BUSN11079 Analytical Thinking and Decision Making Sample

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Decision Making And Decision Analysis

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Executive Summary

In this report, the case of the decision problem in Coles Supermarket had been taken into account where there is an issue regarding the adoption of decision regarding the ERP implementation. The importance of decision making and probabilistic decision analysis model had been discussed along with an analysis of its strengths and limitations. Based on the numeric values and weightage received after the analysis of the problem using the model, ERP implementation decision was found appropriate.

Introduction

It has been seen that in the past decade, the impact and importance of decision analysis have increased from the perspective of management capabilities. Most of the strategic decisions and tactical decisions are undertaken in public as well as private organizations rely on the effectiveness of decision-making capabilities (Shepherd, Williams and Patzelt, 2015). The decision making theories are being taken into account so that effective decision can be undertaken after analysis of the problem situation at hand to compare the alternatives for coming to a decision.

BUSN11079 Analytical Thinking and Decision Making Sample

Importance of decision making and application of the decision analysis

Decision making is of prime importance in deciding between variables in the business environment. The process of decision making is very critical for the understanding of the feasibility and risks that the application of the decision would bring to the business. Decision making is important for better utilization of resources that may be available and to achieve the objectives that are set by the organization (Graham, Harvey and Puri, 2015). The importance of decision making in an organization can be summarised based on the following considerations in an organization:

BUSN11079 Analytical Thinking and Decision Making Sample

Figure 1: Importance of decision making

(Source: author)

 

Decision making is also important for organizations to detect new challenges and to face new issues. Problem-solving becomes more effective when effective decision making takes place. Quick and smart decision making is very important for accepting and solving new challenges. Such challenges may take place in an organization due to new challenges in the internal and external business environment. Thus the responsibility of effective decision making is given in the hands of responsible people so that effective decision making can be possible. Thus, decision making is also closely related to the growth in the business if effective use of resources can be possible. Effective utilization of resources is important for business growth. If resources are effectively utilised then growth opportunities in the future can also be realised. By detecting the need for developing resources in the future business growth can be analysed (Goetsch and Davis, 2014). If effective decision making is not taken into account then the prospect for growth in the present and future can be realised. Every business organization sets business objectives and in every business activity, organizations set business objectives that are set for achieving the business goals. For setting the business objective also, effective decision making is very important and if wrong decisions are taken then the business growth may also be hampered (Birkland, 2015). Rational decision making is very important for organizations and it is achieved through effective evaluations of all alternatives in the business process. If the business objectives are not met then it reflects upon faulty decision making in the business organization. Rational decision making is also important for improving the overall efficiency of an organization. Efficiency would be achieved only if the decision-making process can maintain a balance between the estimation of costs and resources in the organization (Greco, Figueira and Ehrgott, 2016). Rational decision making also results in a higher level of returns at the lowest possible cost and thus efficiency is achieved. Decision making is also important for encouraging new idea formulation that would be necessary for facilitating innovation in an organization. If decisions regarding the use of ideas and resources for facilitating innovation are not achieved then innovation in products and services would not be possible that would be detrimental to the interest of the organization. Rational decision making is also required for devising strategies that can be adopted for motivating employees in the right direction.

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Decision analysis, on the other hand, is that discipline that helps in the evaluation of the complex alternatives in the aspect of uncertainty and values. Values are expressed mostly in monetary terms and thus it is of great consideration in the management aspect of the business. Decision analysis also helps to get an insight into the differences between alternatives so that different suggestions can be offered for better alternatives that can be adopted. Numbers are used for quantifying the uncertainties and subjective values that would in better understanding of the situation where the decision needs to be taken (Cinelli, Coles and Kirwan, 2014). As the results are received in numerical values, the results need to be translated into subjective understanding for generating qualitative insight in the given situation.

