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Decision Making in Business

Decision Making in Business. Higher Business Management. Decisions? Managers?. Whatever a manager does, he does through making decisions. These decisions may be a matter of routine . Indeed he may not even realise that he is making them.

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Decision Making in Business

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  1. Decision Making in Business Higher Business Management

  2. Decisions? Managers? Whatever a manager does, he does through making decisions. These decisions may be a matter of routine. Indeed he may not even realise that he is making them. Or they may affect the future existence of the enterprise and require years of systematic analysis. But management is always a decision-making process Peter F Drucker

  3. Personal Decisions How many decisions have you made today? 2 minutes to write down as many as possible

  4. Business Decisions In order to achieve the organisations aims and objectives managers must make decisions … … but what about? 2 minutes to write down as many as possible

  5. Decision Types • There are 3 main types … • But due to popular demand they are not be listed here!

  6. Strategic Decisions • Long term decisions – looking towards the future • Set the aims of the organisation • Made by SMT (CE and BoD)/owners • No detail about how to achieve • eg major policy statements

  7. Examples of Strategic Decisions • What products will we produce in the future? • Increase market share by 25% in ten years • Maximise sales • To have 100% customer satisfaction (or delight)

  8. Planning for the Long Term • Where are we now? • Where do we want to be in 5, 10, 15 years? • What resources do we need to achieve this? • What changes do we need to make in order to achieve our goals? • How can we do better than the competition?

  9. Mackie’s of Scotland • Mackie’s vision is to be a global brand from the greenest company in Britain created by people having fun. • Mackie’s today is the outcome of effort and foresight of four generations of Mackie’s and their staff. • Ice Cream is currently the main focus of the business – employing 70 people and producing over 5 million litres of luxury ice cream a year.

  10. Tactical Decisions • Medium term decisions – assisting the achievement of strategic decision • Set the objectives of the organisation • Detail: How are resources to be used? • Made by middle management • Subject to change depending on PESTEC factors (later …)

  11. Examples of Tactical Decisions • To increase or decrease the number of staff employed • To rename the business • To issue more shares on the stock market to fund a new factory • To merge with a competitor • To increase the selling price • To reduce costs

  12. Mackie’s of Scotland • Mackie’s move away from pig farming and milk retailing were tactical decisions in order to achieve the strategic aim of making ice cream the focus of their activities

  13. Operational Decisions • Day-to-day decisions – made to achieve the objectives (tactical direction) • Often made in response to changes in circumstances eg secretary is ill and won’t be coming into work • Operational decision (in this case) might be to transfer another member of the administrative staff to cover her duties

  14. Other Operational Examples • Arranging work rotas • Dealing with customer complaints • Ordering materials from suppliers

  15. Mackie’s of Scotland • Cow welfare is very important, as an unhappy cow does not produce any milk. • When the cows are housed during the winter, each cow has its own lying space complete with mattress. • They have feed available at all times, with fresh food added twice per day. • Our vet comes on a routine visit once a week and any sick animals are moved to a hospital area.

  16. On a Mission … A work force must be able to achieve targets and see relevance to their work. Why?

  17. On a Mission … • Otherwise they are less productive • Likely to be demotivated • May become disruptive

  18. Mission Statement • A written summary of strategic aims • Well publicised • Helps employees understand what the company is working towards • Often used in marketing the company’s products

  19. Mission … You will accept!! • Using your research skills find some examples of mission statements and comment on how they have been written.

  20. The Manager’s Role Describe a manager … 2 minutes to think about this

  21. The Manager’s Role • A manager: • Gets things done (through others) • Gets things done (with resources) • Controls and supervises • Makes decisions • In charge of subordinates and department • Is accountable to the owner(s)

  22. Importance of Managers The quality and performance of the managers determine the success of a business, indeed they determine survival. Peter F Drucker

  23. The Nature of Managerial Work • A study of what managers do rather than what they ought to do (Mintzberg 1973) • Interpersonal role • Informational role • Decisional role

  24. 5 Functions of Management • Plans – setting aims, seeing opportunities and problems, devising solutions • Organises – resources should be in the right place at the right time • Commands – tell subordinates what to do • Co-ordinates – everyone working towards the same goals • Controls – measures, evaluates and compares results • Delegates – give authority to subordinates • Motivates – team-work, empowerment, participate in decisions Studies by Henri Fayol 1913

  25. Effective GROUP Management Derek Torrington (et al) Studies 1989 GOALS Making Decisions About PEOPLE RESULTS ORGANISATIONS UNCERTAINTY

