Content Page 1. 0 – Introduction3 1. 1 – Specific Decision Making Models3 1. 2 – Rational Decision making model4 1. 3 – Vroom-Yetton-Jago decision model5 1. 4 – Intuitive decision making model6 1. 5 – Heuristics6 2. 0 – Related Models7 2. 1 – Balanced scorecard 7 2. 2 – Benchmarking8 2. 3 – Game Theory9 2. 4 – SWOT Analysis10 2. 5 – PESTEL analysis11 2. 6 – Porters 5 Forces11 3. 0 – Conclusion12 4. 0 – Appendices13 5. 0 – References14 “Decision making under uncertainty can be a crap shot. ” (see p. 121) Describe methods and techniques for dealing with uncertainty which managers can use to improve difficult decisions. 1. – Introduction When looking into decision making you are able to see that every decision comes with risks, many business models have been created to attempt to reduce the associated risk that is involved. Harrison and Pelletier (2000) describe decision making as the ‘moment in an ongoing process of evaluating alternatives for meeting an objective, at which expectations about a particular course of action impel the decision maker to select that course of action most likely to result in attaining the objective’. This shows that a decision making model may need to be implanted alongside other business models to evaluate the situation.
When managers are considering the options involved with decision making the following models can be used to help aid this process in different ways. Specific Decision Making Models ?Rational decision making ?Vroom-Yetton-Jago decision model ?Intuitive decision making model ?Heuristics Related Models ?Balanced scorecard ?Benchmarking ?Game theory ?SWOT analysis ?PESTEL analysis ?Porters 5 forces When examining each of these models we can see the advantages and disadvantages to a manager facing an uncertain decision problem.
Depending on the type of decision that a manager is making depends if each model would be relevant in each case. Within the Snapple case study we examined William D Smithburg (the CEO of Quaker oats at the time) took the decision to acquire Snapple. I have examined each model on a broad basis in terms of what decision that the model can be used to aid, I will subsequently highlight which models I feel could have been used by William D Smithburg when making his decision to reduce the risk he encountered. 1. 1 – Specific Decision Making Models
The following models show ways that decisions can be made. Suggesting structures and how decision making teams should be constructed. The models do not highlight how data is collected and presented. The related models can be used to further the knowledge of how uncertainty can be reduced in decision making in this sense. 1. 2 – Rational Decision making model Rational decision making is a process of weighing up the alternatives using a cognitive thought process. Looking at the alternative possibilities and choosing what you think is the best alternative is the basic principle of this model.
There are various steps that can be followed before coming to what the decision maker believes to be the best option, Diagram 1 shows an example of the way that rational decision making can happen; it basically involves a sequence of steps to achieve the end decision. The main advantages from using this model include that fact that there are very little costs involved; it is basically just the decision makers’ time that it is used to find the best solution to the problem. Also when a predetermined structure is created in advance it allows the decision maker to consider a range of options in a logical order.
On the other hand this model has many disadvantages. Many people who should be involved in the decision making process are not necessarily involved, for example the stakeholders. Also the information that the decision making is based on could be inaccurate or insufficient, leading to a bad decision being made. It also needs to be considered if humans are able to make truly ‘rational’ decisions. Factors that effect the decisions that are made may not always be rational, emotions and personal feelings are not rational and may hinder the process.
With rational decision making it is considered that there is only one best outcome, when in reality multiple outcomes may be ‘the best’ solution to the problem that is being faced. If we look at the third stage of the rational decision making model (Diagram 1) we can see that the situation needs to be analysed, to do this future possibilities need to be taken into consideration, if this is done without the correct data then it could become a huge disadvantage for the success of the decision.
The decision maker needs to be fully informed of all the information that has influence on the decision that is being chosen and the alternative possibilities. This can also be a disadvantage for this decision making model, overall this model may not be the best option for a manager to chose when trying to make important decisions, however it can also be considered that if the model is adapted to specifically include greater accurate data collection, and discussion with relevant people to the decision.
