1. BUSINESS AND MANAGEMENT
MODULE 1
BUSINESS ORGANIZATIONS & ENVIRONMENT

2. Decision Making Frameworks
The core of any business lies in decision making
Decisions are made in order for businesses to meet their organizational objectives
A framework is a systematic process dealing with problems, concerns or issues in order to make the best decision

3. Decision Making Process
Identify the problem
Gather sufficient data and information
Analyze the data to produce a list of options
Assess the consequences of each option
Select a favourable option
Communicate this option to staff
Review and evaluate the outcome

4. Cost Benefit Analysis (CBA)
Examines the financial costs and benefits of a decision
Costs and benefits must be quantifiable
CBA ignores the non-financial aspects of decision making and thus should be used in combination with others
b/e analysis and investment appraisal are two examples

5. Six Thinking Hats Get decisions from 6 different perspectives Factual
Emotional
Bad points
Good points
Creative
Neutral

6. Force Field Analysis
Driving forces refer to the advantages of implementing a decision
Restraining forces are the limitations of the decision
These forces are then weighted according to the level of importance

7. Pareto Analysis
80% of a country’s wealth was owned by 20% of the population
Became known as the Pareto principle (or 80/20 rule)
This analysis identifies outcomes that will provide the greatest benefits or the most important problems that need to be solved

8. 5 Why’s
Ask (5 times) why an issue or concern has happened in order to get to the root cause of the problem
If the root problem is not identified, the problem will come back

9. Scientific vs Intuitive Decision making
One benefit of scientific models is that decisions are made rationally and logically
thus they are easy to justify and easier to communicate
Intuitive decision making is based on beliefs, perceptions, instincts and gut feelings

10. Decision Trees
Quantitative decision-making tool showing different options that are available to the business, including probable outcomes
The diagram is constructed from left to right
Decision nodes (squares) – used when there is a decision to be made
Chance nodes (circles) – show different probably outcomes; for each chance node there are two or more possible outcomes
All probabilities must add up to one
When a decision is rejected, 2 parallel lines are drawn in the branch

11. Decision Tree example
Donald Trump is deciding to sell his apartment in New York. If he sells this year, he would get $500,000. However if he waits until next year when the housing market is expected to pickup, he could sell at a higher price
At the current market price ($500,000), $8,000 in real estate costs are incurred
Next year there is a 70% chance of a higher return (estimated value is $550,000); estimated costs = $10,000
10% chance the market declines and a 20% chance of the market remaining stable (if the market drops Mr. Trump would clear $450,000)

12. Decision Tree A B Sell property this year $492,000
Property value rises
Property remains unchanged
Property prices fall
$378,000
$98,400
$45,000
Chance node B
70% chance of earning $550,000 less costs (.7 x $540,000 = $378,000)
20% chance of maintaining current levels ($492,000 x .2 = $98,400)
10% chance of property declining ($450,000 x .1 = $45,000)
Sum of Chance node B = $521,400

13. Advantages Problems are set out in a clear and logical manner
All options are seen at the same time
Consider the risks involved
Likely costs are shown
Tangible insight to the problem, rather than a person’s gut feeling

14. Disadvantages Probabilities are only estimates
Based on quantitative data only
Assigning probabilities is largely subjective
Actual delays may void the data being used
The amount of risk used in making a decision is not always reduced

15. Your Turn Probability Costs/Revenues ($) Pakistan Costs 250,000
ABC Company is considering a move to an overseas market, and a decision must be made regarding two locations. Advise the company on their best option.
Probability
Costs/Revenues ($)
Pakistan
Costs
250,000
High return
.60
400,000
Low return
.40
South Korea
175,000
.75
300,000
.25
180,000

16. Continued…
Explain how the example on the previous slide is an example of opportunity cost
Construct a decision-tree to show which of the two options is the best one
Evaluate the value of this decision-making tool for ABC Company

17. Fishbone Model Also known as a cause and effect diagram
Graphical representation of the most likely causes and effects of an important decision
It is useful when a problem has several root causes

18. Fishbone Diagram

19. Example

20. Conclusion
When the entire diagram is complete, discussion takes place to decide on the most likely root cause of the problem being looked at
Which problem can be targeted for improvement
Easy to understand and ideas can be brainstormed
Model however is often too simplistic for modern business problems
Better to be used with other models

21. Internal and External Constraints
Factors that hinder decision-making but are within the control of the business
Rules, policies, culture
SWOT analysis may help identify these
External
Barriers that hinder decision-making and are uncontrollable by management
PEST analysis may help identify these