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Decision Making and Case Analysis

NC

Objective

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Objectives of this chapter is

Introduce a systematic process for decision making

Introduce basic considerations in case analysis

Many companies today use case study when interviewing applicants to assess his or her decision

making skills. They have found that the applicant’s approach to the case demonstrates strategic

thinking, analytical ability and judgment, along with a variety of communication skills, including

listening, questioning, and dealing with confrontation.

Decision making process

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Although no simple formula exists that can assure a correct solution to all problems at all times, use

of a systematic decision-making process can increase the likelihood of arriving at better solutions.

The decision making process described here is called - DECIDE

D- Define the problem

E- Enumerate the decision factor

C - Consider relevant information

I - Identify the best alternative

D- Develop a plan for implementing a chosen alternative

E- Evaluate the decision and the decision process

Define the Problem

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Remember- Problem well defined is half solved

Consider the situation faced by EI Nacho Foods, a marketer of Mexican Foods. The company had

positioned the line of Mexican foods as a high quality brand and used advertising effectively to convey

the message.

Shortly after the company’s introduction of frozen dinner, the competitors started lowering the price of

their frozen dinner. The firm lost market share and sales as a result of these price reduction, this loss

led to reduction in contribution dollar available for sales promotions and marketing.

How might the problem be defined in this situation?

One definition of the problem leads to the question: Should we reduce our price?

A much better definition the problem leads one to ask:

How can we maintain our quality brand image (objective) and regain our market share (success

measure), given limited funds for advertising and sales promotion ( constrains).

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The first problem definition asks for a response to an immediate issue

facing the company

It does not articulate the broader and more important considerations of

competitive positioning, hence it fails to capture the significant of the issue

raised

The second definition provides a broader perspective on the immediate

issue posed and allows the manager greater latitude in seeking solutions

D- Define the Problem

E- Enumerate the Decision Factors

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Two sets of decision factors must be enumerated in the decision making process

1. Alternate course of action

2. Uncertainties in the competitive environment

1. Alternate course of action:

Alternate course of action are controllable decision factors because the decision maker has

complete command of them.

Alternatives are typically product market strategies or changes in the various element of the

marketing mix

2. Uncertainties in the competitive environment

Uncertainties on the hand are uncontrollable factors that the manger can not influence such as

Competitors

Market size

Buyers response to marketing action

C-Consider Relevant Information

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The third step in the decision making process is the consideration of relevant information

Relevant information might include characteristics of the industry or competitive environment ,

characteristics of the organization ( such as competitive strength and position), and characteristics of

the alternatives themselves

There is frequently an overabundance of information in the form of facts and figures and viewpoints

Determining what matters and what doesn’t is a very essential skill that managers must acquire,

analyzing many and varied cases is one way to acquire this skill

Two notes of caution:

Case analyst must resist the temptation of considering all information as facts and part of the task

in any case is to asses the validity of the information

In many instances relevant information has to be created

It should be clear that at this point that though this is a third step in decision making process but it might

affect the earlier two steps

I- Identify the Best Alternative

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Identifying the best alternative is the fourth step in the decision making process

The selection of a course of action is not simply choosing alternative A over other alternative but rather,

of evaluating identified alternatives and the uncertainties apparent in the problem setting

Managers implicitly use a decision tree and a payoff table to describe the relationship among

alternatives, uncertainties and potential outcomes.

The use of decision analysis and the application of decision tree and payoff tables to describe the

relationship among alternatives, uncertainties and potential outcomes .

Suppose that at the conclusion of step 2 in the DECIDE process (that is enumerating the decision

fcators), EI Nacho executives identified two alternatives 1) Reduce price of frozen dinners 2) Maintain

the price

They also identified two uncertainties 1) Competition could maintain the lower price 2) Competition

could reduce the price further

I- Identify the Best Alternative cont……

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Suppose further that at the conclusion of step 3 in the DECIDE process ( considering relevant

information), EI Nacho executives examined the changes in market share and sales volume that would

be brought about by

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I- Identify the Best Alternative cont……

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Payoff table allows the manager or case analyst to compute the expected monetary value for each alternative. The expected monetary value is calculated by multiplying the outcome for each uncertainty by its probability of occurrence and then totaling across the uncertainties for each alternatives

I- Identify the Best Alternative cont…..

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This exhibit shows how expected

monetary value of perfect information

EMPVI can be calculated

Calculation of Expected Monitory Value (EMV)

Reduced price EMV A1= 0.9($150,000)+0.1($110,000)=$ 146,000

Maintain price EMV A2= 0.9($175,000)+0.1($90,000)=$ 166,500

Calculation of Expected Monitory Value of Perfect Information (EMVPI)

EMV certainty= 0.9($175,000)+0.1($110,000)=$ 168,500

EMVPI= EMV certainty _ EMV best alternative

EMVPI= $ 168,500 - $ 166,500 = $ 2000

EMPVI is the difference b/w what EI Nacho Food would achieve in contribution dollars if its management knew for certain what competitors would do and the avg. contribution dollars realized without such information.

I- Identify the Best Alternative cont…..

D- Develop a Plan for Implementing the Chosen Alternative

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The selection of course of action must be followed by a plan for implementation.

The execution phase is critical and, and planning for it forces the case analyst to

consider resource allocation and timing questions.

For example if a new product launch is recommended, it is important to consider how

managerial, financial, and manufacturing resources will be allocated for the course of

action.

If a price reduction is recommended, it is important to ensure that the price reductions

and reaching the final consumer and not absorbed by the resellers in the marketing and

distribution channel.

Timing is crucial as marketing plan takes time to develop and implement

As a final note it is important to recognize that the strategy formulation and its

implementation are not necessarily separate sequential process

E – Evaluate the Decision and Decision Process

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The last step in the DECIDE process is the evaluation of decisions made and the

decision process it self

WRT decision itself, two questions should be asked

1. Was a decision made?

This is a common short coming where the analyst do not make a decision but just talks

about the situation facing the organization.

1. Was the decision appropriate, given the situation identified in the case setting?

This question is about insufficient information on one hand and failure to consider and

interpret information on the other.

Some times information required to make a decision is not available, in that case,

assumptions are made.

Assumptions must be made with proper logic and articulation

Assumptions should never be made casually and for the sake of making them

E – Evaluate the Decision and Decision Process con…

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The case analyst should constantly monitor how he/she applies the decision making

process

The mere fact that the decision was right do not suggest that the decision process was

right.

After completing the class discussion/case assignment in real life, critically examine

these questions:

Did I define the problem adequately?

Did I define all pertinent alternatives and uncertainties? Were my assumptions realistic?

Did I consider all information relevant to the case

Did I recommend an appropriate course of action? If so, was my logic consistent with the

recommendation? If not, were my assumptions different fro assumptions made by

others? Did I overlook an important part of information?

Did I consider how many recommendation could be implemented?

Honest answer to these questions will improve the chances of making better decisions in

the future.