Practical Operations Management, 2nd Ed, Simpson & Hancock - Chapter 15 Lecture Material - Dr Perkins

1. Incident and
Disruption
Management
Our greatest glory is not in never falling, but in rising
every time we fall.
-Confucius
CHAPTER

2. Tasks ahead:
• Modeling Risk and Disruption
• Calculating Reliability
• Operating Despite Disaster
CHAPTER

3. Disruption is inevitable.
Traditionally, a disruption
are seen as caused by a…

4. Disruption is inevitable.
Traditionally, a disruption
are seen as caused by a…
chance event
A distinct source, cause,
or issue of uncertainty.

5. Mission:
How will the
organization get
there?
Values:
How will the
organization conduct
itself in its mission?
Corporate
Strategies
Examining a Small Disruption
CHANCE EVENT
Multivehicle accident
closes major
intersection in all
directions.

6. Mission:
How will the
organization get
there?
Values:
How will the
organization conduct
itself in its mission?
Strategic Planning:
What are the
organization’s core
competencies?
Corporate
Strategies
CHANCE EVENT
Multivehicle accident
closes major
intersection in all
directions.
DISRUPTION
Delivery van trapped in
blocked traffic cannot
complete daily
schedule as planned.
Examining a Small Disruption

7. Mission:
How will the
organization get
there?
Values:
How will the
organization conduct
itself in its mission?
Strategic Planning:
What are the
organization’s core
competencies?
Corporate
Strategies
CHANCE EVENT
Multivehicle accident
closes major
intersection in all
directions.
DISRUPTION
Delivery van trapped in
blocked traffic cannot
complete daily
schedule as planned.
LOSS
Stock out of fresh
grocery items during
after work rush results
in missed sales and
unsatisfied shoppers.
Examining a Small Disruption

8. Traditional decision theory
assumes chance events can be
described as a set of…

9. future states of
nature
A set of distinct conditions
associated with a chance
event, only one of which
will actually occur.
Traditional decision theory
assumes chance events can be
described as a set of…

10. Scenario 1a
Future States of Nature
Regional Disaster Relief Services (RDRS) provides emergency
assistance during natural disasters. The manager at RDRS warehouse
#4 has instructions to deploy emergency shelter for people displaced
by a fast-moving wildfire. Travel time to the site is 7 hours, but “load
out” depends on the number of volunteers responding to the
warehouse. RDRS alerts its volunteers through text messaging, and
waits about an hour for those who can help to arrive at the warehouse,
an interval known as turnout time. If the usual number of volunteers
appear, load out takes about 4 hours. However, if the turnout is rather
poor, load out takes twice as long. Sometimes the turnout is distinctly
good and the load out is completed in half the usual amount of time.
What is the chance event with distinct future states of nature that
concerns this RDRS manager?
What are the consequences of those future states of nature?

11. Scenario 1a
Future States of Nature
The chance event that concerns the RDRS manager is volunteer
turnout:

12. Scenario 1a
Future States of Nature
Organize the details concerning the consequences into a table
format, to estimate ETA (Estimated Time of Arrival):

13. Traditionally, a chance event is
often analyzed according to its…

14. expected value
Traditionally, a chance event is
often analyzed according to its…
Pi = the probability of future
state of nature i
Xi = the value of the outcome
in future state of nature i

15. expected value
The mathematical
expectation of a random
variable, calculated as the
weighted average of all
possible values that may
occur.
Traditionally, a chance event is
often analyzed according to its…

16. Scenario 1b
Expected Values
The RDRS manager has activated the alert system for volunteers. If the
manager simply waits, the usual number of volunteers will arrive
within an hour about 70% of the time. If the turnout is not usual, it is
then equally likely to be distinctly good or rather poor.
The manager knows that volunteer turnout can be boosted by
organizing a “phone tree” among the early arriving volunteers, who
personally contact other past volunteers and ask them to help. The
manager reserves the phone tree protocol for only the most urgent
responses because it delays the start of packing by a half hour.
Nonetheless, phone tree operation guarantees no “rather poor”
turnout, bringing in “distinctly good” volunteer turnout half of the time.
What is the expected value of the ETA at the shelter site, with and
without the phone tree protocol in operation?
Should the incident manager ask the arriving volunteers to begin
making phone calls?

