Notes on Pareto Analysis and Exception Reporting

Pareto Analysis:

There is a rule of thumb called the Pareto Rule. It states that 80% of a problem is due to 20% of the causes. If we focus on this critical 20%, we can make big improvements. The Pareto chart is a type of chart that helps us to organize our data. The item (or source) that occurs most frequently is shown first, then the next most frequent one, and so on. The purpose of this type of analysis is to focus our attention on the the items that occur most frequently, so that we get the most value for our efforts. When a quality problem exists in an organization, management may collect data about sources of the problem and then create a Pareto chart as one of the tools of Total Quality Management (TQM). Here is an example which shows that bathroom cleanliness is responsible for the majority of dissatisfied customers at a restaurant. Implementing a procedure to solve this problem is most important thing for management to address to improve customer satisfaction . Please review this brief article on Pareto Analysis. which contains an additional business example. "Reasons for dissatisfied customers as a restaurant" pareto chart is a bar chart with 4 bars: "bathroom cleanliness" has a count of 70, "long wait for table" has a count of 33, "poor service" has a count of 12, and "high prices" has a count of 3.

Exception Reporting:

Exception Reporting is method of control that is often used in businesses. It uses computerized systems to monitoring a process using a predefined standard of success. Only those cases which are outside the standard or "exceptions" are brought to the manager's attention. In this way, the manager does not need to monitor everything; he or she can devote attention to the "exceptions" that need intervention or correction.

To learn more, please read the articles on What is an Exception Report? (Links to an external site.)Links to an external site. and Exceptional Reporting using Exception Reports (Links to an external site.)Links to an external site..

Exception reports can be used in all functional areas and all types of businesses! Here are a few examples:

• Fast food restaurants need to serve their drive-through customers rapidly. Let's imagine that the standard set at a particular restaurant is to deliver the order in less than 3 minutes. When a customer finishes ordering, a timer begins that is visible to the restaurant manager. If the timer exceeds 3 minutes (an exception), a buzzer sounds and the manager can step in to help expedite the order.
• The UPS delivery scenario described in your textbook is also an example of an exception reporting system. If drivers are not completing their route duties according to predetermined time standards, then it shows on an exception report for management. As a result a manager will ride along in the van to coach that driver to help him reach higher productivity levels.
• For inventory control in a store, there may be a standard set in the point-of-sale (cash register) system that if a particular product sells to a point where there are less than 5 units left in inventory, an email goes to purchasing to request a refill order.
• Here is a sample exception report for a manager who is trying to keep overtime costs under control. It looks like on 09/14, overtime exceeds an allowable limit:

QUESTIONS:

Make certain to review the Notes on Exception Reporting before beginning this discussion. An exception report is not the same as most standard management reports or transaction logs. This is your opportunity to share an example of a well designed exception report using your work experience. If you do not have work experience, you are welcome to design an exception report that would help you manage your home or school responsibilities better. Once you are ready, click on Reply and provide your answers to the following questions:

1. Please think of a situation (job function and industry or type of business or home situation) and a process that needs to be managed with Exception Reporting. Describe your situation clearly in the title of your post. For example: "When to re-order low inventory in a retail store". (1 point) Do not repeat a situation that has already been posted by another student or that was provided as an example in the Notes file.
2. How does managing this process benefit the firm? (For a home situation, please describe the situation and why managing this aspect of your life would benefit you.) (1 points)
3. What is an appropriate standard of performance for this situation? A standard is a specific number or a range of numbers, not a general rule. (Please refer to the resources if you don't know what a standard is.) (2 points)
4. Describe how you would design an exception report using your standard of performance for this situation. Please show us a sample of your report, using fictitious data. (Only a few lines are necessary, but show at least 1 exception.) (4 points)
5. Identify what the manager (or you) will do if you are notified of an exception (i.e. not meeting the standard) using this system. In other words, what corrective action or intervention should be taken?(2 points)