Ways of Approaching a Decision-Making - Essay Example

Decision-Making Section 1: Introduction Decision-making is an orderly process in a firm in the identification of an opportunity or a problem and in making a choice among many alternatives. The decision lies in the heart of a promising and successful organization, and that makes it quite important in decision-making to be put into consideration. There are two main ways of approaching to a decision-making; group making a decision and an individual making a decision (Black 34). It raises questions as to whether the group decision-making is efficient or the individual decision-making. The prime factor to consider in comparing the decision made by a group or an individual is the safety of numbers. Despite the problem prevailing at the time the process of making a decision as a group and tackling the problem of groupthink makes everything easier and possible. It is widely accepted that the informational asymmetry between the potential financiers and the small and medium-sized corporations. They are usually severer than between the investors and publicly traded companies due to the high uncertain performances and lack of disclosure of private SMEs. For instance, the financial documents for the small businesses have high chances of being inaccurate as there is a lack of accounting expertise. However, the SME can avoid this problem but there must be a deficit in the financial statement that can be less informative on future repayment capacity due to the greater uncertainty of the performance. Evidence has it that the qualitative information like the enthusiasm of entrepreneurs or their business prospects is utilized in making the decision of small business together with other information like the financial statement. Qualitative information like soft information is not publicly announced and is very hard for it to be transmitted to the third party (Hofmann 43). Several studies that apply the mechanisms of the economics of organization indicates the possibility that the limit of usage of the soft information that relies on the decision authority within the firm. The crucial purpose of this paper was to give the evidence against the above hypothesis that a financial institution is much willing to use the soft information in decision-making. Research Question Several studies that apply the mechanisms of the economics of organization indicates the possibility that the limit of usage of the soft information that relies on the decision authority within the firm. Section 2: Literature Review Among the key factors that constitute the decision-making in an institution of the firm, it is the soft information. The soft information is defined as the information that is unverifiable and private. The private information is the one that is not available to the public and can only be sourced from the primary source of the information (Koller 23). Among the soft information real-time flow, real-time-accounting personal assets and debts, career history or family matters are only verifiable by the third party by quantifiable information or objective or by use of legal documents. Valid information can be accessed by the financial institution in a credible way but the unverifiable information can be transmitted in a credible way, and it requires some effort from the firms and the shareholder. The private information can hardly be transferred even within the firm. For instance in the firm's lending decision to another small firm, the branch officials typically collect the required information for the decision to be made. After the collection of the relevant information, the decision is made by the decision-making authority. In cases like this the firms staff are not allowed to collect the information required for the decision-making. Thus, the hierarchical, allocated decision authorities are mandated to make the decision of the firm. The statistical evidence showed that the asset size of a financial institution is positively correlated with the soft information usage. The result is more contradicting as compared to the intuition that financial firms are less likely to apply to soft information and cast doubts on the empirical strategy (Luecke 20). The decentralization of the decision-making in companies is highly effective since the company only deals with the SMEs as their principal clientele. The decision making of a firm involves the concerned members are called upon to come up with the right resolutions. The problem that has occurred is discussed, and the companies find the Pareto-optimal and individual rational allocation of authority for the economy. The process is a procedure of collective choice that is undertaken during the stakeholder's meetings. The process stipulates that the stakeholders should reveal to the firm their consumption preferences. The process appears to be like a game where every revelation of the preference of each member is just a minimal strategy of each coalition or player. The equilibrium of the process is the Nash equilibrium if all the consumers correctly reveal their preferences. Section 3: Discussion In a firm, there are relevant considerations that that are ought to be done and be integrated into the firm's decisions under the uncertainty favorable for the needs of analyzing the