Business & CommercialAwareness

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Lecture 5: Decision Making 1 Qualitative

j.a.g.willard@herts.ac.uk

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Learning Outcomes• To appreciate the different types of decision

– Qualitative vs quantitative– Proactive vs reactive– Null decisions

• To understand and be able to identify strategic, tactical and operational decisions

• To be aware of the role of politics and personal agendas in business decision making

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Decisions

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RECAP: In business nothing stands still; for instance:• Technology advances• Markets rise and fall• Competitors enter and exit• Businesses acquire or lose assets

These changes require businesses to react:

The initial reaction requires:• Analysis• Development of options for action• DECISION

This and the next lecture focus on Decisions

Decision Types

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Reactive Proactive

Strategic Tactical Operational

Null

Qualitative Quantitative

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Qualitative Quantitative

Decisions require consideration of both types of factors, but one usually predominates. However it is rare that a decision is wholly of one type

Non-numerical inputs eg:Opinions

Stakeholders’ feelings & attitudesAssessments of likely behaviours

Organisational politics

People related factors

Some analytical techniques

Different decisions are likely despite the same inputs

Based on judgment or subjectivity

Numerical inputs eg:Market research

ForecastsHistorical data

Data related factors

Many analytical techniques

Repeatable, consistent

Objective as they are based on certainty or probability

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Reactive Proactive

Proactive decisions are preferable but not always possibleSuccessful businesses make more proactive than reactive decisions

A decision made after an event

Event could be internal or external to the business, eg:Competitor activity

Legal changeTechnological advance

Change in consumer preferencesMachinery breakdown

Labour strike

Events may be foreseeable

Impact of decision is lateridentify change analyse decide

A decision made before an event or a unilateral business initiative

Decisions can relate to external or internal factors eg:Product launches

New plant using new technologyTakeovers and mergers

Expansion into new markets

Always involve anticipation

Greater risk and hence may fail

Impact of decision is earlierspot opportunityanalysedecide

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Strategic

Tactical

Operational

Decisions with long term impact which determine the overall direction of the whole business and how it will get there, eg:A strategic decision for a fast food restaurant would be the food type (burgers, pizza etc), or the territories in which to operate

Decisions of a shorter time horizon that relate to how to achieve the long term strategy eg:For the fast food restaurant, should they buy existing restaurants, build their own, lease etc;should they make all food from raw materials or use pre-prepared food that they cook or reheat

Decisions which determine how individual functions run . They have much shorter time frames eg:For the fast food restaurant, which towns and precise sites do they operate from, what are the opening hours, what is on the menu

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Null Decisions

“A decision to do nothing”•This is still a decision - it is not avoiding change•Sometimes the best action following an event or when faced with an opportunity is to do nothing, eg:

• A drop in interest rates creates an opportunity or need for action• A bank reviews the situation and decides not to cut its rate to savers

•This would be an ACTIVE null decision•They may be the hardest decisions to take and can show great business courage or foresight

BUT• A null decision can also be made by DEFAULT• There is no conscious human thought process• The same state continues due to:

1. Ignorance that something has changed or that a decision is needed2. Lack of resource or skill to analyse the situation3. Laziness – the business cannot be bothered to think or take action

• Whilst a good outcome may result, this is not due to good business practice

Making Qualitative Decisions

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G e n e r a l l y d e c r e a s i n g a c c u r a c y

MCDAeg Solution Matrix(see the last and the next lecture for more on this)

• Identify quantitative factors• Weight them for importance. Score, Multiply and Add them• Choose decision with highest score• It is a pseudo quantitative decision• An audit trail exists

Group decision • All decision makers meet• Discussion – views shared, debated• Consensus decision or vote decision based on average view• Averaging gives better decisions but beware committee thought• If minutes of meeting are taken then there is an audit trail

Subjectiveunbiased decision

• One person assesses the facts, analysis, opinions• Filtered through their own perceptions, values and beliefs• Open to sub-conscious bias and a misleading confidence• Generally quick but sub-optimal and no audit trail

Subjectivebiaseddecision

• Individual decision maker – or a key influencer’s input• ‘Correct’ decision is manipulated by a personal agenda • No open acknowledgment of the bias• No audit trail or maybe a deliberately false one will exist

yy

yy

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Qualitative decisions involve judgment, interpretation, opinion

A good decision is one that most ‘experts’ would reach

BUT few decisions are repeated – they are one offs

It is very possible to justify one-off decisions on ‘the facts available at the time” – and you can even carefully groom the

factsSo, most qualitative decisions can be manipulated . . . .