17. Scenario 1b
Expected Values
Combine the information here with the earlier data in Scenario 1a in a
table format:
Pair each probability with its consequence, multiply each pair,
and sum the results:

18. Scenario 1b
Expected Values
Repeat this process for the case of phone tree operation, adjusting
the input data:
The expected value of RDRS’s ETA at the shelter site is 12.3 hours
without use of the phone tree, and 11.5 hours with the phone tree,
a reduction of 0.8 hours (48 minutes).

19. Traditional Decision Theory has
difficulty with a certain type of chance
events known popularly as a….

20. Black Swan
An incident of extreme
consequence, unexpected
or considered highly
improbable by forecasters
and planners.
Traditional Decision Theory has
difficulty with a certain type of chance
events known popularly as a….

21. Mission:
How will the
organization get
there?
Values:
How will the
organization
conduct itself in its
mission?
Strategic
Planning:
What are the
organization’s core
competencies?
Business Unit
Strategies
Corporate
Strategies
μ = 3.0, σ = 1.6
For both distributions
pictured.
Normal
Distribution
Lognormal
Distribution
Normal
distribution
indicates
possibility of
negative
observations
Traditionally, we assume uncertainty is normally
distributed, when other distributions might be better…

22. Mission:
How will the
organization get
there?
Values:
How will the
organization
conduct itself in its
mission?
Strategic
Planning:
What are the
organization’s core
competencies?
Business Unit
Strategies
Corporate
Strategies
Normal
Distribution
Normal
distribution
indicates
possibility of
negative
observations
Lognormal
distribution has
“heavier” right-
hand tail indicating
greater possibility
of extremely high
observations
Traditionally, we assume uncertainty is normally
distributed, when other distributions might be better…
μ = 3.0, σ = 1.6
For both distributions
pictured.
Lognormal
Distribution

23. …and we are
prone to cognitive
bias when making
decisions.
“A long habit of not thinking
a thing wrong gives it a
superficial appearance of
being right.”
–Thomas Paine
“I intend to live forever. So
far, so good.”
–Steven Wright
“The end justifies the
means.”
–proverb

24. …and we are
prone to cognitive
bias when making
decisions.
“A long habit of not thinking
a thing wrong gives it a
superficial appearance of
being right.”
–Thomas Paine
“I intend to live forever. So
far, so good.”
–Steven Wright
“The end justifies the
means.”
–proverb
Outcome Bias

25. …and we are
prone to cognitive
bias when making
decisions.
“A long habit of not thinking
a thing wrong gives it a
superficial appearance of
being right.”
–Thomas Paine
“I intend to live forever. So
far, so good.”
–Steven Wright
“The end justifies the
means.”
–proverb
Outcome Bias
Normalization

26. …and we are
prone to cognitive
bias when making
decisions.
“A long habit of not thinking
a thing wrong gives it a
superficial appearance of
being right.”
–Thomas Paine
“I intend to live forever. So
far, so good.”
–Steven Wright
“The end justifies the
means.”
–proverb
Outcome Bias
NormalizationConfirmation Bias

27. Different types
of risk…

28. Different types
of risk…
Preventable Risk
Can be avoided.
Example: occupational hazards and
workplace practices

29. Different types
of risk…
Strategic Risk
Calculated; deliberately tolerated.
Example: ‘normal’ outages and delays

30. Different types
of risk…
External Risk
Uncontrollable and
unavoidable.
Example: natural disaster

31. Different types
of disruption...
Incident
Crisis
Emergency
Disaster

32. You are the supervising
manager for the 6pm to
2am shift at this hotel.

33. You are the supervising
manager for the 6pm to
2am shift at this hotel.
A guest calls the front
desk and reports water
running down the wall of
their bathroom.
incident? emergency? crisis? disaster?

34. incident
An unscheduled event
requiring immediate
resolution.

35. You are the supervising
manager for the 6pm to
2am shift at this hotel.

36. You are the supervising
manager for the 6pm to
2am shift at this hotel.
There is a strong smell of
something burning in the
third floor corridor. No
guest has complained
(the maintenance crew
called you about this) and
the fire alarms are silent.
incident?
emergency?
crisis?
disaster?

37. crisis
The critical time prior to an
impending change of great
significance.

