Close

2018-10-15

Management: Good and bad choices

There are good and bad decisions in companies. And the result often depends on whether the decision is good or bad-structured. The the following examples show.

In the simplest case one has a well-structured decision problem to do:

  • The Problem to be solved is defined according to the type and extent of,
  • the decision maker has criteria a clear goal and operational target,
  • he knows the Alternative,
  • the Alternative results can be clearly assigned,
  • there is a procedure, with whose help one can determine the optimal Alternative is unique.

Example

Problem: A machine is defective and must be replaced.

Target: capital value max.

Alternatives: There are two machines in question.

Results: The machinery acquisition costs, operational costs, lifetimes, capacity, unit sales, etc., clearly assign and it is so accurate and payout streams for each machine, determine.

Solution method: With the help of the capital value of the invoice is determined to be the better Alternative.

The decision is more complicated when:

… you can determine the Problem to be solved, difficult to accurately, and therefore the Alternatives may not designate.

Examples: If one has a headache, is often unclear what the real Problem is: too much screen work, a bad pair of glasses, damage to the spine, temporomandibular joint problems, Stress, too little sleep, too little exercise, a brain tumor …? Because you can’t define the Problem correctly, there can be no effective Alternatives to the problem solution. You don’t know which action could act. The headaches are from a brain tumor, then a new pair of glasses has no effect on the problem solution. Similarly, it could be in the company is unclear, for example, what is the actual Problem. behind decreasing sales numbers is A bad product, lack of advertising, a new competitor, a new technology, unfriendly seller … Depending on the problem definition, the nature and number of Alternatives for the decision vary. For example. a product is outdated technically, then, the increase of the advertising budget has no effect. You can sort of solve the wrong Problem. People tend to superficial problem diagnoses to be satisfied and to not investigate deeply enough to the true causes. Therefore, the solutions to the problem often remain in the vicinity of existing solutions.

… the Alternatives, the results are not clearly assigned to and the contributions of the results to the actual target.

Examples: In the case of an investment decision, you can never safely predict what revenue you have for example. with the purchase of a machine is achieved, because the demand behavior of the customers also can change or a new competitor emerges or a new technology set to revolutionize the market. A new Software, you can assign security to certain properties, but it is unclear how much the use of this Software is the ability to deliver improved and what that means for the win, which is the real goal.

… it has several objectives, which may also konfliktär.

Example: When you buy the machine you want to buy cheap, on the environment, the state of the art technology and the domestic suppliers to remain faithful, the father supplies. The modern, eco-friendly machine is the most expensive and manufactured abroad.

… it has no unique solution. It has assembled Alternatives and their expected results, but no method, in order to determine the clearly best solution.

Example: the decision between different Cars results for fuel consumption, power, Design and color, but do not know how to get to the final result of aggregation. In the case of dynamic simultaneous decision problems such as. simultaneous financial and investment planning, or in the case of many sequence of problems, opportunities, lack of exact solution. It then falls back on rules of thumb and heuristics, or the overall problem is decomposed into separable, individual problems. However, it may happen that the optimal solutions are not compatible with each other and, therefore, no Optimum is found.

One speaks in the above-described problems of the “structural defects” or ill-structured decisions. Differences: effect of defects, measurement defects, target defects, and solution defects (see Adam [decision] 10ff.).

Implicitly it is always assumed to be a decider. Even more difficult is the decision, if

… there are several persons involved in the decision, which each bring their own view of things into the game, and possibly konfliktäre interests.

Example: The work of physicians is in favour of the ergonomically best machine, because he the health of employees is an important goal. In this he is supported by the works Council. The financial planner is for the cheapest machine and future sales estimates numbers more cautious than the head of marketing. He suggested that the owners expect a profit increase. The technician calls for the state of the art machine, indicates the lower energy consumption as a possible target and bring it as a new Option into the game, the decision to postpone, because soon, new technical developments will come onto the market.

Conclusion:

Real decisions are usually characterized by several of these complications and, therefore, difficult. The prescriptive decision theory to help decision-makers to make such decisions more rational. That’s not a guarantee that the result actually, the best solution is found, it is supposed to do but more likely. But what does that even mean: a Rational choice?

Image source: (c) Lupo / pixelio.de

The Text comes from the teaching and textbook of Professor Göbel: decisions in companies.

 

Leave a Reply

Your email address will not be published. Required fields are marked *