Analyzing Business Decisions - Essay Example

Number: Due: Analyzing Business Decisions Businesses today face problems that need to be addressed by the management in order to gain a competitive edge over the competitors and to retain customers. A new research and analysis of the current trend in business has shed light on the way forward for small businesses and seizing the opportunities available in the market. According to the study most businesses consider finding and retaining customers as the most important aspect of any business and, therefore, to achieve this the problems that they face should be taken care of to encourage their growth and survival. Other challenges faced by businesses today include: Changes in state and federal regulations, economic uncertainty, keeping up with technology and access to adequate capital that would allow for expansion of the business and purchase of new equipment (Zunich, and Victoria 43). They continue to assert that starting up a business and remaining a greater force among the competitors is never easy. In spite of the competition from other types of food, people in the pizza business have managed to gain recognition in the food-service industry and their product is enjoyed universally. Most of the young people are in love with pizza and, therefore, the delivery of quality service is a requirement to attract new customers. Most of the customers for pizza usually prefer buying takeaway or having the pizza delivered to their homes rather than cooking it by themselves due to lack of time (45). The success of the pizza business, therefore, calls for the need to know how to prepare it in a delicious manner, and keep the pizza fresh and warm. In order to realize this, however the need to renovate the kitchen is of great significance. Most of the pizza businesses use electric means to cook pizza. Deciding to change baking pizza to using a fire oven can attract more customers. Gas ovens produce the required heat that would keep the pizza warm all the time and it is much easier to regulate the temperature level while cooking. Therefore, with gas ovens the pizza would cook evenly on all the sides. However before putting the decision into practice, it would be important to analyze the situation using business decision tools such as decision trees, cost-benefit analysis, force field analysis and through the SWOT analysis. Moreover, a closer look at the benefits out of this decision would be vital as making profit through quality customer service remains the agenda of any business person. Decision Making Most often in life everyone has to make decisions at some point. Some decisions would be simple and require a less complicated decision making process while others would be complex and need to be taken carefully to avoid any regrets. In business, complex decisions often have to be made carefully as any mistake done could give competitors an upper hand. Difficult decisions involve dealing with uncertainty as many details are unknown to the business person, need considering of a number of factors in the business environment, or the impact of the decisions to the business. However, the business gives their clients an easy way to assess and analyze the decisions taken before putting them into use. They are analyzed using business decision making tools (Morris 13). Business Decision Tools Morris states that business organizations are faced with the problem of making decisions on a number of issues affecting the company. They might face problems of how to implement new strategies in their businesses, how to attract more customers, how they would improve the quality of their services and new marketing campaigns (14). With business decision tools they are able to put their ideas in a logical manner and decide on the right procedure in decision making. With business decision process, businesses are able to weigh the advantages and disadvantages of given decisions in their business and whether the given decision is right for them. Some of the business decision tools include: SWOT analysis, decision trees, force field analysis and cost-benefit. SWOT Analysis According to a SWOT analysis journal, SWOT analysis usually provides an overview of a given organization. By so doing a business knows whether it is making a profit or not by looking at past setbacks thus most of the future strategies of business organizations are based on this method of analysis. This method of business analysis focusses on a business’ strengths, weaknesses, opportunities and the threats the organization might be facing from its competitors (13). Using this analysis involves specifying the goals of the business and the factors both internal and external that would hinder the business from attaining the objective. The strengths of the business include the advantages or what the business is doing to give it an edge over its competitors (Zunitch 47). In the pizza business, opting to use the gas oven would allow more customers into the business since most of the pizza baker industries use the electric method that makes pizza to cool after it has been cooked and the heat is not normally regulated using the electric method. Thus, using the gas oven would make room for high quality pizza that would attract a number of customers who need warm pizza. The weaknesses of a business are the limitations or problems an organization is facing that deter it from attaining its objectives. This usually places an organization at a disadvantage over its competitors. Most of the the pizza customers are complaining of low quality pizza that is cold most of the time. Since most clients would like to have their pizza ready when they come to pick it up, it would be important if they would find it warm. This has made the business lose a number of customers who move searching for warm pizza. This renovation of the kitchen would serve as a turning point to retention of the present customers and attraction of new ones. According to Morris (14), opportunities are the chances that any organization needs to seize in order to make a profit. These are usually external and the management needs to realize them. Most pizza shops in the country use the electric oven to cook their pizza, electric ovens need at least ten to twenty minutes to preheat before using them unlike the gas oven that is instantaneous and produces high quality food. Using the gas oven would allow the organization to make more profits as it would make it easier to regulate the temperature level to avoid excessive heat whilst cooking the pizza. In recent days there has been a decline of customers in the pizza shops. This has greatly impacted the company profits and the organization is running under a very small budget. Thus, the threat of losing more customers has prompted the use of a