38. You are the supervising
manager for the 6pm to
2am shift at this hotel.

39. You are the supervising
manager for the 6pm to
2am shift at this hotel.
Someone walks up to you
in the lobby and falls
unconscious on the floor
at your feet.
incident?
emergency?
crisis?
disaster?

40. You are the supervising
manager for the 6pm to
2am shift at this hotel.
Someone walks up to you
in the lobby and falls
unconscious on the floor
at your feet.
Emergency…
 An incident
 Requires immediate response
 Implies threat to life or substantial
loss of property

41. You are the supervising
manager for the 6pm to
2am shift at this hotel.

42. incident?
emergency?
crisis?
disaster?
At 1 AM, a loud sound shakes
the building and you lose
power, but your emergency
generator takes over. Local
authorities call at 1:30 AM and
ask you to unlock the
entrances to your public
areas, to allow evacuees from
an industrial explosion to
shelter against freezing
temperatures outside.
Corporate Headquarters calls
at 2:00 AM and tells you to
waive credit card
requirements for renting any
of your remaining rooms.

43. At 1 AM, a loud sound shakes
the building and you lose
power, but your emergency
generator takes over. Local
authorities call at 1:30 AM and
ask you to unlock the
entrances to your public
areas, to allow evacuees from
an industrial explosion to
shelter against freezing
temperatures outside.
Corporate Headquarters calls
at 2:00 AM and tells you to
waive credit card
requirements for renting any
of your remaining rooms.
Disaster…
 Large-scale emergency
 Multiple organizations
involved
 Routine procedures
temporarily suspended

44. The Many R’s of
Planning Against
Disruption…

45. The Many R’s of
Planning Against
Disruption…
Resilience

46. resilience
The ability of a system to
adjust to or recover from a
shock or sudden change.

47. The Many R’s of
Planning Against
Disruption…
Resilience
Robustness

48. robustness
Providing stable reliability
despite changing conditions.

49. The Many R’s of
Planning Against
Disruption…
Resilience
RobustnessReliability

50. reliability
The probability that an
element or a system will
perform as specified.

51. reliability
The probability that an
element or a system will
perform as specified.
Ri = the reliability of
individual component i

52. Reliability of Communication between Two Employees
First phone:
97% reliable
Cellular network:
97% reliable
Second phone:
97% reliable

53. Reliability of Communication between Two Employees
First phone:
97% reliable
Cellular network:
97% reliable
Second phone:
97% reliable
RELIABILITY OF COMMUNICATION:
0.97 X 0.97 X 0.97 = 0.9127 = 91%

54. Redundancy
Reliability
The Many R’s of
Planning Against
Disruption…
Robustness
Resilience

55. redundancy
Duplication of an element
within a system.

56. redundancy
Duplication of an element
within a system.

57. Reliability of Communication between Two Employees,
with Redundant Phone Policy
First phone:
97% reliable
Cellular network:
97% reliable
Second phone:
97% reliable
Otherwise,
Borrow a phone:
85% reliable

58. Reliability of Communication between Two Employees,
with Redundant Phone Policy
First phone:
97% reliable
Cellular network:
97% reliable
Second phone:
97% reliable
Borrow a phone:
85% reliable
Resulting Reliability of Caller:
1 – ((1 - .97) x (1 - .85)) = 0.9955

59. Reliability of Communication between Two Employees,
with Redundant Phone Policy
First phone:
97% reliable
Cellular network:
97% reliable
Second phone:
97% reliable
Borrow a phone:
85% reliable
Resulting Reliability of Caller:
1 – ((1 - .97) x (1 - .85)) = 0.9955
RELIABILITY OF
COMMUNICATION:
0.9955 X 0.97 X 0.97
= 0.9366 = 94%

60. Scenario 2
Reliability and Redundancy
RDRS has decided to transfer half its all-terrain vehicles (ATVs) to an
overseas partner. The partner is anxious to receive the ATVs in time to
load a cargo plane leaving Singapore (SIN) in 48 hours.
Global Freightways (GF) generously transports RDRS shipments on
standby, meaning cargo is placed onboard only if there is room after all
paid cargo is loaded. GF flies nonstop from San Francisco (SFO) to SIN
and the probability of the ATV shipment getting on board that flight is
70%. However, if the shipment is delivered to Los Angeles (LAX), GF can
load it on a flight to Alaska (ANC), after which it can transfer to either of
two flights to SIN. The chances of flying on standby out of LAX is 90%,
and from ANC is 50% for the first flight and 90% for the second.
Which airport should the incident manager send the ATV shipment to?
How much better is the chance of an on-time arrival in Singapore for
this route versus its alternative?

