Quantitative Analysis and Decision Making - Deloitte Company - Assignment Example

Quаntitаtivе Аnаlysis аnd Dесisiоn Маking (stаtistiсs) Your name: Institution name: Task 1 In business environment, quantitative concepts and methods are utilized to assist in business decision making (Epstein, 2004). In order for a business to be effective and profitable in a modern world, managers should be able to use quantitative concepts and methods in reliable and confident manner (Mitroff, 2007). Economists make their decision based on data related to the economic in which the business operates (Gupta et el, 2004). Accountants make their decision on the information relating to financial state of the business. Business environment is unpredictable and can throw-up unpredicted situation more than often. Thus, business managers may find themselves in unusual business environment. In this situation, a method such as scenario modelling can be utilize to help business managers to make their decisions (Epstein, 2004). Scenario modelling helps business managers to bring their fears into the open and gives them a rational and professional framework for exploring their business decisions. Scenario modelling helps managers to make business decision in the context of the different futures that may come to pass (Mitchell, 2005). Creating business scenario will force a business manager to challenge their assumptions about the business future. By shaping their business decisions and plans. A business manager can respond in different ways when making their decisions. First, a manager may examine each scenario and determine whether the decisions would help the business to succeed in those situations (Mitroff, 2007). Or, a business manager can examine a desired future and see what is need to get the business to that point. Vision driven scenario modelling helps managers to think “outside the box” and start questioning their assumptions about the future of their businesses (Mitchell, 2005). Scenario modelling can be used primarily to generate new options, facilitate dialogue and learning throughout the business, and develop commitment to the need for change. On the other hand, decision-driven scenarios, can be used by a business manager to create a well-specified strategic choice (Gupta et el, 2004). A choice where a business manager is able to choose where the “the best” option is unclear as a result of the impact of those choices the business manager makes (Mitroff, 2007). For example, decision-driven scenarios can be used by a business manager to help the business decide whether or not to launch a new product into the market, and whether to establish a new business given the uncertainty over the capacity expansion plans of the business rival (Gupta et el, 2004). In such a case, a business manager can use scenario modelling to evaluate the business strategic options, determine the pay offs across different business scenarios and the overall risk return profiles of the business. Business uncertainties can be caused by different factors (Epstein, 2004). Thus, a business manager can use scenario modelling to identify the impact of changes in the market condition that the business can be able to adapt quickly to the new business opportunities and threats. In large companies, scenario modelling can help a business to establish a frame of reference for its planning processes (Mitchell, 2005). The development manager in a business can be able to use results of the business models as inputs to make business investments that are adapted to the business scenario (Mitroff, 2007). At the business unit levels, a manager can create a business scenarios to rest and refine how these business scenarios would have an impact on the existing business strategies (Gupta et el, 2004). On an ongoing basis, a manager can use business scenarios to make tactical business decisions on how the business can be able to cope with business uncertainties that threatens the current business strategies. Scenario modelling also help managers to understand that decisions in business are not all about creating budgets and submitting numbers, but about recognizing a wider context of events that might occur in the business (Mitroff, 2007). A manager can create scenarios around environment or business uncertainties. The main goal here is to help the manager to move from one prediction outcome and to comprehend how uncertainties will impact a business (Epstein, 2004). Although every business is different, business success is higher when a manager is able to formulate the business’ strategy to correlate to changes in the business environment. Thus it will create business opportunities for prepared manager while creating threats or competition to those managers who have not prepared well. Task 2 Deloitte Company creates scenario modelling to project their quarterly revenue for the company, as well as its different businesses across many scenarios (Roney, 2007). This helps both managers and employees to better prepare for any economic uncertainty that may befell this organisation. For example, in 2006, scenario based model helped Deloitte managers to plan for the economic downturn that took place at the beginning of 2007 (Schnaars, 2008). In response to the economic downturn, this organisation started preparing and developing business strategies measures to be taken if the business downturn turn out to be a reality (Schnaars, 2008). Deloitte’s managers made sure the organisation had enough liquidity and was in a better position to manage its costs where necessary while the organisation continued to make strategic investments (Roney, 2007). Through scenario modelling, Deloitte was in a better position to make the biggest acquisition in its business history towards the end of the 2008, and at same time, the organisation was able to achieve distinctive financial performance even amidst the economic down turn. Scenario modelling can also be used by organisation for strategic planning (Schnaars, 2008). Within Deloitte Company, the business profits generated by the scenario model are used by the business as input to consider while managing and planning the business (Roney, 2007). Key to success of scenario model is the credibility that has been gained throughout the whole process. In Deloitte, this has been done through a slow maturation process not only on the scenario model itself, but also the relationship with