BUSN11079 Analytical Thinking and Decision Making Sample

Figure 2: Probabilistic model of the decision analysis model

(Source: Liu, Liang and Wang, 2016)

For decision analysis, businesses usually use the model and for the formulation of a decision analysis model. model structure and probabilities need to be ascertained so that computation of the variables in the model can be ascertained. The model of decision analysis includes values such as:

  • Probabilities
  • Value function of chosen alternatives
  • Value weight to measure objectives trade-off
  • Preference for risks

After the variables and structure are determined, decision analysis can be possible. The importance of decision analysis model lies not just in the computation of the expected utility of all the alternatives that had been selected but also for better insight of the involved variables (Smith and Phillips, 2018). With the adoption of an effective decision analysis model, the sensitivity of the outcomes, utility of key probabilities and the parameters for risk preference is also evaluated. It can further be added here that in the decision making process and the decision analysis model, the decision theory would come into use that would enable the computation of the values of the outcome that is being expected and the probabilities so that the result of the choices can be determined. The basic elements of the decision problem are the existence of a crisis that requires a decision to be undertaken and also there is the existence of different alternatives that provide a different outcome in the decision problem. However, in the decision analysis process, the existence of objectives are of the greatest significance and it has further been seen that objectives need to be set so that the different aspects of the problem can be identified and based on such problem objectives, alternative solutions can be determined (Spronk, Steuer and Zopounidis, 2016). It is usually seen that most businesses rely on techniques and mathematical models in the decision analysis with the focus on prescriptive theories of action of choice. This would determine how the decision-maker would be able to behave when it has to face choices between different actions so that the desired outcomes can be reached, not by chance but by actions (Montibeller and Von Winterfeldt, 2015). The decision analysis model is thus necessary as it enables a decision-maker to analyse the situation that has been given in the organization and to select the best alternative after the analysis of the situation and the alternatives present. This would allow the decision-maker to optimize the payoffs that are the return from the selection of alternatives. However, one condition is that there is a need for uncertainty regarding the scenario in the future apart from setting objectives that would help to optimize the results of the payoffs.

Identification and outline of the decision problem related to an organization

As it has already been introduced in the decision analysis model and decision making theory above, the first step for the application of decision-making theory is that there is need for determining the decision problem so that based on the understanding of the alternatives for problem-solving can be determined based on the objectives that had been set after understanding the problem scenario. In this scenario, it must be stated that the decision problem needs to be outlined so that the alternatives can be determined by the decision-maker. In the selected organization, Coles, that is a retail grocery outlet in the UK, there have been issues arising the matter of resource planning and assessment of alternatives in the resource estimation in the store shelf. It has been realised that the management has felt the need for analysing the situation at hand so that all the alternatives that can be considered for the solution to this problem can be analysed and selected. It has further been realised that for the analysis of the decision problem, sensitive analysis of the organization and its current practices had been taken into account so that decision problem can be realised.

The decision problem that had been realised in this situation is that Coles Supermarket in the UK had been facing issues in the resource planning in the stores and that is affecting prospects of the business of Coles. In this respect, it has further been realised that the management has realised the need for implementing Enterprise Resource Planning in the organization so that the issues in the resource allocation and the management of products on the store shelf based on the demand of the customers can be possible. The decision problem, however, would arise from the decision that the management needs to undertake regarding the application of the ERP in the system of Coles for resource planning and management. The decision problem being faced is with the existence of another alternative before the implementation of the ERP and the costs that would be incurred by the management in Coles for implementing ERP. It can further be added here that the decision problem faced in Coles would be based upon certain factors as given below:

Simple multi-attribute rating technique (SMART) to outline decision problem:

It has been found that with the application of simple multi-attribute rating technique (SMART) helps in making the decisions appropriately and accurately.  The various issues that are involved in the process of decision making can be resolved due to which the decision-making process becomes easier. This helps the decision-makers in making the decision required effectively. The Simple multi-attribute rating technique (SMART) involves some steps through the decisions can be made in an effective as well as efficient manner. Due to this reason, the decision-makers have been using the Simple multi-attribute rating technique (SMART), nowadays, for making the various decisions.

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In the present study, it has been found that the decision-maker in having some kind of issues while making the decisions for the selection of ERP system in the computer system. For deciding to select an ERP system for the computer system of the organization, Simple multi-attribute rating technique (SMART) has been used in the present study. For making the decisions regarding the selection of ERP system among various technologies for the computer system, few steps are required to be followed.

