keep project participants
aware of project status and changes made to the project.
Examples of these tools include blogs, wikis, and
collaborative groupware (e.g., Collaber).
• Technology is also used in managing project costs and
budget. Spreadsheets are often maintained to track
monetary expenditures.
Discuss the use of governance
mechanisms to ensure that the
project meets its requirements.
•
Governance refers to the rules and regulations under which projects operate. It
ensures that there is appropriate decision-making, communication, etc. Often,
project managers consider the following:
– Determining the roles and responsibilities of people involved with the project, i.e., who is
responsible for what
– Defining communications channels so that they specify the interaction structures that are to
be used, e.g., committees, quality groups, teams, user groups, etc.
– Identifying operational methodologies of a company so that the standard processes and
methods are spelled out
– Describing development methodologies that spell out how ideas will be evaluated, what
approval processes will be required, how quality will be assessed, etc.
– Identifying standards that will be adhered to
– Setting up a mechanism for compliance so that project managers can ensure that the
governance elements are being followed. They could use audits, periodic reviews, etc. Project
managers also have to determine the metrics that will be used to assess whether the goals of
the governance document are being achieved.
Student Activity
• Ask each student to identify some type of project (e.g.,
writing a term paper, planning the prom, landscaping a
yard, organizing a stockroom, etc.) that s/he completed
recently.
• Instruct the students to write down the resources that they
used, the schedules that they followed, and the outcomes
that they achieved through their projects. In addition,
students should note what project management activities
took place in each stage of the projects (i.e., initiation,
planning or development, production or execution,
monitoring and controlling, and closing).
• When finished, each student should share his/her work
with a partner and discuss the benefits of actively
managing projects.
8.05 Recognize management’s role
to understand its contribution to
business success.
Explain the nature of managerial
ethics (SM:002)
Explain how managers directly influence the
ethical issues within an organization.
• The way management handles a business code of ethics (how they apply it
to themselves and all staff) directly impacts business ethics as a whole.
• By definition, business ethics means examining specific principles and
moral guidelines that impact the organization’s overall environment.
Nearly every field of employment – legal, medical, clerical, etc. has
numerous ethical questions facing them every day. Good management
means having a leader who can apply the corporate philosophy and codes
in a substantive way daily.
• Ethics in leadership of a business is in high demand. The end user /
consumer, and the public as a whole, is weary of unprincipled, immoral,
unscrupulous and disreputable business practices. And even while many
businesses do not operate to one extreme (highly unprincipled) or another
(highly ethical), the marketplace wants to work with, and support,
businesses and products they can trust. </P< p>
• That means having leadership and management on which you can depend
to implement positive workplace ethics and behaviors. It also means that
as a business leader you need to ensure the culture in your business is
focused on ethical practices and that all employees and stakeholders are
aware of that commitment.
Describe ethical issues confronting
management.
•
•
•
Perhaps too often, business ethics is portrayed as a matter of resolving conflicts in which one option
appears to be the clear choice. For example, case studies are often presented in which an employee is
faced with whether or not to lie, steal, cheat, abuse another, break terms of a contract, etc. However,
ethical dilemmas faced by managers are often more real-to-life and highly complex with no clear
guidelines, whether in law or often in religion.
Real-to-Life Examples of Complex Ethical Dilemmas
· "A customer (or client) asked for a product (or service) from us today. After telling him our price, he said
he couldn't afford it. I know he could get it cheaper from a competitor. Should I tell him about the
competitor -- or let him go without getting what he needs? What should I do?"
· "Our company prides itself on its merit-based pay system. One of my employees has done a tremendous
job all year, so he deserves strong recognition. However, he's already paid at the top of the salary range for
his job grade and our company has too many people in the grade above him, so we can't promote him.
What should I do?"
· "Our company prides itself on hiring minorities. One Asian candidate fully fits the job requirements for
our open position. However, we're concerned that our customers won't understand his limited command
of the English language. What should I do?"
· "My top software designer suddenly refused to use our e-mail system. He explained to me that, as a
Christian, he could not use a product built by a company that provided benefits to the partners of
homosexual employees. He'd basically cut himself off from our team, creating a major obstacle to our
product development. What should I do?"
· "My boss told me that one of my employees is among several others to be laid off soon, and that I'm not
to tell my employee yet or he might tell the whole organization which would soon be in an uproar.
Meanwhile, I heard from my employee that he plans to buy braces for his daughter and a new carpet for
his house. What should I do?"
· "My computer operator told me he'd noticed several personal letters printed from a computer that I was
responsible to manage. While we had no specific policies then against personal use of company facilities, I
was concerned. I approached the letter writer to discuss the situation. She told me she'd written the
letters on her own time to practice using our word processor. What should I do?"