gas oven that produce quality food. By using SWOT analysis the company is able to minimize its weaknesses and threats while matching their strengths and opportunities. SWOT analysis is more important to nonprofit making organizations where the objective of the business is already defined and decisions on how to achieve them are needed. Decision Trees Once one is faced with several strategies that they are to accomplish in their business it would be best to analyze all the decisions using a decision tree (13). Decisions made in the pizza business can have more adverse effects unlike in big organizations. Thus, each decision no matter how small or big it needs to be assessed properly to determine the possible impact that they might have on the business. Thus, using a decision tree would assist in making decisions and predicting the possible outcomes. With decision trees one is able to balance between the risk and the possible outcome thus enabling them to have the best choice. Drawing A Decision Tree Renovate kitchen Strengthen product The decision tree is drawn with the decisions to be made first. Renovating the kitchen is the priority as the other option would be to improve the quality of pizza. The possible outcomes in the market would be good, moderate and poor for each decision. It is neccessary to calculate the costs that would be involved in all the decisions so that the right decisions that are cost effective are met and it would need the assigning of probabilities to the decisions above. In the renovation of the kitchen let the probabilities good and moderate have a probability of 0.4 each with an assigned probability of 0.2 while the impact of the strengthening of the product would have an impact that is either good or bad in the market and let it be assigned a probability of 0.6 and 0.4 respectively. To determine the cost that would be realized out of the decisions, assigning a value of $ 50,000, $ 30,000 and $2,000 for good, moderate and bad respectively for the market impact of the decision of renovating the kitchen. Moreover, assigning a value of $22,000 and $ 1,000 for good or bad in the strengthening of the product choice. To calculate the node values: 0.4*50,000= $20,000 (worth of implementing decision on kitchen renovation) 0.2*2000=$400 0.6*22000=$13,200 (worth on strengthening product) 0.4*1000=$400 It shows that it would be profitable to renovate the kitchen rather than implementing any other decision. Force Field Analysis Force field analysis is an influential field to managers of organizations when making decisions. According to Hurt (54), force field analysis looks at all the forces that drive towards the achievement of given goals and the forces that might cause the organization or business not to realize its goals. Moreover, it weighs the advantages and disadvantages of making certain decisions in an organization. The analysis makes it possible to reduce the forces against business goals while working on improving the goals that drive towards the establishment of the goals. In using the force field analysis to decide on the best choice in an organization, the businessperson should describe the aim of the business or proposal in the middle of a worksheet, then they should list all the forces supporting the business plan on one side and all the other forces that act as a blockage towards the accomplishment of these goals. Then number the forces on either side one to imply weak force moving up (Hurt 56). In the pizza example, the business plan would be to attract more customers into the business by renovating the kitchen. According to Kurt Lewin there are forces that would help promote this decision while other forces would be attempting to maintain the status quo, thus, working against this kind of change. By this form of analysis forces that would promote this decision include: the need to attract more customers into the business, the production of quality pizza, or the need to produce pizza at a faster rate using the gas oven. On the other hand there are forces that would be against this change that include: the cost of buying a new gas oven, training workers how to use the oven. However, with regard to force field analysis all the two types of forces are numbered. The need to attract more customers would be the strongest point as it is the main reason for being in business, thus, it would be number three while producing quality pizza would be labelled number two and producing pizza at a faster rate is the weakest, hence, it would be number one. On the other hand the forces that are restraining this change would take the same way of numbering the weakest force that would not deter the business from attaining its goal would be number one. Thus, in this case training workers how to use the oven would take the number one and the source of the cost to purchase the oven number two. In force field analysis the forces that restrain the business from achieving the change it needs are reduced as much as possible (Morris 15). Cost-benefit Analysis In the cost benefit analysis the business tries to compare the cost of bringing change, the benefits that would be realized out of the change and the risk of being involved in the change. Thus, this would be helpful to determine whether the decision to bring change in a business is worthy or not. Furthermore, cost benefit analysis depends on the subtraction of the negative factors that do not contribute to bringing change to a business while adding the positive factors that contribute to business change (Brian 52). Finding, quantifying and adding all the positive factors while subtracting the negative factors leads to the net benefit that would enable the business to decide whether it would be advisable to implementing any given decision. Given the pizza example, suppose that the cost of buying the gas oven would be $1, 359 and that the training cost would be around $ 20 while other miscellaneous costs would average approximately $50. This totals up to $1,429. The benefits include: avoiding paying electricity bills that were being used by the electric oven amounting to $1,380 per month, improved customer service and retention would give an income of approximately $2, 400 per month, improved efficiency and reliability. The benefits would total up to $3,780. This is inevitably a good deal and any business could not afford to lose on such a decision to introduce the use of a gas oven in baking of pizza. The average rate of return for this business from the above approximations would be: (Returns -Amount invested ) /Amount invested *100% =($3, 780- $1,429)/1,429*100% =164.52% The positive rate of return shows a beneficial investment. Thus, the business would benefit a great deal by using the gas oven. 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