Imformation based decision making - Essay Example

?Information Based Decision-making Introduction Decision-making is arguably one of the most difficult and challenging tasks especially in the business environment. The challenges are even more profound when there are many variables to be considered when making the decision. The importance of decision-making cannot be underestimated. Indeed, the success or failure of any business primarily depends on the quality of decisions made by the management. Most of the successful global cooperation’s are a reflection of good decision-making strategy. A lot of investment both in time and resources is directed towards the decision making process. However, it is important to note that making sound decisions primarily depends on the amount and quality of information at hand. This makes it important to consider information as one of the core requirements in sound decision making both at an individual and corporate level. This paper therefore discusses the different aspects of information-based decision-making. It seeks to discuss this topic within the realms of what has been covered in the course of management. However, extra knowledge on decision-making has also been mined from other sources. Information It is very futile to make any decision without profound background information regarding all the possible outcomes. This makes information the core requirement in making decision. There are different aspects of information that are worth discussing since they affect either directly or indirectly on the decision making process. There is a major difference between data and information. Data refers to facts or figures in their basic or raw form. For instance, 11, 32, 98, 58, 91, and 74 refers to data. Values such as ? 58.00, ?1200, ?223.50, and?558 refer to financial data. In both instances, the data does not make any meaning under any context (Black, 2009). However, the data can be processed to give it meaning. It is also important to note that processed data or information can fail to make meaning outside a given context. Information refers to data that has been organized such that it makes meaning within the context of consideration. Information can be either formal or informal. For information to be useful in decision-making, it has to be communicable to the relevant stakeholders, it must be presented in a language that users can understand without misinterpreting, it must be in a form that can be utilized, and finally it must be relevant to the subject of consideration. Information to be used in decision-making can be classified in two major categories. It can be either formal or informal. Formal information is usually presented in a familiar format, has a degree of relevance and accuracy, and uniquely structured. However, the information may be inflexible and may sometimes disregard sociological perspectives. On the other hand, informal information is quite flexible and more detailed though it may be inaccurate. Information and Law It is very imperative for any person using information-based decision making to understand that certain types of information have legal implications. This is more profound in business organizations. The law regulates many processes of handling information and as such, caution should be exercised to ensure the entire legal infrastructure is respected. For instance, the Data Protection Act of 1998 was enacted to ensure that information is handled with caution to protect its integrity, privacy, and users. The data protection laws ensure that data handlers do not manipulate the data for personal or malicious reasons but instead use the data for the best interest of the subjects. While making business decisions, all legal parameters should be followed and information handled within the realms of the law. It is unethical to use data or information to make business decisions that are not permitted by the law. For example, a business may use information unlawfully to gain unfair advantage over other competitors. Although the decisions made from such information may seem exemplary, legal implications may arise which may make such decisions to be useless. Information and Decision-making Decision-making calls for analysis the already available knowledge, which can only be available through information. In order to make an excellent prediction or a useful outcome, available knowledge has to be reviewed. Therefore, decision-making uses information in order to generate new ideas that can be put into practice. Certainly, information used to make decisions has to be reliable and authentic. Otherwise, we run the risk of making decisions based on fallacies. This might have catastrophic results on businesses especially when a lot of capital investments is involved. I work in a bar and restaurant setting where everybody has to make rapid decisions very often. The restaurant management is usually responsible for making most of the major decisions especially in issues of finance and human resource. Most of the decisions are based on the information that has been previously gathered through various means such as case studies, surveys, and customer satisfaction feedbacks. Relevant Sources of Data and Information Making effective decisions calls for use of credible, reliable and authentic information. Therefore it becomes important to evaluate the source of data and information to ensure that it is consistent and relevant to the decision making process. Most importantly, the data or information used for making a decision must be relevant. Consequently, it should come from a relevant source. For instance, a business organization seeking to make an investment decision must first