· "A fellow employee told me that he plans to quit the company in two months and start a new job which
has been guaranteed to him. Meanwhile, my boss told me that he wasn't going to give me a new
opportunity in our company because he was going to give it to my fellow employee now. What should I
do?"
Explain how a manager’s ethics impact
those of employees.
• As leaders and management begin to illustrate the corporate philosophy
and code of conduct or ethics themselves, there's a trickle-down effect.
Managerial ethics means making your values SHOW. This, in turn,
motivates better behavior in others.
• A recognition of leadership values and ethics also communicates a sense
of regard and respect toward everyone in a company – no matter their
position. That respect inspires people to do their best daily. And it also
supports your staff in knowing what kind of decisions are supported by the
business.
• In most cases, workplace behavior ethics begins with simple psychology.
Know your company, know yourself and know your people.
• Have a solid vision for the future of your firm, inspire others to believe in
that vision, and really walk the talk of managerial ethics. Leaders and
managers whose actions follow their words enable a generally more
positive and ethical workplace.
Discuss factors that should be considered in developing a managerial
code of ethics
1. Review any values need to adhere to relevant laws and regulations; this ensures your organization is not (or is not near) breaking any of them. (If you are
breaking any of them, you may be far better off to report this violation than to try hide the problem. Often, a reported violation generates more leniency than
outside detection of an unreported violation, particularly per the new Federal Sentencing Guidelines.) Increase priority on values that will help your
organization operate to avoid breaking these laws and to follow necessary regulations.
2. Review which values produce the top three or four traits of a highly ethical and successful product or service in your area, e.g., for accountants:
objectivity, confidentiality, accuracy, etc. Identify which values produce behaviors that exhibit these traits.
3. Identify values needed to address current issues in your workplace. Appoint one or two key people to interview key staff to collect descriptions of major
issues in the workplace. Collect descriptions of behaviors that produce the issues. Consider which of these issues is ethical in nature, e.g.., issues in regard to
respect, fairness and honesty. Identify the behaviors needed to resolve these issues. Identify which values would generate those preferred behaviors. There
may be values included here that some people would not deem as moral or ethical values, e.g., team-building and promptness, but for managers, these
practical values may add more relevance and utility to a code of ethics.
4. Identify any values needed, based on findings during strategic planning. Review information from your SWOT analysis (identifying the organization's
strengths, weaknesses, opportunities and threats). What behaviors are needed to build on strengths, shore up weaknesses, take advantage of opportunities
and guard against threats?
5. Consider any top ethical values that might be prized by stakeholders. For example, consider expectations of employees, clients/customers, suppliers,
funders, members of the local community, etc.
6. Collect from the above steps, the top five to ten ethical values which are high priorities in your organization (see item #7 below for examples).
7. Examples of ethical values might include
a) Trustworthiness: honesty, integrity, promise-keeping, loyalty
b) Respect: autonomy, privacy, dignity, courtesy, tolerance, acceptance
c) Responsibility: accountability, pursuit of excellence
d) Caring: compassion, consideration, giving, sharing, kindness, loving
e) Justice and fairness: procedural fairness, impartiality, consistency, equity, equality, due process
f) Civic virtue and citizenship: law abiding, community service, protection of environment
8. Compose your code of ethics; attempt to associate with each value, two example behaviors which reflect each value. Critics of codes of ethics assert that
they seem vacuous because many only list ethical values and don't clarify these values by associating examples of behaviors.
9. Include wording that indicates all employees are expected to conform to the values stated in the code of ethics. Add wording that indicates where
employees can go if they have any questions.
10. Obtain review from key members of the organization. Get input from as many members as possible.
11. Announce and distribute the new code of ethics (unless you are waiting to announce it along with any new codes of conduct and associated policies
and procedures). Ensure each employee has a copy and post codes throughout the facility.
12. Update the code at least once a year. As stated several times in this document, the most important aspect of codes is developing them, not the code
itself. Continued dialogue and reflection around ethical values produces ethical sensitivity and consensus. Therefore, revisit your codes at least once a year -preferably two or three times a year.
13. (Note that you cannot include values and preferred behaviors for every possible ethical dilemma that might arise. Your goal is to focus on the top
ethical values needed in your organization and to avoid potential ethical dilemmas that seem mostly likely to occur.)
8.05 Recognize management’s role
to understand its contribution to
business success.
Explain management theories and
their applications (SM:030)
Introduce topic of management
theories to students.
Discuss the importance of
management theory.
• There are a wide variety of
management theories in the
world—often contradicting each
other. The use of one theory
might skyrocket a business to
financial success, while the same
theory sinks another company’s
future. You’ll even find that no
one theory fits all businesses
under all circumstances. So,
which one should you follow? A
good starting point is to develop
an understanding of what
management theories exist.