It is also important of trying to identify when emotions are playing a large part of the decision making process and try to set them aside to make a truly accurate decision. 1. 3 – Vroom-Yetton-Jago decision model This model is used as a form of rational decision making, it helps to determine if a decision should me made alone or a group should be involved in the process. Appendix 1 shows the 5 styles that can be adopted when making a decision, depending on the people who are involved in the decision making process.
The ideal style for any decision can be identified using this model, Appendix 1. 2 shows the questions that need to be asked to determine which style is best suited for the decision that is being made. The questions in Appendix 1. 2 are yes/no questions that after answering can be applied to the decision tree in diagram 2 to conclude which style is best suited for the decision. This is not a decision making model in the sense that it outlines how the decision process should be completed but simply identifies who should be involved in the process before it begins.
A disadvantage of the rational decision making model is that people who need to be involved with the process are not always taken into consideration, if this model was used before the process outlined in diagram one it could lead to much greater success through this. 1. 4 – Intuitive decision making model Intuitive decision making model, this is a model that is not well accepted into the academic community, but something that happens, this is based on the decision maker opting for a certain decision based on what they think is right at the time with no considerable insight into other factors affecting the situation.
Klein and Weiss (2006) found that some people are highly successful solving everyday problems using this method however ‘Others need more time to formulate their solutions. Some must seek assistance from external auxiliary sources’ and because of this can make inaccurate decisions when used alone. The advantages to using this approach include the low cost and low time factors, when no particular information needs to be collected the process is significantly reduced. The main disadvantages are that it has a very high amount of risk associated with the process because of the lack of information and structure. . 5 – Heuristics Heuristics is an approach to decision making that involves experience based problem solving. A famous type of heuristic model is trial and error, which is a method that is based on trying different possible solutions until the optimum solution has been reached. Hardin (1999) described Heuristics as when a decision maker is ‘faced with a familiar task, the decision maker uses a preconscious, pre-developed schema that determines the task and the production rules available to resolve the problem. ’
Representative Heuristic is a form of Heuristics that is based on the random outcome process; this can be when a coin or a dice are used to make a decision for instance. This is because in life things appear to happen randomly. This decision method may not be helpful to reduce the uncertainty within the decision process as any decision could be chosen based on possibly very little research. However if at the end of a structured decision making process, where in depth analysis has taken place and the decision maker is still unable to decide between options this may be the easiest way to come to the final decision so in this respect it could be uite helpful but not necessarily in reducing uncertainty. Availability Heuristics is based on personal experience or knowledge of similar situations; this depends on how easy it is to think of examples, for example if something is discussed and thought of more than an alternative the decision maker will probably believe the thing that has been discussed more often is better. This example is based on people watching media and responding to things that they see. Often things that are brought to our conscious through media are not the most likely outcomes to happen in reality when applied to the decision making process.
Due to the fact that more likely outcomes may not be at the front of the decision makers conscious shows how unreliable this method can be. There are various forms of this type of decision making model; however the way that it is conducted does not reduce the amount of uncertainty in a decision, but possibly have the opposite effect in creating greater uncertainty. This model may be appropriate in small every day decisions but on a larger scale for a business manager it could have hugely negative consequences. 2. 0 – Related Models
The following models do not outline a decision making process, however they are valuable in many different decision making process within business by offering ways to collect data and evaluate pivotal situations that could be of high importance to a managers final decision. In this way they are helping managers to deal with the uncertainty by creating a more accurate view of the current situation. 2. 1 – Balanced scorecard The balanced scorecard looks at four main perspectives in relation to performance; it can be used to access the current situation within a company or a sector of a company for example.
The balance scorecard considers; 1. The financial perspective 2. The customer perspective 3. The Internal business process perspective 4. The learning and growth perspective They show different perspectives, internally and externally within a company. It was originally designed my Kaplan and Norton and allows managers a fast and comprehensive view of the business from and financial and non financial basis. It uses qualitative and quantitative measures, that measure efficiency and clarifies the goals of a company.
It also looks into the long and short term perspectives to offer a truly well balanced view. When looking at using a balanced scorecard from a decision making perspective it could be used for example to analyse how the company is currently performing and whether it would be viable to make changes, possibly the introduction of a new product. There are many advantages of using a balanced scorecard as a decision making tool it gives a balanced view of the company’s performance so the decision maker is able to see if it is viable in the company’s current standing to make certain choices.