. . . to meet personal rather then best business interest objectives

It is hard to spot the manipulation or even who is doing itThe result is a political decision and

A decision not in the best interests of the business

POLITICAL DECISIONSDecisions concerned with power which are carried out for reasons that best serve a desired outcome, rather than for other reasons such as being morally justifiable *

* Encarta Dictionary

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Reasons behind political decisions

Driver Possible Counter

Fear of the ‘correct’ decision Discuss reasons for fear with the decision maker and explore ways to counter these fears or reasons for them

Self-advancement / role protection Alert other decision makers/influencers and suggest they act. Care as this is ‘whistle blowing’ – role protection can be a fear

Avoidance of work or responsibility Discuss reasons and remedies with decision maker (eg: lack of skill, fear of work overburden, no buy-in to the work, laziness)

Intra-business conflict Alert other managers, try to understand the causes and look for ways to reduce conflict. Role changes may be needed

Business sabotage/vendetta Inform top management. This may result in legal action, so be careful: investigate thoroughly, get evidence, look for allies

Competitor inspired activity Inform top management. This may result in legal action, so be careful: investigate thoroughly, get evidence, look for allies

There are many possible drivers for political decisions

decision makers will not advertise them, but . . . .

. . . . it is often possible to identify them

. . . . and then action to counter them may be taken

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Warnings concerning political decisions

1. Counters involving discussion with the political decision maker are always possible

This can identify the cause and a remedy, but is very risky unless you have personal power

It can also result in denial and even more deeply submerged political behaviour

2. To take action you need to be aware that it is happening

Business people playing this ‘game’ are experienced and clever. They will mislead you. A badly aimed attempt to address the issue can damage the business and especially you. Be cautious and cover yourself

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An agenda is a list of possible outcomes which are open for general discussion

A deeply hidden agenda is a list of outcomes not open for discussion and where their mention is actively avoided

BUT someone is trying to make them happen

Some hidden agendaoutcomes may be

broughtto the surface if they areopenly discussed byothers . . . . .

. . . .or if the hidden agendaholder can be persuadedto discuss them ie: tounhide them

Why do hidden agendas exist?

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ReasonsAnd Examples

Desire of the outcome but no

wish to be associated with it

Feelings that their open support

could prevent its adoption

Personal reasons which

have no business basis

Personal hidden dislike / vendetta

against a key agenda supporter

HR Director favours a redundancy programme but wants to appear as a

champion of the workforce

Sales Director does not want the sales office to move to London from Cardiff as his children will have to move school and his wife is very unhappy about this

Manager who lost out in promotion race tries to railroad an important business initiative championed by their rival

CEO known to want the HQ to move from London to NY, hides support for acquisition of a large

NY based competitor

Handling hidden agendas

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• Hidden agendas are hard to spot and harder to deal with• Keep an eye open for non-typical behaviour• Watch for those who are advocating non-logical decisions

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In this lecture we have learned:•Business decisions can be categorised:

• On a range from Quantitative to Qualitative• As proactive or reactive• As Strategic, Tactical or Operational• And if there is no action, as Active or Default Null Decisions

•There are 4 broad categories of qualitative decisions1.analytical 2.group decisions 3.personal unbiased 4.personal

biased

•Qualitative decisions can be sub-optimal due to political factors and the presence of hidden agendas

• We have identified the major reasons for this, and• Some methods to handle these situations

Summary