Multiple Factor Break-Even Analysis: The Application of Operations-Research Techniques to a Basic Problem of Management Planning and Control

Abstract

To date published operations-research studies have dealt exclusively with a wide range of specific and somewhat narrow business problems. Such specific operating problems as machine loading, inventory control, production and transportation scheduling, product and quality control, market analysis of products or product lines, the allocation of specific effort (advertising, sales promotion, etc.), and the lower-operating-level problems of selected public utilities. The present paper will discuss the application of operations-research techniques to a more general and higher-order (organizationally) class of business problems. It will be demonstrated that operations-research techniques may be successfully applied to a wide range of aggregate top-level problems of business planning and control. The planning and control models discussed below have, for the past three years, been successfully applied to a wide range of problems posed by top-level business executives. The planning situations described are those generally proposed at the board of directors, finance committee, or operating vice-president level. Selecting operating profits as the primary measure of effectiveness, it will be shown that a company's profits are dependent upon four basic factors the level of general economic activity, the level of total industry sales, the company's competitive strategy and the counter strategies of their competitors, and the company's policy toward and control over their own cost structure.