61. Scenario 2
Reliability and Redundancy
Each flight is a component of the overall route to Singapore (SIN),
which is a system.

62. Scenario 2
Reliability and Redundancy
To assess the second system, first calculate the reliability of the pair of
redundant flights.

63. Scenario 2
Reliability and Redundancy
Determine the overall reliability of the LAX to ANC to SIN routing.
Send the ATV shipment to LAX, to await transport to Anchorage and
then transfer to the next available flight to Singapore (SIN). There is an
85.5% chance the ATVs will arrive in time, which is better than the 70%
chance of the shipment being flown direct from SFO.

64. Some organizations deliberately tolerate
small amounts of disruption as a strategic
risk. They are practicing…

65. yield management
Policies and practices to
maximize the benefit of a
perishable resource such as
service capacity.
Some organizations deliberately tolerate
small amounts of disruption as a strategic
risk. They are practicing…

66. These organizations are often practicing
‘single period inventory planning’, also
known as the…

67. newsvendor problem
Choosing a quantity to meet
a single period of uncertain
demand, weighing the costs
of ordering too much and too
little.
These organizations are often practicing
‘single period inventory planning’, also
known as the…

68. Scenario 3
Single-Period Inventory Planning
The RDRS incident manager just activated the messaging alert
systems for the ‘load out’. One particular supply for load out is not
stocked: bottled water. RDRS has a partnership with a local bottling
company, which provides bottled water at $72 per pallet. If a pallet is
not used, RDRS returns for a refund, less a $30 restocking fee. Each
pallet contains 60 cases of bottled water, and a shelter site normally
consumes two pallets before other supplies are found. However,
25% of shelter setups use only half that. Rarely, three pallets are
consumed before RDRS establishes another supply. If RDRS does
not bring enough, it shops locally for bottled water. RDRS estimates
that a pallet’s worth of bottled water secured locally costs an
average of $800. The incident manager estimates the likelihood of
three pallets being needed is only 5%.
The incident manager must send a truck to the bottling company to
pick up bottled water. How many pallets should the truck pick up?

69. Scenario 3
Single-Period Inventory Planning
First, organize the relevant information:

70. Scenario 3
Single-Period Inventory Planning
Next, evaluate each option under the three future states of nature,
and calculate its expected value. Begin with the option of picking up
one pallet:

71. Scenario 3
Single-Period Inventory Planning
Calculate the expected value of picking up two pallets:

72. Scenario 3
Single-Period Inventory Planning
Finally, calculate the expected value of picking up three pallets:

73. Scenario 3
Single-Period Inventory Planning
Compare the expected values of the three options to choose the best
single-period order size.
The truck’s crew should pick up three pallets of water from the
bottling company, because this option has the best expected value,
even though there is only a 5% chance that the third pallet will be
used at the shelter site.

74. Keys to Successful
Operation Despite
Disruption…

75. Keys to Successful
Operation Despite
Disruption…
Temporary
Organization

76. Successful temporary organization is
enhanced by establishing an…

77. incident command
system
A predetermined structure
that organizes available
parties into one temporary
organization to resolve an
incident.
Successful temporary organization is
enhanced by establishing an…
 One leader
 Standardized vocabulary

78. Keys to Successful
Operation Despite
Disruption…
Temporary
Organization
Creativity

79. Creativity is needed to develop a good…

80. workaround
A temporary solution
developed in response
to an unexpected loss or
obstacle.
Creativity is needed to develop a good…

81. Keys to Successful
Operation Despite
Disruption…
Temporary
Organization
Creativity
Situational
Awareness

82. situational
awareness
An individual or
organization’s
comprehension of the
surrounding environment
and its potential near-future
states.

83. Keys to Successful
Operation Despite
Disruption…
Temporary
Organization
Creativity
Situational
Awareness
Sense-making

84. sense-making
Assigning meaning to
experience.
 The main ingredient of situational
awareness.
 Work in groups.
 Need an open forum for free-form
communication.
 Cultivate multiple information
sources.