Question

You have just been promoted from front-line supervisor to be one of the firm’s senior managers. During your business education, you learned that the primary role of a manager is to make good decisions. As a supervisor, you had frequently been making routine decisions, but you realize that decision making for the overall company can and will have far greater impact on the company and its employees. Your boss, the chief executive officer (CEO), realizes that you do not have much practice in this higher level, decision-making process and has asked you to write a memo describing your understanding of how to make important decisions. Your memo should address the following questions: •Describe at least 3 criteria that would determine whether the manager is making good decisions. What should be done to better assure that you are making a good decision?  •In the realm of decision making, what are assumptions? Rather than use a dictionary definition, cite several specific assumptions that would go with any real-life decision you have made or have seen made at a company at which you have worked.  •Given the importance of proper assumptions, your boss asked you to assess the accuracy of certain business assumptions and what could you do to test or confirm the credibility of them. The following were major assumptions for each firm: ◦An automobile manufacturer’s assumption that the demand for SUVs would continue because gas prices would continue to rise  ◦An airline’s assumption that there was a need for an airline that provided no added amenities

Answer

Memo.

From: Supervisor

To: The chief executive officer (CEO)

Date: 28 April 2016.

RE: Criteria for and Assumptions on Managerial Decision Making

Decision making is crucial for organizational success and long-term survival in any industry. Without effective day-to-day decision making, a company cannot maintain its competitiveness in the market. However, decisions are deemed to be uncertain in nature in that one cannot predict their outcome with precision. Nevertheless, a good decision determines whether a certain project will be successful or not. It is the responsibility of managers at all levels to make decisions that ensure that the company achieves its objectives and at the same time improves the performance of its employees. There are three criteria underlying good decision making in any organization: identifying the key issues and the problem, evaluating alternatives, and cost-benefit analysis.

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Identifying the Key Issues and the Problem

In this criterion, the decision maker determines the relevant information he/she has at hand to be considered in solving a problem. He also considers any legal provisions that might bring any implications to the company as a result of the decision made. Additionally, it’s wise to consider the policies and the standards of the company before making any move.

Evaluating Alternatives

This criterion is important because the good decision maker formulates the potential solutions for the problem that needs to be resolved. Possible solutions vary depending on the urgency of the matter and the factors to be considered before implementation is done.

Cost-Benefit Analysis

Cost benefit analysis evaluates the forecasted gains and losses of a decision to all members and stakeholders. The decision maker should do this analysis for each available alternative. However, this analysis puts more emphasis on the monetary value of a decision rather than other risks and benefits associated with the project (Xu & Yang, 2011).

According to Martin & Parmar (2012), for every decision to be effective and to have a positive impact on the organization, there are several assumptions that should be made to provide a limelight on the accuracy and validity of the same. These assumptions include maximum payoff and no-cost constraint.

Maximum payoff

In this assumption, the decision maker predicts that a certain decision will yield more profits than losses. Similarly, it is assumed that the decision regarding a certain project will maximize the profit margin of the company. Similarly, it is assumed that the project will not bring a negative energy, but rather, it will generate the highest possible value. Thus, profitability is the most crucial factor in this assumption.

No-cost constraint

In this regard, it is assumed that the alternatives and the options at hand are cost-effective, and that the resources of the company will not be misused by picking any of the alternatives available. Generally, the decision should not deteriorate or compromise the company current financial status at any time.

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Application of decision making principles in real-life situations

One real-life situation where decision-making ability can be evaluation is in relation to the issue of demand for SUVs in relation to changing gas prices. On this basis, one may assume that their demand would continue to increase due to rising gas prices. For a decision maker to arrive at this conclusion, he/she should have done some market analysis to discern emerging trends in this industry segment. The assumption would be that SUV companies would continue being profitable as a result of this predicted rise in demand. I would do analysis of the companies’ financial statement to determine their past performance to determine if rising gas prices have had a positive effected on SUV sales. On this basis, I would make crucial changes in advertising while bearing in mind that increased demand would play a vital role in pushing up SUV prices.

Similarly the assumption that airlines should not provide any added amenities should also be subjected to objective analysis. Meanwhile, where market research has already been undertaken and demand for airline services established, the assumption would be proved to be accurate. Nevertheless, I would go ahead to conduct my own market survey in order to establish the latest market trends.

References

Martin, K. & Parmar, B. (2012). Assumptions in Decision Making Scholarship: Implications for Business Ethics Research .The journal of Business ethics. 105(5), 114-128.

Xu, L. & Yang, J. (2011). Introduction to Multi-Criteria Decision Making and the Evidential Reasoning Approach. Working Paper No. 0106.