• Management theories aid in
pinpointing the causes of
business success or failure.
• They help managers predict the
outcomes of their actions under
certain circumstances.
• Management theories facilitate
analysis of outcomes; i.e., if a
management theory has been
followed, but the action failed,
managers can analyze the
situation and fine-tune the theory
so that better results are
obtained next time.
Explain what management theories
accomplish.
• Management theories are used to sort and
classify complex, confusing experiences so
that their differences are showcased and
better understood. Managers are then better
able to make increasingly more accurate
predictions about the outcomes of their
actions.
Describe the nature of scientific
management theory in classical
management
• Scientific management theory involves analyzing
the relationship between human resources and
the tasks they perform to increase the efficiency
with which the tasks are done. This involves
breaking tasks into subtasks, finding better ways
of doing the tasks, and reorganizing the tasks so
that the work is done most efficiently. This theory
is usually associated with time-and-motion
studies. Workers specialize in performing one
small aspect of the total job. The emphasis is on
maximum output from workers with minimal
strain, waste, and inefficiency.
Identify problems associated with
scientific management theory.
• Workers often become bored with the small, very
specific tasks that they are required to do.
• The theory does not account for differences in
people. In other words, what method is most
efficient for one person, might not necessarily be
most efficient for others.
• Workers could purposely under-perform in order
to set the bar lower for their performance and
output.
• Some people claim that scientific management
theory led to the rise of labor unions.
Discuss the nature of administrative
management theory in classical
management.
• Administrative management theory focuses on development of an
organizational structure that is both highly efficient and effective.
• An organizational structure is the system of tasks and authority
relationships that controls how employees use resources to accomplish
organizational goals. Key aspects associated with administrative
management theory include having clearly identified lines of authority,
adhering to set rules and procedures, having a system of task
relationships, and providing fair rewards and compensation.
• A system is a set of interacting or interrelated parts working as a whole.
– Out of this management system came the term bureaucracy: a formal
organizational system that ensures efficiency and effectiveness by holding
employees accountable for their actions, promoting employees on the basis of
their performance rather than their connections, telling employees what they
are responsible for doing, clearly identifying lines of authority so that people
know who to report to, and following rules and procedures so that business
operations are clearly spelled out.
Describe the nature of behavioral
management theory.
• Behavioral management theory focuses on the way
managers should personally behave to motivate and
coordinate employees in order to encourage them to
perform at peak levels. Managers endorsing behavioral
management believed that understanding employee
motivation, conflict, expectations, and group dynamics
increased productivity. They felt that employees should
be treated as individuals—not as machines. Their
philosophy was that if employees are happy, they will
perform well and support the business. Human
resources management grew out of behavioral
management theory.
Discuss the nature of management
science theory.
• Management science theory relies on the use
of quantitative methods to guide managers’
decision-making. Managers use mathematics,
statistics, modeling, linear programming, and
other quantitative techniques to make their
decisions. From management science theory
have come operations management, total
quality management (TQM), and
management-information systems.
Describe the nature of organizationenvironment theory.
• With organization-environment theory,
managers believed that forces, conditions, and
influences outside the organization must be
considered when making business decisions.
With organization-environment theory,
managers’ perspective of business grew larger,
recognizing that the business does not
operate in isolation.
Explain the nature of the contingency
theory of management in integrated
perspectives of management.
• The contingency theory of management recognizes that
change is a constant that businesses will always be
confronting. For businesses to succeed in a dynamic,
changing world, they must be flexible and innovative. The
supporters of this theory recognized that there was no one
best way to structure a business and that businesses need
to respond to variables, or contingencies, that they face at
the time. This indicates that organizations that have
different structures can both be successful and that
departments within an organization may be influenced by
different contingencies and may need to be structured
differently. They indicated that a business’s size, the
technology it uses, and its operating environment are the
three factors that influence an organization’s structure.
Discuss the nature of the systems
theory of management in integrated
perspectives of management.
• Systems theory recognizes management as a set
of distinguishable, but interrelated and
interdependent, parts operating together to
achieve a goal. It recognized that when a change
occurs in one part of a system, the other parts of
the system are also affected. This theory
combines scientific management with behavioral
management. It is project-based, relying on the
use of scheduling tools such as Gantt charts.
Managers following a systems theory recognized
that they could not make decisions without
considering the impact on others.
Describe the nature of the chaos
theory of management.
• The chaos theory of management takes the view that
events cannot be controlled or predicted; therefore,
they can’t be planned with any degree of accuracy in
the long term. Likewise, businesses can’t operate on
the basis of rigid instructions and objectives. Instead,
they need to function on the basis of shared values.
