ENT 201 Chapter Notes - Chapter 14: Decision-Making, Organizational Culture, Decision Rule

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7 May 2020

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Decision making in a company - stages of the process and types of decisions. Therefore, decision making is everywhere, not only in the business world but also in everyday life, to start, change or conclude something, we always make a decision before, then life is a decision. Decision-making is a systematic and rational process through which an alternative is selected from among several, the optimizer being selected (the best for our purpose). To make a decision is to solve different life situations in different contexts: at work, family, sentimental, business, etc. Making the right decision in a business or company is an essential part of the administrator since their decisions will influence the operation of the organization, generating positive or negative repercussions according to their choice. According to a well-known idea of simon, decisions in organizations are classified into two main categories: scheduled and unscheduled decisions.

Related Questions

When you make important decisions in your life, do you use any of the steps in the scientific method? Compare a person's typical decision-making process to the scientific method. Which of the steps in scientific method do we typically use and which do we omit?

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1. Who is making bad decisions?

2. Does the decision maker have enough information to make a good decision?

3. The incentive to do so?

The three step process is used to evaluate and analyze the decision.

The first step is used to identify the decision and the process taken up to reach on a decision. Any decision based upon only gut feeling or marketing myopia without any rational approach will lead to the bad decision.

The second step deals with the necessary information available to the decision makers. It requires an information system that consists of quantitative data as well as qualitative information. It helps in taking a rational and optimum decision of:

1. What to produce

2. How to produce

3. How much to produce

4. Where to produce

5. The most suitable market for sales and pricing strategy

The third step deals with the incentive such as stock option plans, bonus and profit sharing agreement. It prevents any agency conflict also. Therefore, the three step process prevents any moral hazard and encourage managers to take an informed decision of for the benefits of all the parties.

Question:

Is it always possible to have the information to make the best decisions? Why? (In 100-150 words)

Tactical decision making

Tactical decision making means choosing among alternatives withan immediate or limited end in view. For example, a company mayaccept a special order for less than the normal selling price touse idle capacity. Tactical decisions tend to be short-runin nature; however, it should be emphasized that short-rundecisions often have long-run consequences. A general tacticaldecision-making model is outlined here.

1.	Recognize and define theproblem.
2.	Identify possible alternativesolutions to the problem, and eliminate any unfeasiblealternatives.
3.	Identify the costs and benefitsassociated with each feasible alternative. Eliminate the costs andbenefits that are not relevant to the decision.
4.	Compare the relevant costsand benefits for each alternative.
5.	Assess qualitative factors.
6.	Select the alternative with thegreatest overall benefit.

Identifying and comparing relevant costs and revenues is theheart of the tactical decision model. Relevant costs (revenues) arefuture costs (revenues) that differ across alternatives. (Revenuesare treated in the same way as costs, so we will simplify thediscussion by referring to costs.) All decisions relate to thefuture; so, only future costs can be relevant. In addition, thecost must differ from one alternative to another. If a future costis the same for more than one alternative, it has no effect on thedecision. Such a cost is an irrelevant cost.

Assume that Reeves Company is considering accepting a specialorder for $25 per unit when the normal selling price is $30 perunit. Reeves has enough excess capacity to make the order withoutdisplacing normal sales. The alternatives facing Reeves Company are(Select "Yes" for the statements that are applicable and "No" forthe items that do not apply):

Accept the special order.	- Select your answer -YesNoItem1
Reject the special order.	- Select your answer -YesNoItem2
Sell normal sales for $25 perunit.	- Select your answer -YesNoItem3

Choose which of the following are relevant in deciding whetheror not to accept the special order. (Select "Yes" for thestatements that are applicable and "No" for the items that do notapply)

$25 price.	- Select your answer -YesNoItem4
$30 normal price.	- Select your answer -YesNoItem5
Variable cost of making the unitsin the special order.	- Select your answer -YesNoItem6
Depreciation on factory equipmentused in making the special order units.	- Select your answer -YesNoItem7
Increased property taxes on thefactory building which are due while the special order would bemade.	- Select your answer -YesNoItem8

While cost and revenue information is important, otherinformation may be needed to make an informed decision. Thesenon-financial factors are termed qualitative and are often relevantin decision making. For example, in deciding whether to make acomponent in-house or purchase it from an outside supplier, thecompany may consider any difference in quality or in responsivenessto the company's production schedules.

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ENT 201 Chapter Notes - Chapter 14: Decision-Making, Organizational Culture, Decision Rule

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