It does this by providing a full picture to see if the company is currently meeting its objectives and targets. By gaining a balanced view of the performance of a company you can see if for example the company’s financial statements appear to be good, then you can see if the financial performance contradicts the other areas that are being evaluated, this is because you may also find that customer satisfaction is not being met adequately or the training offered to employees is outdated or inefficient and also perhaps the internal process are dysfunctional and need to be improved to increase efficiency.
It can therefore show that there are possibilities for improvements but also that there are associated risks to any possible decisions. If the company is not running in an efficient manner at the present time then it can lead to more problems if the decision that is being considered is for example an expansion, then in this case it may be seen to be wise to deal with the existing problems before creating more. With a balanced scorecard a company can reassess objectives or determine how they can be altered to increase efficiency, this is particularly helpful using this model because you can look at a large period of time.
The final main advantage to using the balanced scorecard in decision making is that when it is used you can forecast how a decision to change an aspect from one area of the scorecard can affect the other areas, for example when the price of a product is increased, using the balanced scorecard it can be predicted how the customers would react and if the supply and production departments would be able to cope with the associated changes. On the other hand the balance scorecard has some disadvantages when it is used as a decision making tool.
To create an efficient balanced scorecard you need to look in depth at all four areas and create clear, thorough and comprehensive objectives to highlight the goals that the company wants to achieve in all of the four areas of the scorecard in over specific time periods. Once the objectives have been clearly defined you then need to break them down to see what will be required to fulfil them. All the variables need to be considered, this is a disadvantage as a decision making tool because of the time that needs to be invested to create the data within the scorecard, so this may not be applicable for all decisions.
It has been said that this approach does not give a completely full picture of a company’s performance but just of the four areas that can limit the actual information that is shown. For example the financial analysis that is included can be seen as particularly limiting, because of this it is better to look at the balanced scorecard as one tool that can be used along side other tools or models to help in the decision making process. Another important issue that needs to be fully considered to make the balanced scorecard helpful is the use of metrics (the way that the data is measured).
If the metrics are not in a similar format for all the areas then accurate information to link the areas together can not be achieved, this means the balanced scorecard can be a waste of time and resources so therefore not help in the decision making process at all. Overall when looking at the balanced scorecard as a decision making tool, it can concluded that it can be useful when used correctly and as part of a larger range of tools or models to help gain a full idea of the current situation that is involved with finding the right decision. 2. 2 – Benchmarking
Benchmarking is the process of comparing business processes and performance to industry leaders. Quality, time and cost are usually compared while doing this. When using benchmarking it can lead to improved efficiency, by finding ways to perform the operations to a better standard. Benchmarking can be used as a decision making tool by allowing a company to compare performance with the lead competitors in the market or industry. This would be helpful to be able to see for example if the company needs to improve its product, or operating methods to become more competitive.
Benchmarking when used correctly has many advantages for a company and the industry as a whole, it increases the competitiveness within the industry, it identifies the best practices in it can then based on these practices devise new ones can be developed to achieve better standards. The improvements that are made through benchmarking are based on the current market situation, unlike other tools that focus too much on the internal and historical processes of a company. However because it is focused on the current situation it needs to be used as a continual process to be supportive to improvement of a company.
If used correctly it can also show changes in the industry. On the other hand, when using benchmarking looking at the industry leaders strategies may not always be completely helpful. If the industry leader has inefficient strategies that are only showing short term results it may be wiser to consider other companies that are growing within the market that have developed long term efficient strategies. If the company simply copies what the leader is doing it will also copy the faults within their plans.
The leading company may also have become arrogant through being the leader and because of this, standards may have fallen and perhaps because of this they have fewer incentives to strive for continuous improvement. Benchmarking is useless if it is not completed simultaneously with a plan for changes within the company. Could be short sighted if the company does not consider how the changes will affect the company in the future. This model is particularly important for a manager who is trying to make a decision whether to improve products or processes within the company.