the business key stakeholders (Roney, 2007). This model was developed over a number of years, during which the credibility gained facilitated the company to make important adjustments to the company itself. McDonald’s, is another restaurant franchise that uses scenario model to make decisions on its restaurant locations (Balakrishnan, 2005). Over the years, McDonalds have used scenario model to study its customer demographics, supply logistics, traffic patterns and the extent of competition in a given location they want to set shop and come up with a precise forecast of future profit (Gardiner, 2009). While such forecast sometime have been found to be far from perfect, McDonald have been able to predict enough to make a dominant yes-no decision on any potential restaurant across the globe (Burt, 2008). For instant, McDonald’s has not been able to predict its customer’s traffic patterns, but the business franchise has been able to conclude that its customer traffic pattern will either support or not support a restaurant in a specific location. Managers are sometimes faced with limited set of possible future outcomes, and when the best business strategy will be followed and this will depend on the business outcome ultimately occurs. For example, in 2000, investors in stock market in the United States are sometimes faced with uncertainty in trying to determine the next US president (Burt, 2008). The next president of the US would be either Al Gore or George W. Bush. However, no one could say for sure who had won that election (Gardiner, 2009). This uncertainty mattered to lots of the US investors since each candidate proposed economic policies that might have effects on the stock’s share prices of companies in wide range of industries in the country. It was widely known, for example, that health insurance sector would have benefit from a Bush election victory. In such a scenario, business decision tools can be employed to facilitate decision-making when there is a dominant business strategy (Gardiner, 2009). Given your objectives scenario model allow managers to value strategic options that show different profits across a set of scenarios (Balakrishnan, 2005). For example, if the business is risk neutral, the business strategy with the highest expected value across different scenarios is usually chosen by the business managers (Burt, 2008). On the other hand, risk averse managers will prefer business strategies that have the most stable pay-offs, but choosing to avoid those business strategies that have high pay-off variances across different scenarios. Task 3 This section will discuss the limitation of scenario modelling. One limitation for scenario modelling is that companies or managers tend to make business scenarios to narrow or too broad (Gardiner, 2009). When the business scenarios are too broad, those in charge of implementation tend to dismiss them because most of the time they feel the business scenario are highly improbable or unrealistic to be achieved (Wisner, 2005). While, when business scenarios tend to be too narrow, are usually minor variations of the existing business strategy or the same business theme. In many situation, scenario modelling is designed to clarify long term vision of an organisation without regard for short term business decision (Gardiner, 2009). As a result, senior and middle managers often find scenario model to be time consuming, while the planning efforts provides little insight into the business strategic decision at hand. In many case business managers spend their time going down paths that most companies didn’t fell were relevant. Most managers depends on the different functions within their companies working together to achiever business success (Wisner, 2005). Even if operations management implements an effective plan, if the company does not carry out its plan properly, the business plan is likely to fail (Roney, 2007). In a company, mistakes often are found to occur during the chain of events from product development to sale and marketing (Wisner, 2005). Therefore, companies are required to coordinate their operation functions, finance, marketing, engineering, accounting, human resources and information systems to have success within the company (Gardiner, 2009). Scenario model pose a disadvantage to the company because if the individual functions in the company do not work in tandem, companies will have no or limited success in their businesses (Burt, 2008). Another limitation of scenario approach in some people are the sceptical of simulation. Most people, especially in sales and marketing, based on reporting and building deterministic statistical models to describe what can happen in the future (Burt, 2008). Most researchers often prefer these modelling tool about future planning (Roney, 2007). It is known that scepticism is a result of the relative simulation in marketing analytics, and that with more success stories and validated forecasts, this scepticism will subside.  In order for companies to get the simulations to match their real scenarios outcomes, they need to change their rules that guides scenario planning or test different assumptions until they do. Scenario modelling have many benefits but sometimes this can make them challenging to get all of the assumption synchronized. . One change may improve the forecast for one metric, but degrade the fit for another. Fortunately, expanding computing power and improving algorithms continue to reduce the time and effort to overcome the process barrier of calibrating and validating simulations.  References Epstein, Jeffery H. "Scenario Planning: An Introduction." The Futurist 32, no. 6 (1998): 50–51. Gupta, M., L. Boyd, and L. Sussman. "To Better Maps: A T.O.C. Primer For Strategic Planning." Business Horizons 47, no. 2 (2004): 15–26. Mitchell, Donald, and Carol Coles. "Establishing a Continuing Business Model Innovation Process." Journal of Business Strategy 25, no. 3 (2005): 39–49. Mitroff, Ian. Crisis Leadership: Planning for the Unthinkable. New York: John Wiley. 2007. Nutt, Paul. "Expanding the Search for Alternatives During Strategic Decision Making." Academy of Management Executive 18, no. 4 (2004): 13–28. Roney, Curtis. "Planning for Strategic Contingencies." Business Horizons 46, no. 2 (2007): 35– 42. Schnaars, Steven, and Paschalina Ziamou. "The Essentials of Scenario Writing." 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