invest in information and data mining. Such an organization might need to obtain relevant information such as human population statistics from National Bureau of Statistics. Established authorized and recognized financial analysts might also be included since they comprise a reliable source of information. Additionally, the organization may also need to evaluate its past performance records since it reflects the true performance of the organization. However, some sources of information need careful evaluation before their information is used in making decisions. For example, BBC, CNBC, BBC, and other news broadcasters may be a good source of information. However, such open sources of information are open to manipulation and political influence and hence may not qualify as a reliable source of information and data. Criteria for Data and Information Selection Inasmuch as information is important, not all of it is applicable in decision-making. This makes data and information evaluation an important process of decision-making. One of the criteria used or data and information selection involves evaluating the value of the information. This simply means that any given information should be analyzed for usability. The information should be up to date, relevant to the context of the decisions being made and should be authentic. Moreover, the information should not introduce ambiguity, confusion, or introduce fuzziness in the process of decision-making. Therefore, only the important and useful information should be selected. Decision Making Models Various models are used for making decisions. Whereas it is possible to use any of them, some models are more suitable for some scenarios than others. Some of the commonly used models include rational, decision tree, cost/benefit analysis, as well as Simon’s normative model. In most cases, business organizations use rational model of decision-making. One of the greatest advantages of rational decision-making model is its ability to provide evidence and support concerning the decision. Notably, the model is a very useful tool for multifarious and complex scenarios. This model is mostly preferred since it is thorough and methodical. However, it is important to note that the effectiveness of rational model depends on the quality of information and data mining. If the criteria used for data and information selection was biased or incorrect, then the quality and relevance of the information to the context of decision-making becomes compromised. This is even reflected in the final decision. The process of determining a course of action is arguably the most important part of information-based decision-making. Rational model utilizes various decision-making processes to ensure that the most appropriate course of action is made and necessary commitment made to that effect. Although rational model of decision-making is valuable, it has some disadvantages and therefore not suitable for all scenarios. The model is so dependent in information. Therefore, when the information is not accurate or relevant to the scenario at hand, then decisions may be irrational too. Additionally the process of information and data mining may be cumbersome and time consuming. One controversy however arises in instances where the model also questions the rationality of the decision made. Steps of Decision Making The process of making a decision is stepwise and requires careful consideration in every stage. For instance, it is important to establish the main objectives by considering what needs to be achieved. At this stage, the desired outcomes must be measurable as much as possible. Most of the data and information mining, consultations, and checks are done at this stage. Once the primary objectives have been set, they are then classified according to importance. This is the time when “must objectives” should be separated from “need objectives.” The most important process at this stage is to define each term objectively and proceed to assigning weight to all the objectives. Since this is an information-based decision making, the appropriate information should be assigned to each objective. This is arguably the most important process of decision-making since any misinformation will certainly lead to wrong assumptions. This would then reflect on the decision made. The next process involves application of all possibilities to requirements at hand. It is at this stage that the available information should be attached to each alternative. Lastly, all the alternatives should be evaluated against “must objectives.” This process involves eliminating all the options that do not qualify as “musts.” The remaining options are in most cases the best decisions to be made based on the information available. It is however important to continue evaluating the remaining options to ensure that the best option from the few that have been considered is selected. The weighted mean for each alternative is multiplied with score for each alternative and the results added together. The option with the highest score is most likely to be the best alternative. This makes it possible to come up with a provisional decision. It is possible to have options having the same weighted value. Therefore, it becomes important to go back to the drawing board and re-evaluate the weights as well as scores for each. Other pieces of information that were sidelined in the process of decision-making may need to be reconsidered and the best alternative selected based on this re-evaluation. Cost/benefit Analysis The term opportunity cost makes a lot of meaning in business world. However, its importance is also realized in cost/benefit analysis. This is because this