Chapter 5

Break Even Point (BEP) (185): The volume of output at which total cost and total revenue are equal: no profit or loss occurs. From: Evaluating Alternatives

Capacity (169): The upper limit or ceiling on the load that an operating unit can handle. Chapter Introduction

Capacity Cushion (175): Extra demand intended to offset uncertainty. Potential to achieve output levels exceeding the originally expected output levels. From: Strategy Formulation.

Cash Flow (187): Difference between cash received from sales and other sources, and cash outflow for labor, material, overhead, and taxes. From: Evaluating Alternatives

Diseconomies of Scale (181): If the output rate is more than the optimal level, increasing the output rate results in increasing average unit costs. From: Developing Capacity Alternatives

Economies of Scale (181): If the output rate is less than the optimal level, increasing the output rate results in decreasing average unit costs. From: Developing Capacity Alternatives

Outsource (177): Obtain a good or service from an external provider. From: Make or Buy

Present Value (187): The sum, in current value, of all future cash flows of an investment proposal. From: Evaluating Alternatives

Chapter 5 Supplement

Bronmounded Rationality (196): The limitations on decision making caused by costs, human abilities, time, technology, and availability of information. From: Causes of Poor Decisions

Certainty (197): Envient in which relevant parameters have known values. From: Decision Environments

Decision Tree (200): A schematic representation of the available alternatives and their possible consequences. From: Decision Trees

Expected Monetary Value (EMV) Criterion (199): The best expected value among the alternatives. From: Decision Making Under Risk

Expected Value of Perfect Information (EVPI) (202): The difference between the expected payoff with the perfect information and the expected payoff under risk. From: Expected Value of Perfect Information

Laplace (198): Choose the alternative with the best average payoff of any of the alternatives. From: Decision Making Under Uncertainty

Maximax (198): Choose the alternative with the best possible payoff. From: Decision Making Under Uncertainty

Maximin (198): Choose the alternative with the best of the worst possible payoffs. From: Decision Making Under Uncertainty

Minimax Regret (198): Choose the alternative that has the least of the worst regrets. From: Decision Making Under Uncertainty

Regret / Opportunity Losses (199): The difference between a given payoff and the best payoff for a state of nature. From: Decision Making Under Uncertainty

Payoff Table (196): Table showing the expected payoffs for each alternative in every possible state of nature. From: Introduction

Risk (197): Environment in which certain future events have probable outcomes. From: Decision Environments

Sensitivity analysis (203): Determining the ranges of probability for which an alternative has the best expected payoff. From: Sensitivity analysis

Suboptimization (197): The result of different departments each attempting to reach a solution that is optimum for that department. From: Causes of Poor Decisions

Uncertainty (197): Environment in which it is impossible to assess the likelihood of various future events. From Decision Environments