Business systems in today’s workplace have become
increasingly complex. This causes companies to seek
stability by combining parts of a system or parts of
another system. The business becomes more and more
unwieldy until systems split apart or fail. Chaos leads to
creativity and innovation.
Student Activity
• Students are to conduct Internet research to
develop an understanding of classical
management theories, behavioral management
theory, management science theory, and
organization-environment theory.
• Students should record their findings on the
handout Manage This Theory (page 5-208).
• Then, they should develop their own theory of
management and record it on the same handout.
8.06 Utilize planning tools to guide
organization’s/department’s
activities
Explain the nature of business plans
(SM:007, SM LAP 1)
Define the term business plan.
•
•
•
•
A business plan is a document designed to detail the major characteristics of a firm
– its product or service, its industry, its market, its manner of operating
(production, marketing, management) and its financial outcomes with an
emphasis on the firm's present and future
Many people think that the only reason to develop a business plan is to convince
potential lenders or investors to provide financial backing. This view is a little
short-sighted, however. A well-developed plan can serve as one of your most
important management tools. A good plan will provide a blueprint and step-bystep instructions on how to translate your idea into a profitably marketed service
or product.
Remember that no two business plans will look alike. There are a number of key
considerations that will play an important role in shaping the content. These
considerations include whether you're writing the first plan for a new business or
business opportunity, or a plan that updates or supersedes an already existing
plan.
Obviously, your business's position in the life cycle will have a significant impact on
the type of planning that's needed. An ongoing business might require a plan that
relates primarily to a new market that it wants to enter, or a new product that it
wants to introduce.
•
Identify situations in which business plans
are needed.
Soliciting: Financial and Partnership - a standard business plan is to seek funding — as opposed to a plan-as-you-go approach
for running your business
Some of these specific case differences lead to different types of plans:
•
The most standard business plan is a start-up plan, which defines the steps for a new business. It covers standard topics
including the company, product or service, market, forecasts, strategy, implementation milestones, management team, and
financial analysis. The financial analysis includes projected sales, profit and loss, balance sheet, cash flow, and probably a
few other tables. The plan starts with an executive summary and ends with appendices showing monthly projections for the
first year.
•
Internal plans are not intended for outside investors, banks, or other third parties. They might not include detailed
description of company or management team. They may or may not include detailed financial projections that become
forecasts and budgets. They may cover main points as bullet points in slides (such as PowerPoint slides) rather than detailed
texts.
•
An operations plan is normally an internal plan, and it might also be called an internal plan or an annual plan. It would
normally be more detailed on specific implementation milestones, dates, deadlines, and responsibilities of teams and
managers.
•
A strategic plan is usually also an internal plan, but it focuses more on high-level options and setting main priorities than on
the detailed dates and specific responsibilities. Like most internal plans, it wouldn’t include descriptions of the company or
the management team. It might also leave out some of the detailed financial projections. It might be more bullet points and
slides than text.
•
A growth plan or expansion plan or new product plan will sometimes focus on a specific area of business, or a subset of
the business. These plans could be internal plans or not, depending on whether or not they are being linked to loan
applications or new investment. For example, an expansion plan requiring new investment would include full company
descriptions and background on the management team, as much as a start-up plan for investors. Loan applications will
require this much detail as well. However, an internal plan, used to set the steps for growth or expansion funded internally,
might skip these descriptions. It might not include detailed financial projections for the whole company, but it should at
least include detailed forecasts of sales and expenses for the new venture.
•
A feasibility plan is a very simple start-up plan that includes a summary, mission statement, keys to success, basic market
analysis, and preliminary analysis of costs, pricing, and probable expenses. This kind of plan is good for deciding whether or
Describe the components of a
business plan.
Simple business plan outline
• Executive Summary: Write this last. It’s just a page or two of highlights.
• Company Description: Legal establishment, history, start-up plans, etc.
• Product or Service: Describe what you’re selling. Focus on customer
benefits.
• Market Analysis: You need to know your market, customer needs, where
they are, how to reach them, etc.
• Strategy and Implementation: Be specific. Include management
responsibilities with dates and budgets. Make sure you can track results.
• Web Plan Summary: For e-commerce, include discussion of website,
development costs, operations, sales and marketing strategies.
• Management Team: Describe the organization and the key management
team members.
• Financial Analysis: Make sure to include at the very least your projected
Profit and Loss and Cash Flow tables.
Student Activity
• In small groups, students should collaborate
with teammates to identify the components
of a business plan that would be essential for
a new business.
• Each group should use a word-processing
program to complete an outline of the
components in the business plan.