BUSN11079 Analytical Thinking and Decision Making Sample

Figure 3: Simple multi-attribute rating technique (SMART)

These are as follows:

Stage 1: identify the decision-makers:

At the stage, the decision-makers are required to be identified who will be making the decisions. At the present study, the members of the IT department of the organization are required to decide on the selection of the ERP system. The decision will not be solely made by the IT department of the organization. The approval from the management team of the organization is required to be taken. Therefore, the decision-makers of the selection of the ERP system are the members of the IT department and management team of the organization.

Stage 2: Identify the issue of issues:

It has been found that there are many advantages as well as disadvantages of the ERP system. During the installation of the ERP system, the staff members of the IT department are required to adopt many changes within the system. Due to this reason, there are times when lots of confusion is created among the members and they face many issues. One of the issues for making decisions regarding the selection of the ERP system in the computer system is the availability of the alternatives of the ERP system. With the growth and development in the technology sector, various new and advanced technologies are arriving in the corporate world that has many advantages. This has led to the creation of confusion among the members of the ITR department and management team that which of the various technologies is required to be selected for the betterment of the organization.

Stage 3: identify the alternatives:

At this stage, various alternatives to the ERP system that can be installed in the computer system of the organization is required to be identified. Identification of the alternatives for the ERP system will help the decision-makers in exploring the various options so that the best-suited technology can be adopted among all the technologies. This will help the decision-makers in evaluating the advantages of the ERP system over other technologies. This will help in identifying the disadvantages of the ERP system. Some of the alternatives of the ERP system that can be installed in the computer system of the organization are Oracle, Microsoft, Netsuite, Sage and Intacct.

Stage 4: Identify the criteria:

At this stage, the criteria for selecting an ERP system for the computer system of the organization are required to be identified.  It has been found that the management of the business operations and functions of the organization is essential (Siregar et al., 2017). The application of the ERP system in the computer system will help the organization in using a system the integrated applications for the management of the business in an effective manner. According to the Simple multi-attribute rating technique (SMART), in this stage, the members of the IT department are required to identify the different criteria for the application of the ERP system. Among all the criteria, most criteria are required to be selected so that the members will be focusing on the fulfilment of the selected criteria. This will help the decision-makers in evaluating the effectiveness of the ERP system of accomplishing the objectives for its installation.

Stage 5: Assign values for each criterion:

This is considered to be a straightforward approach for the decision-makers. At this stage, the different criteria of the adoption of the ERP system are required to be ranked in the order of their importance. This will help the decision-makers in identifying the main criteria for the installation of the ERP system in the computer system of Cole’s supermarket. This stage is considered as one of the easiest steps in Simple multi-attribute rating technique (SMART). However, in the present case study, the decision is required to be made by the members of the IT department. Therefore, there are chances of the rise of some confusion as well as issues. Different members can have different opinions due to which they will be assigning different values to different criteria of decision making (Rezaei, 2015). The values will be assigned out of 100.

Criteria Value
Management of the business operations 90
Cost-effectiveness 80
Management of the application system 85
Effectiveness of managerial conduction 50
Adoption of adequate change  management 40
stability of the performance of IT supplier 60

TABLE: Assignment of values for each criterion

Stage 6: Determine the weight of each of the criteria:

At this stage, numbers are required to be assigned to each criterion of the decision making. This will help the decision-makers in gathering information regarding the importance of the various criteria. In this stage, the members of the IT department are required to assign weights to the values of the criteria of the decision that is required to be made. This weightage assigned to each of the criteria will help the decision-makers in knowing that the ERP system is required to be adopted or not. Through this process, the members of the IT department will be able to know that the application of the ERP system will be effective for accomplishing the criteria (Kumar et al., 2017).

Stage 7: Calculate a weighted average of the values assigned to each alternative:

At this stage, the members of the IT department of the organization is required to calculate the weighted average of each of the criteria of the decision making (Risawandi, 2016). This will help the members of the IT department in normalizing the relative importance into weights.

