Business Decision Making Case Study

A Sweet Breakfast Memory That Connects With the Wrong Market

By JOHN GROSSMANN

Christopher Pouy founded Cow Wow Cereal Milk to bring a taste of his past to today’s children. But the milk is proving more popular with an older set.

November 13, 2014, Thursday

MORE ON CASE STUDIES AND: Cow Wow Cereal Milk , Advertising and Marketing , Pouy, Christopher , Small Business , Milk

A Small, Spicy Start-Up Prepares for the Demands of Eggnog Season

By JULIE WEED

Addition, a two-person company that makes liquid spices for cocktails and beers, considers how to increase production from 750 bottles a month to 7,500.

October 2, 2014, Thursday

MORE ON CASE STUDIES AND: Small Business , Alcoholic Beverages , Start-ups , Shopping and Retail , Spices , Addition (Spice Co)

A Leader Struggles to Sell Software Meant to Aid Sales

By JOHN GROSSMANN

The chief executive of Yesware has come up with three solutions to address weak software sales. Outside experts offer advice on which path to pursue.

August 21, 2014, Thursday

MORE ON CASE STUDIES AND: Small Business , Executives and Management (Theory) , Yesware Inc , Bellows, Matthew

Select Home Care Weighs New Wage and Labor Regulations

By ESHA CHHABRA

A California-based home care company is pondering three choices in meeting new state and federal work rules regarding its caregivers.

June 18, 2014, Wednesday

MORE ON CASE STUDIES AND: Labor and Jobs , Elder Care , Small Business , California , Select Home Care , Hull, Dylan

A Small Brand Tries to Escape the Confusing Shadow of a Big Brand

By SARAH MAX

Hobby Lobby International has almost the same name as a far larger and socially polarizing company. Experts recommend rebranding.

May 8, 2014, Thursday

MORE ON CASE STUDIES AND: Small Business , Hobby Lobby Stores Inc , Cleveland, Mark A , Trademarks and Trade Names , Hobby Lobby International , Hobby Express

Seeking Even Faster Growth, an E-Commerce Company Stumbles

By ADRIANA GARDELLA

Jimmy Beans Wool, a successful, growing online yarn merchant, expanded and ran into trouble.

April 3, 2014, Thursday

MORE ON CASE STUDIES AND: Zander, Laura , E-Commerce , Jimmy Beans Wool , Zander, Doug , Wool and Woolen Goods , Small Business

A Business Owner Seeks an Alternative to Seven-Day Workweeks

By JOHN GROSSMANN

Carlos Vega, a New Jersey pizzeria owner, faced a decision: Should he expand his small restaurant or concentrate on selling his popular red sauce?

January 2, 2014, Thursday

MORE ON CASE STUDIES AND: Small Business , Restaurants , Father and Son Pizzeria (Guttenberg, NJ)

A Business Owner Who Backed Off Tries to Step Back In

By JOHN GROSSMANN

A cooking business is doing well under hired staff, but the owner wants to increase sales substantially over several years to attract potential buyers.

October 24, 2013, Thursday

MORE ON CASE STUDIES AND: Gignilliat, Bibby , Executives and Management (Theory) , Small Business , Cooking and Cookbooks

A Fast-Growing Tree Service Considers Selling Franchises

By JOHN GROSSMANN

An owner wants to add more locations, but is not sure whether he wants to own the locations or franchise them.

September 12, 2013, Thursday

MORE ON CASE STUDIES AND: Skolnick, Josh , Entrepreneurship , Small Business , Franchises , Monster Tree Service

When Your First Company Is Working, but Another Is Beckoning

By JULIE WEED

A young entrepreneur has created two companies, one established and stable, the other in development and a little flashier, and he is at a crossroad.

May 30, 2013, Thursday

MORE ON CASE STUDIES AND: Start-ups , Small Business , Entrepreneurship , Badshah, Aseem

Decision making

A business organisation is a decision-making unit that sets out to produce a product in the form of goods or services. Key decisions need to be made about an organisations plant, its products, and its people.

  • plant - e.g. whether to invest in a new factory, or in updating present facilities
  • products - e.g. whether to introduce new lines
  • people - e.g through investment in training and development.

Most classifications of types of decisions are based upon the predictability of decisions. For example, Herbert Simon (The New Science of Management Decision, 1960) made a distinction between programmed and non-programmed decisions.

Programmed decisions are straightforward, repetitive and routine, so that they can be dealt with by a formal patterns, e.g. the re-ordering of stock by a company.

Non-programmed decisions are novel, unstructured and consequential. There is no cut-and-dried method for handling situations which have not arisen before.

Typically, there are three levels of decision-making within the organisation:

1. Short-term operating control decisions. These have to be made frequently involving short-term, predictable operations.

2. Periodic control decisions. These are made less frequently and are concerned with monitoring how effectively an organisation is managing its resources. For example, this might include the review of pricing strategies for certain products, reviewing problems occurring in an on-going company budget, or the re-appraisal of the way the sales force is being used. Such decisions are concerned with checking for and rectifying problems concerned with meeting company objectives.

3. Strategic decisions. These are major decisions about overall strategy. They will often require a considerable use of judgment by the person or group responsible for making the decisions. This is because although such decisions will require a considerable amount of analysis, important pieces of information will frequently be missing and so risk will be involved. Such decisions might involve the development of a new product, investment in new plant, or the development of new marketing strategy.

Decision Trees

Decision trees are so named because of the way in which they separate out into branches (outcomes) from an original stem (a decision). Decision trees are a technique for tracing through all the known outcomes of a particular decision in order to draw out the possible consequences.

In a decision tree, points at which decisions are made are represented by squares (decision forks), and points where chance/probability comes into play are represented by circles.

For example, a property development company may be faced with the decision of whether to sell one of its properties now, or whether to wait for a year in the hope the property market improves. If it sells the property now it knows it will receive £250,000.

However, if it sells in one year there are two possibilities:

1. There is a slump in the property market, so that the property can only be sold for £200,000. There is a nine out of ten chance that this will happen.

2. There is a boom in the property market, so that the property can be sold for £800,000. There is a one out of ten chance that this will happen.

We can use decision tree analysis to identify the 'best' course of action.

  • Sell now - result = £250,000.
  • Sell in a year:

£200,000 X 9/10 £800,000 x 1/10 = £260,000

You can see that the preferred option is to sell in a years time, because the outcome is higher £260,000 than to sell now £250,000.

The mathematics for selling in one years' time is easy. We multiply the expected outcome by the probability of that outcome happening. Although there is only a one in ten chance of a property boom it is worth taking the risk.

However, it is important to remember that some decision makers are more prepared to take a risk than others. In the example given many decision makers will take the cautious line and with the 9 out of chance of the property slump, decide to sell now.

Probability: Likelihood of an event occurring, measured by the ratio of the cases to the total number of cases possible.


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