Question

What are some reasons that business outputs vary? For example why does production output vary? Explain the difference between common causes of variation and special causes of variation.

Answer 1

There are several variables that come into play when looking into a business’s production output. Firstly, the production output is the amount of goods or produce that a business can produce or manufacture over a certain period of time (Costs, 2016). This element is important for a business to keep in mind when forecasting the amount of sales and production of its products to maintain a healthy balance of its inventory and its supply of its products to meet consumer’s demands while maximizing its profits. Production output can vary for several reasons, but the main reason is the ever fluctuating common cause of variation and special cause of variation of the market. This can turn into big issues with forecasting and can cause the business to come into a deficit versus turning a profit.

            A common cause of variation is known as a natural problem and is defined as the usual quantifiable and historical variations in a system that is natural (Monnappa, 2015). This simply means that this type of variance is something that will slowly creep in and the user can’t do anything about it because it happens naturally. Characteristics of common cause of variation are variation predictable probabilistically, phenomena that are active within a system, variation within a historical experience base which is not regular, and the lack of significance in individual high and low values (Monnappa, 2015). This type of variation can’t be prevented because it is an ongoing, consistent, and predictable variation.

            A special cause of variation is known as an unexpected glitch that affects a process and is defined as a variation that has not yet been observed previously and is unusual, non-quantifiable variations (Monnappa, 2015). These types of variations are rather sporadic, and they are a direct result of a specific change that is brought into a process resulting in a chaotic problem that can show a defect in a process. Characteristics of special causes of variation are a new and unanticipated or previously neglected episode within the system, a kind of variation is usually unpredictable and can be problematic, and a variation that has never happened before and is outside of the historical experience base (Monnappa, 2015). This type of variation is unexplainable and comes and goes randomly throughout a process or test that can’t be predicted.

            The major difference between a common cause of variation and the special cause of variation is that they each have specific causes that can and cannot be predicted during a process or test that is being conducted (Evans, 2013, p. 257). The common cause is something that can be planned for, and the special cause happens sporadically.

Reference

Costs of Production. (2016). Fixed and Variable Costs. Economics Online. Retrieved from http://www.economicsonline.co.uk/Business_economics/Costs.html.

Evans, J.R. (2013). Statistics, Data Analysis, and Decision Making (5^th Ed.). Prentice Hall.

Monnappa, Avantika. (2015). Common Cause Variation Vs. Special Cause Variation. Simplilearn. Retrieved from http://www.simplilearn.com/common-vs-special-cause-of-variance-article.