Criteria Value Weightage
Management of the business operations 90 90 %
Cost-effectiveness 80 80%
Management of the application system 85 85%
Effectiveness of managerial conduction 50 50%
Adoption of adequate change  management 40 40%
stability of the performance of IT supplier 60 60

TABLE: Assignment of weighted average to values for criteria

Stage 8: Make a provisional decision:

At this stage, the members of the IT department of the organization are required to make the decisions regarding the adoption of an ERP system in the computer system. This is required to be done according to the weightage as well as values that have been assigned by the members to the different criteria of the decision making. According to the above calculation of the weighted average, it has been found that the application of the ERP system in the computer system will be effective as well as efficient for the fulfilment of the criteria of the decision making. The application of the ERP system in the computer system will help the organization in managing the different operations as well as functions in an accurate manner (Saaty and Ergu, 2015). It has been found that among all the alternatives, the ERP system is best suited for the fulfilment of the present criteria. However, in the future, if the criteria as well as a variable of the decision making changes, it might affect the decision of applying the ERP system in the computer system of the organization.

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Stage 9: Perform sensitivity analysis:

At this stage, various aspects related to the application of the ERP system in the computer system of the organization is required to be analysed. At this stage, the members of the IT department are required to estimate the cost that will be incurred in the application of the ERP system. The risks that are involved in the ERP system are required to be identified by the decision-makers.

Strengths and limitations of the analysis

Based on the understanding of the problem of decision that had been encountered in Coles regarding the implementation of the ERP has made it clear that the decision regarding the implementation of the correct decision in the organization would depend on the model that is adopted for the decision making depending on the problem identified. However, in this scenario, it must also be added that although the decision-making process and decision making model might seem very simple in a problem situation yet it is a complex process of analysing a situation and comparison of alternatives so that the correct decision making can be taken into account. Thus before the adoption of any decision analysis model for addressing the decision problem in Coles regarding the decision of ERP implementation, there would be a need for analysing the strengths and limitations of the decision model analysis would be required to be assessed for effective decision-making process:

Strengths:

  • The strength of probabilistic decision analysis model is that in the adoption of this model, the focus is given on the understanding of the objectives of the decision that needs to be undertaken. This makes the probabilistic decision analysis model to be more logical as it would be aligned to the business objectives.
  • Another strength of the probabilistic decision analysis model adoption is that the results would be achieved after the sensitivity analysis in mathematical values. Since the values would be numerical, this would mean that there is accuracy in the decision-making process.
  • The strength of the probabilistic decision analysis model lies in the analysis of the alternatives before coming to any decision in the situation. This decides to be well informed.

Limitations:

  • The major limitation of the probabilistic decision analysis model is that such a model in time-consuming as there are many alternatives in the situation. The comparison of the different alternatives makes the process to be very time consuming and sometimes confusion may also arise in the minds of the management.
  • Another limitation is that the chosen alternative may seem to be appropriate for the given situation but if the situation in the external business environment changes then the value of the chosen alternative would also change.
  • The probabilistic decision analysis model is more effective for short term decision making as the values of the selected alternative may be subject to change in the long run.

Conclusion

From the above discussion, it can be concluded that the ERP system is required to be adopted for the computer system of the organization. The decision has been made with the application of simple multi-attribute rating technique (SMART) in the decision process.   The application of simple multi-attribute rating technique (SMART) has made the decision process effective of the organization.

References:

Birkland, T.A., 2015. An introduction to the policy process: Theories, concepts, and models of public policymaking. Routledge.

Cinelli, M., Coles, S.R. and Kirwan, K., 2014. Analysis of the potentials of multi-criteria decision analysis methods to conduct a sustainability assessment. Ecological Indicators, 46, pp.138-148.

Goetsch, D.L. and Davis, S.B., 2014. Quality management for organizational excellence. Upper Saddle River, NJ: Pearson. http://www.m5zn.com/newuploads/2015/03/06/pdf/5de5a3408f57150.pdf

Greco, S., Figueira, J. and Ehrgott, M., 2016. Multiple criteria decision analysis. New York: Springer.

