Business Decision Making - Research Paper Example

BUSINESS DECISION MAKING Q.2 To what extent do you think that business managers are satisficers in the short run, but maximisers in the long run -- Psychologist Barry Schwartz describes decision makers of main two types Maximizers and Satisficers. (2005) Maximizers try to make the perfect decisions. They research, scrutinize reports, discuss alternatives , look for new options and generally agonize over making exactly the right or the best possible decision. On the other hand, Satisficers, are the persons who are able to take faster decisions since they know their basic needs and thus look for a decision within a minimum framework or criteria that need to be met. Once the minimum framework of criteria is met. they make their decision and do not wait for more options or alternatives. Thus they generally look for answers which are good enough and may not be the best. Although leadership and management functions vary widely from organization to organization, the function of decision making is common to all. Managers are always taking a decision , small or big and all these are important in the sense that they affect the individual, team or overall performance of an organization. All people have their own style of decision making and they also differ in the amount of information they use in decision making. Some reach conclusions from just a few facts while some take their own time by gathering and studying and analyzing large amounts of information. The Figure below shows the difference between the low and high information users. It shows that early in the process, the knowledge is going from zero to something greater and this information is most likely to be important. Thus Satisficers, make the decision at point B, when they have learned enough while Maximizers, keep evaluating information until they simply are learning nothing new about the problem. Simon (1955, 1956, 1957) introduced an important distinction between maximizing and satisficing as choice-making strategies. In maximizing decision making - the idea is to find the best possible solution and requires an exhaustive search of all possibilities. To satisfice is to look for good enough possibility and stopping when this good enough solution is found. In decision-making, satisficing explains the tendency to select the first option that meets a given need or select the option that seems to address most needs rather than the "optimal" solution. Generally managers go for Satisficing decisions when the decisions are of small significance. Moreover, in daya to day functioning, many situations arise where they have take a decision quickly. In such acses also. A satificing decision making is made. A manager cannot wait for all alternatives or study each and every report to when he is facing time constraints. It is extremely cost - ineffective to take lots of information into consideration for day - to-day decisions. It is not that Satisficers have low expectations, rather they accept that there is more than one option that will satisfy them. And Once they are able to find an option that meets their initial criteria they are content to conclude their search. On the other hand, senior mangers who need to take into account the objectives and the goals of the company, need lots of information and analysis before they can take decisions. At senior levels, it is required and essential to act as a maximizer and try to review each and every alternative before arriving at a decision. This is because a decision at this level has far reaching consequences on the company's policies and direction. They are the ones taking the high stakes decision and thus keep on looking for the best of all the options, establishing new criteria as they go. Maximizers may do better objectively, but they do worse subjectively. They feel worse about their decisions and are less happy with the results than the satisficers. Therefore , in the long run, that is for maximizing profits and building strategies foe overall business performance, managers generally act cautious and try to collect and assimilate as much information as they can before arriving at a decision. Obviously, trying to take a decision on making the organization competitive enough is not something any manager would take without proper analysis. But routine decisions such as those taken by middle and lower level managers are best taken in satisficing way. There is no point in delaying such decisions - it only causes inefficiency or trying to look at all options when there are similar alternatives is again a waste of time. In fact. At this level, they are not expected to use maximizing style of decision making. Q.1. (i) Formulation of linear equation: Let x = no. of radio slots. And y= no. of newspaper slots 1 radio slot will provide 30,000 listeners and 1 newspaper will provide 10,000 listeners. Cost of 1 radio slot = 10,000 and cost of 1 newspaper slot is = 2000 Constraints : 1. The total number of slots cannot be more than 5 = Thus x+y 5 2. The target audience is 70, 000 = Thus 30000x + 10000y = 70000 Or 3x + y = 7 3. There is a minimum of 1 slot of each type. Thus x 1 and y 1 Thus Total Cost of advertising campaign is C = 10000x + 2000y (ii) Using graphical method, Minimization of cost Thus we see that the meeting point is (1,4) Therefore the minimum cost will be realized for no of radio slot= 1 and no of NWS slot = 4 Thus C = 10000x + 2000y = 10000(1) + 2000(4) = 10000 + 8000 = 18000 Thus for a minimum cost, he should use 1 slot for radio and 4 slots for newspaper. (iii) (iv) a. b. The shadow price is the change in the objective value of the optimal solution of an optimization problem obtained by relaxing the constraint by one unit. In a business application, a shadow price is the maximum price that management is willing to pay for an extra unit of a given limited resource. Thus the constraint is maximum of 5 slots. If we increase this by 1 , we get 6 slots. The equation becomes : x + y = 6 and the other is 3x + y = 7 In this case, we will not get an optimal solution since, both x and y cannot be in fractions. Thus this information is not useful for the owner. (v) Re Formulation of linear equation: Let x = no. of radio slots. And y= no. of newspaper slots 1 radio slot will provide 30,000 listeners and 1 newspaper will provide 10,000 listeners. Cost of 1 radio slot = 10,000 and cost of 1 newspaper slot is = 2000 Constraints : 1. The total number of slots cannot be more than 5 = Thus x+y 5 2. The target cost is 26000 = Thus 10000x + 2000y = 26000 3. There is a minimum of 1 slot of each type. Thus x 1 and y 1 And total listeners will be = L = 30000x + 10000y REFERENCES: 1. Schwartz, B. 2005, The Paradox of Choice-Why more is less, Harper Perennial 2. Simon, H.A. (1955). A behavioral model of rational choice. Quarterly Journal of Economics, 59, 99-118. 3.Simon, H.A. (1956). Rational choice and the structure of the environment Psychological Review, 63, 129-138. 4. Simon, H.A. (1957). Models of man, social and rational: Mathematical essays on rational human behavior. New York: Wiley. Read More