15.1. Alorica is a customer relationship management firm that provides customized customer support via phone, Internet, and social media for companies in a variety of industries.

It has many locations in North America, Latin America, Asia Pacific, and Europe.

It also allows some employees to work at home. Alorica’s employees provide customer support for many firms in many different industries, including retail, health care, media, financial services, technology, and travel. Providing quality customer support and maintaining its reputation are among the most important focuses of Alorica’s business practices.

In an effort to mitigate the effects of the principal–agent problem, suppose that a firm similar to Alorica is trying to determine the level of quality control it should use for one of its call centers. The firm can hire quality control managers for $17 an hour to listen to the calls of its customer service representatives.

Quality control managers can listen to and score an average of eight calls per hour.

a. Using the information and template provided, fill in the Quality Control Manager Information template. Start with 0 managers hired.

b. This company employs 100 customer service representatives who answer 15 calls per hour. Suppose that the error rate for calls is 15 percent with no quality checks but decreases by 0.5 percent (.005) for every five calls monitored. Each error costs the company $1.50 on average. Use this information to fill in the Customer Service Rep Information template. Use a formula to automatically calculate the error rate as the number of calls monitored increases.

c. Use formulas to complete the Combined Cost Information template. The final cell in this section should be Manager Costs -
Error Costs. Your goal is to find the number of quality control managers needed to equate the cost of monitoring with the cost of errors.

d. Using Solver, set Difference as your objective to a value of 0 by changing Number of Managers Hired (cell B3). Once Solver finds an answer, round the number of managers up to the nearest whole number by changing cell B3. How many managers should you hire? What is the error rate with this many managers? What is the cost of errors and monitoring per hour? Explain why this change is a good idea.

e. Suppose that this firm can allow its quality control managers to work from home and pay them $15 an hour instead of $17.
Change the Quality Control Manager Information template to reflect this change. Use Solver to resolve this problem, and round the number of managers up to the nearest whole number. How many managers should you hire? What is the error rate with this many managers?
What is the cost of errors and monitoring per hour? Should you make this change?
Why or why not?

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1 2 Quality Control Manager Information Hourly Cost per Manager per Hour 3 Number of Managers Hired 4 Calls Monitored per Manager 5 Total Calls Monitored per Hour 6 Total Manager Cost per Hour 7 789 8 Customer Service Rep Information 9 Number of Representatives 10 Calls per Hour per Rep 11 Total Calls per Hour 12 Error Rate 13 Errors per Hour 14 Error Cost per Hour 15 16 Combined Cost Information 17 Manager Costs per Hour 18 Error Costs per Hour 19 Difference 20 B