Kumar, A., Sah, B., Singh, A.R., Deng, Y., He, X., Kumar, P. and Bansal, R.C., 2017. A review of multi-criteria decision making (MCDM) towards sustainable renewable energy development. Renewable and Sustainable Energy Reviews69, pp.596-609. http://isisell.com/39130a%20review%20of%20multi%20%20criteria%20decision%20%20making%20%20(mcm)%20towards%20sustainable%20%20renewable%20energy%20%20development.pdf

Liu, D., Liang, D. and Wang, C., 2016. A novel three-way decision model based on incomplete information system. Knowledge-Based Systems, 91, pp.32-45. https://www.researchgate.net/profile/Dun_Liu2/publication/280574897_A_novel_three-way_decision_model_based_on_incomplete_information_system/links/5a01e89ba6fdcc55a1582d26/A-novel-three-way-decision-model-based-on-incomplete-information-system.pdf

Montebello, G. and Von Winterfeldt, D., 2015. Cognitive and motivational biases in decision and risk analysis. Risk Analysis, 35(7), pp.1230-1251. https://www.researchgate.net/profile/Dragan_Komljenovic/post/How_can_one_interpret_a_positive_CVaR_and_a_negative_CVaR/attachment/59d656df79197b80779ad75a/AS%3A532055546576896%401503863335553/download/Cognitive+and+Motivational+Biases+in+Decision+and+Risk+Analysis.pdf

Rezaei, J., 2015. Best-worst multi-criteria decision-making method. Omega53, pp.49-57. http://www.expertchoice.ir/wp-content/uploads/2017/11/Best-worst-multi-criteria-decision-making-method-1.pdf

Risawandi, R.R., 2016. Study of the simple multi-attribute rating technique for decision support. Decision-making4, p.C4. https://www.researchgate.net/profile/Robbi_Rahim3/publication/311986644_Study_of_the_Simple_Multi-Attribute_Rating_Technique_For_Decision_Support/links/5867986508ae8fce49156e71/Study-of-the-Simple-Multi-Attribute-Rating-Technique-For-Decision-Support.pdf

Saaty, T.L. and Ergu, D., 2015. When is a decision-making method trustworthy? Criteria for evaluating multi-criteria decision-making methods. International Journal of Information Technology & Decision Making14(06), pp.1171-1187. https://www.researchgate.net/profile/Hamzeh_Alabool/post/Which_MCDM_methods_suit_large_number_of_evaluation_criteria/attachment/59d64cd879197b80779a6899/AS%3A485785062383616%401492831592928/download/When+is+a+Decision-Making+Method+Trustworthy+Criteria+for+Evaluating+Multi-Criteria+Decision-Making+Methods.pdf

Shepherd, D.A., Williams, T.A. and Patzelt, H., 2015. Thinking about entrepreneurial decision making: Review and research agenda. Journal of Management, 41(1), pp.11-46. https://www.researchgate.net/profile/Dean_Shepherd2/publication/275441744_Thinking_About_Entrepreneurial_Decision_Making_Review_and_Research_Agenda/links/563a491208aeed0531dcaea6.pdf

Graham, J.R., Harvey, C.R. and Puri, M., 2015. Capital allocation and delegation of decision-making authority within firms. Journal of Financial Economics, 115(3), pp.449-470. https://www.researchgate.net/profile/Igor_Gurkov/post/This_is_a_question_on_Business_read_description_How_does_a_CEO_allocate_money/attachment/5ac3d98a4cde260d15d69d87/AS%3A611417292025857%401522784650284/download/%21%21%21%21%21%21Graham-2015.pdf

Siregar, D., Arisandi, D., Usman, A., Irwan, D. and Rahim, R., 2017, December. Research of Simple Multi-Attribute Rating Technique for Decision Support. In Journal of Physics: Conference Series (Vol. 930, No. 1, p. 012015). IOP Publishing. http://iopscience.iop.org/article/10.1088/1742-6596/930/1/012015/pdf

Smith, W.P. and Phillips, M.H., 2018. Applying Probabilistic Decision Models to Clinical Trial Design. AMIA Summits on Translational Science Proceedings, 2017, p.216. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5961806/

Spronk, J., Steuer, R.E. and Zopounidis, C., 2016. Multicriteria decision aid/analysis in finance. Multiple Criteria Decision Analysis (pp. 1011-1065). Springer, New York, NY. https://repub.eur.nl/pub/15646/Multiple%20criteria%20decision%20analysis.pdf

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