model of decision-making involves analyzing the returns foregone when the next best option is considered. The process of decision-making involves evaluation of all the available opportunities and considering their possible contribution to the scenario at hand. This means that cost versus possible benefits should be evaluated. Any course of action to be taken has direct or hidden costs. On the other hand, each of them has possible benefit. This is particularly important when considering which options are worth consideration since not all options will have meaningful contribution to solving the problem. In business, the most profitable or productive options is always given the first priority. Example of Cost/benefit analysis Model as used in our Restaurant This is the best chance for decision makers to make a value analysis of the costs involved in each course of action versus the benefits that are likely to be gained when each of the courses of action is followed. As previously mentioned, I have worked in a restaurant where information based decision making is the most preferred method. One of the most recent decisions to be made was restructuring the restaurant so that it would create a section for a dancing floor and a Disc Jockey (DJ) compartment. The management felt that the restaurant was missing business on people who love music entertainment at night. As usual, a cost/benefit analysis was done. These are tables consisting of cost of each course of action Option 1 Item Startup Costs in ? Annual Running Costs in ? Restructuring work 5,000 Refurbishment costs 1000 DJ equipment 2,500 Upgrades 500 Employing a permanent professional DJ 100 4,000 Option 2 Item Startup Costs in ? Annual Running Costs in ? Building a new Dance Arena 15000 3500 DJ and Lighting Equipment 7000 1500 Hiring a professional DJ on contractual basis 150 4500 Option 3 Item Startup Costs in ? Annual Running Costs in ? Basic rearrangement of furniture 1000 400 Music System 1500 300 Benefit Analysis Graph The management decided to go with the first option. The cost/benefit analysis really assisted them in having the big picture of the whole situation. The second option had high startup costs and corresponding running costs. However, the benefits were high as compared to any other option. The management argued that the financial status of the restaurant would not make it possible to put much risk in a project since failure to the project would have compromised the overall running of the project. On the other hand, the benefits would have been great since the restaurant capacity would have doubled and in the process attracted the young generation who love entertainment. The dance arena would have been used for other purposes such as meetings during the day. The third option was simple to implement. There was no much work needed and only minor rearrangement of furniture was required. However, it was argued that the dancing arena would not attract many patrons due to its proximity to the serving and eating area. Additionally, this would have interfered with other customers who like quiet and discrete rewinding place. The benefits would therefore have been much less. The first option was preferred. The judgment was done using the following equation Justification = (Potential Benefit) - (Startup costs + running costs) The first option had the highest “justification value” since the benefit was relatively large in comparison with startup and running costs. The management settled with this decision and was so much grateful for having used information based decision-making process. The project was executed and the monthly profits predict that projected annual benefits will be realized. The management could have used the decision-tree analysis model but the process would have been more complex and fuzzy. Communication of Information Analysis and Decisions Decisions made are useless unless presented in a clear and concise way to the implementers. This calls for evaluation of communication processes between the decision makers and the implementation team. One of the best ways of presenting decisions made is by deconstructing each piece of information. Each process, step, or method should be clear, concise, and elaborate at the same time. It is futile to present decision in a format that introduces misunderstanding. The last process in decision-making involves a post analysis in which the whole process of data mining, information analysis and decision-making is evaluated. The information obtained is then compared with some of the outcomes of the decisions. This makes it possible to see the strengths and weaknesses of the whole process. A way forward is then formulated to ensure that future decision-making processes are improved. Conclusion Information based decision making is one of the best approaches to making rational decisions especially in business organizations. It seeks to analyze relevant information with the interest of coming up with the best course of action among the options at hand. Quality of information determines quality of decisions made. Data and information protection laws have a great impact on the decisions made. Although there are different decision-making models, cost/benefit analysis was considered in this paper. An elaborate example of how cost/benefit analysis model was used in our restaurant was explained. Finally, communication of information analysis and decision is an equally important process as it ensures effective implementation. A post analysis is advisable to ensure improvement in future processes of decision-making. References Black, K 2009, Business Statistics: Contemporary Decision Making, John Wiley and Sons, New York. Read More