  26. Structured Decision-Making Model People Often Go Alone to Dance at the Single’s Club In Edinburgh

  27. Structured Decision-Making Model • Identify the PROBLEM • Identify the OBJECTIVES • GATHER information • ANALYSE information • DEVISE alternative solutions • SELECT from alternative solutions • COMMUNICATE the decision • IMPLEMENT the decision • EVALUATE

  28. Structured Decision-Making Model • (1) Identify the Problem • Where do we want to go? Achieve? What is wrong? • (2) Identify the Objectives • What is it we want to achieve? • (3) Gather Information • Extensive collection of internal and external info

  29. Structured Decision-Making Model • (4) Analyse Information • What is relevant? • (5) Devise Alternative Solutions • Different courses of action in order to have flexibility • (6) Select from Alternatives • Solution most likely to achieve the objectives successfully

  30. Structured Decision-Making Model • (7) Communicate the Decision • to all stakeholders … • (8) Implement the Decision • Arrange for resources to be in place • (9) Evaluate • Appraise the effectiveness of solutions and take remedial action of necessary

  31. Example No. 1 – Computer Games Industry The problem is a falling market share …

  32. Example No. 2 – Upgrading Technology Apply the “POGADSCIE” model to choose a new laptop for the staff in your firm.

  33. SWOT Analysis Internal Factors External Influences

  34. SWOT Analysis Entrepreneurial skills; Quality of SMT; Market Share; Product Range etc

  35. SWOT Analysis Can be used at different levels: • Person • Department • Product • A range of products Used at the first 4 stages of POGA!

  36. Health Warning! • All conclusions must be backed up and justified! • External factors can be assessed in a subjective manner by different people self confidence to follow business instincts shows real entrepreneurial skills

  37. Benefits No rash decisions Decisions made with all relevant facts Alternative solutions considered Logical process – enhances innovation Costs Ability to collect info(value of) Time consuming Range of possible solutions difficult in practice Can stifle creativity and gut reactions Costs and Benefitsof POGADSCIE and SWOT

  38. Constraints on Effective Decisions • Availability of finance • Existing company policy • Staff may resist change (behaviour/attitude) • Staff may have tunnel vision, can’t handle complex decisions, fail to consult, indecisive) • Lack of technology • Political (Government and EU legislation) • Economic environment • Social factors • Technological developments • Environmental changes • Competitors’ behaviour

  39. Which Hat are you? • Black – all the negative thoughts regarding an issue • Green –creative suggestions and ideas about the issue • Blue – control and organise the thinking on an issue • White – question what the group thinks • Red – emotional views giving gut feelings • Yellow – all the positive benefits of the issue

  40. Outcome of Decisions • Managers make the decision but are also responsible for their outcome! • Constantly • Organisations must be flexible in order to be successful Review Evaluate Alter

  41. Advantages SMT more time for other issues Reduced stress and burdens on SMT Juniors more prepared for promotion; motivated and confident Decisions made quickly Relieves SMT from routine decisions Junior staff may have better knowledge of area improved quality decision Disadvantages Decisions not for the benefit of the organisation Lack of experience Not all managers willing Procedures carried out differently (ie not standard) in different branches Decentralised Decision Making

  42. Quality Decisions • Managers who are capable - training • Ability to use decision-making techniques • Quantity and quality of information • Level of risk acceptable • Personal interests of decision-maker

  43. ICT in Decision Making • Store, Retrieve, Process and Print • ‘What if?’ situations (Excel) • Internet – trends/competitors’ products • Reporting and Presentation Packages • Too much info? (wheat from the chaff) • Email bombardment – easy to send to everyone!

  44. Value of Information CccOAaaT Accurate Complete Objective Appropriate Concise Timely Available Cost-effective

  45. Aids to Decision Making Aids: Brainstorming Ground rules: • Focus on quantity: more ideas equals more chance of an effective solution • Withhold criticism: focus on extending or adding to ideas • Welcome unusual ideas: suspend all assumptions • Combine and improve ideas: a single better good idea. A group of people get together to try and solve a problem.

  46. Aids to Decision Making: PEST(EC) What do you mean by PEST?

  47. Aids to Decision Making: PEST(EC) … further detail of Opportunities and Threats!

  48. Political • Government type and stability • Environmental/consumer protection legislation • Levels of bureaucracy and corruption • Social and employment legislation • Taxation policy • Changes in the political environment

  49. Economic • Stage of the business cycle • Current/projected economic growth, inflation and interest rates • Unemployment and labour supply • Labour costs • Disposable income and distribution • Globalisation

  50. Social-Economic • Population growth rate and age profile • Population health, education and social mobility • Population employment patterns, job market freedom and attitudes to work • Social attitudes and social taboos • Lifestyle choices

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