SCM-405 Study Guide - Midterm Guide: Net Present Value, Quality Management, Goal Setting
1 Jun 2020
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Root cause analysis allows performance gains by solving chronic problems. Sudden changes to processes which are typically in control. Of the vital few, the one with the highest ppi is the most feasible and significant. Ppi = (savings x probability of success) / (cost x years to complete) External failures usually have more cost than internal failures. Senior management can assign resources to increase the probability of success and decrease the years to complete. Of the vital few, the highest net present value (npv) can also be used to identify the most attractive. Npv is the increased cash flow (c) from an initial investment (c 0 ) discounted over time (t) at the company"s required internal rate of return (r/risk-adjusted) Want to have more money generated than money given for the project. By year 5, the npv is positive indicating the machine investment pays back after 5 years.