economic status of the firm. It is reasonable to assume that firm will fail to adapt to the policies, and that could lead to the inefficient basis of information that is found in the firm. Many firms adopt the policies that are beneficial to the stakeholders, and their interests are identified in the process. This type of consultation is typically confined to an infrequent and major decision in a firm. There are many less conspicuous decisions that involve uncertainties that are unrealistic to assume that institutions or firms are risk-neutral. It is much tempting to endow the firm on the utility of the function on the decisions that are based on the decision-making process (Simon 10). The merit of the preservation of the consistency when there is no economic analysis that is severely bounded. There are three possible ways of considering when making a decision and are clearly defined in the decision-making criterion. The premises of the theories are hard to reconcile, however, restricts the focus to the characterization of the equilibrium as a distinct from the behavior of the equilibrium. At the equilibrium state, the decisions that are made by a firm are expected to maximize the profits. This aspect of the utility function that is particular to the firm and entirely depends on the status of the environment. The utility function of any firm is no longer primitive, but decisions can be shaped endogenously by the decisions of other related firms. By restricting focus to the characterizations of the equilibrium, there are two implications. The first way is the usual case where the standardization is competitive and ignores the monopoly of the behavior. This simplification is just a clarification though sometimes it seems unclear whether some of the findings are due to the different criteria and assumptions that are made as the decision is made. This aspect poses a severe limitation to the decision making as the firm’s decision criterion should be prescribed under every circumstance (Weygandt, Kieso and Kimmel 25). There is always an element of tautology when saying that the decisions of production minimize expected utility when the function of the utility depends on the prevailing allocation. In any private ownership economy, the institutions or business firms play key roles. These roles include: the production of the commodities that the consumers use; they create the employment opportunities, and they invest in the productive assets that the households save. In competitive equilibrium, there are other decision criteria and soft information channels that are required for proper functioning of the process of the decision-making. Assumptions can be introduced in the production technology in regard to the preferences and the consumer’s endowment. When there are no special cases, the business firms have the inherent stock prices that are clearly defined in the decision-making criterion. Different firms have different production plans, and the consumption is also different. The choice of any plan can be comparable to the vector of the public goods chosen. When there is no price information, firms get the burden of collecting the relevant information that is with the shareholders. Since the consultation is always crucial, the information transfer proves to be quite inefficient (Nemoto 112). Section 4: Conclusion The described the process of and relevant steps and authorities mandated with decision making in a firm. Most of the firms frequently use the soft information and congregates the meetings of shareholders in case any decision is being made. Again, it has been found that financial institutions use the qualitative information rather than the intuitive assumption in the empirical studies. Although, the firms delegate the decision-making the process to the firm's authority mandated with the task. The latter conclusion is consistent with the prediction made in the economics of the organization. The number of theoretical and empirical issues in relation to the relationship between the decision-making structure productions of information in financial institutions is remaining. The decision-making structure is plausible to the strategic variables that every firm chooses in regard to the market environment response. In the theoretical framework, the delegating of the duties is one of the easiest ways of doing acquiring the soft information as was predicted. However, the problem arises that might be so great. Thus, the delegation may not be the best way of executing duties as it is a risk-taking and inefficient in firm management. Works Cited Black, Ken. Business Statistics. Hoboken, NJ: Wiley, 2012. Print. Hofmann, Klaus P. Psychology of Decision Making In Economics, Business and Finance. New York: Nova Science Publishers, 2009. Print. Koller, Glenn R. Risk Assessment and Decision Making In Business and Industry. Boca Raton, FL: Chapman & Hall/CRC, 2008. Print. Luecke, Richard. Decision Making. Boston, Mass.: Harvard Business School Press, 2010. Print. Simon, Julian Lincoln. Developing Decision-Making Skills for Business. Armonk, N.Y.: M.E. Sharpe, 2011. Print. Nemoto, Tadanobu. "Economics." The Decision-Making Mechanism (2013): 87-115. Weygandt, Jerry J, Donald E Kieso, and Paul D Kimmel. Managerial Accounting. Hoboken, NJ: Wiley, 2010. Print. Read More