MAB_A5
Bob Mackey is the principle owner of Fuels Inc. Bob has been able to increase his salary by a factor of over 100. At the present time, Bob has to remain competitive in his industry, so he has the following alternatives regarding fuel equipment purchases.
|
Equipment |
Favorable Market |
Unfavorable Market |
|
Panther |
$200,000 |
$100,000 |
|
Knight |
$300,000 |
$75,000 |
|
JB Billow |
$50,000 |
$12,000 |
Compose a paper in which you make a recommendation to Bob and Fuels Inc. In your paper, be sure to include the following components:
· an explanation of the type of decision Bob is facing,
· a discussion on the decision criteria that should be used,
· a description of how you will apply the six steps of the decision-making process and,
· a recommendation for which alternative is best for Fuels Inc. Why?
Your completed paper must be at least two pages in length. You must integrate your textbook and at least two other academic sources. Be sure to include an introduction and conclusion section in your paper. Adhere to APA Style when constructing this assignment, including in-text citations and references for all sources that are used. Please note that no abstract is needed.
If you need more practice on the math skills that are required in this assignment, the CSU Math Center created this
Decision Analysis Example recording
that might help you when completing this assignment. A transcript and closed captioning are available once you access the video.
LDR 5301, Methods of Analysis for Business Operations 1
Upon completion of this unit, students should be able to:
4. Explain the major steps in decision-making.
4.1 Apply the six steps in decision-making.
4.2 Discuss the decision criteria that should be used in a given scenario.
4.3 Determine the type of decision-making environment in a given scenario.
Course/Unit
Learning Outcomes
4.1
Chapter 3, pp. 63–73
Video: Decision Making Steps in Management
Article: “The Road to Desert Storm”
Unit V Assignment
4.2
Unit Lesson
Chapter 3, pp. 63–73
Video: Decision Making Steps in Management
Article: “Seven Types of Data Guiding COVID-19 Decision-Making As We
Move From Response to Recovery”
Article: “The Road to Desert Storm”
Unit V Assignment
4.3
Unit Lesson
Chapter 3, pp. 63–73
Video: Decision Making Steps in Management
Article: “The Road to Desert Storm”
Unit V Assignment
Chapter 3: Decision Analysis, pp. 63–73
In order to access the following resources, click the links below.
Gregg Learning. (2017, December 8). Decision making steps in management [Video]. Cielo24.
https://c24.page/6nf68jfagyftvwfj6p8jp5pcr9
A transcript and closed captioning are available once you access the video.
Lipshitz, R. (1995, Spring). The road to Desert Storm. Organization Studies, 16(2), 243–264.
https://link.gale.com/apps/doc/A17167890/ITBC?u=oran95108&sid=ITBC&xid=581103a4
Prall, D. (2020, April 29). Seven types of data guiding COVID-19 decision-making as we move from response
to recovery. American City & Country.
https://link.gale.com/apps/doc/A622309984/ITBC?u=oran95108&sid=ITBC&xid=b9b9437c
UNIT V STUDY GUIDE
Decision-Making
https://c24.page/6nf68jfagyftvwfj6p8jp5pcr9
https://link.gale.com/apps/doc/A17167890/ITBC?u=oran95108&sid=ITBC&xid=581103a4
https://link.gale.com/apps/doc/A622309984/ITBC?u=oran95108&sid=ITBC&xid=b9b9437c
https://link.gale.com/apps/doc/A622309984/ITBC?u=oran95108&sid=ITBC&xid=b9b9437c
LDR 5301, Methods of Analysis for Business Operations 2
UNIT x STUDY GUIDE
Title
Unit Lesson
Introduction to Decision-Making
We know from previous units that the keys to business
analytics are the components and steps illustrated in Figure
1. When the four steps are complete, it is time for decision-
making to take place. Sounds easy, right? It is not so
because there is more to the process. The process in
Figure 1 is basically how we gather data to make a
decision.
The data can be in the form of numbers and production in
manufacturing with how many shifts to run or employees to
hire. In law enforcement, the model can look at the number
of calls received at 911 to determine the number of
operators on duty at peak times. Recall the example of
Arnold’s Mufflers from the last unit; the time slots used to
set up appointments were based on the average amount of
time to change a muffler. Even gambling and playing
television game shows are based on data. Within the
quantitative/business analytical diagram we have the
ground zero or decision-making process. According to
Render et al. (2018) there are six steps that can be found
on page 63 of the textbook.
Let’s examine the diagram in Figure 2. We have a decision
to be made, which is followed up with multiple alternatives or choices. The result indicates the mathematical
tools we use that produce an outcome for comparison. At this point, the outcome indicates not only final
results but also the likelihood it may occur. The diagram provides a clear comparison when you look at the
decision-making alternatives: Choice–Outcome (which is usually profit, loss, or higher cost, lower cost) to a
final selection or outcome, which is the bottom line (end result). Also, note that this format does not always
have to be a mathematical event. This could be an event regarding military operations for an attack. It could
relate to a public health concern regarding a pandemic. It could be a decision process regarding a rescue
operation, all of which have alternatives and impact on the result and outcome.
Figure 1: Keys of Business Analytics
Figure 2: Decision-making alternatives
LDR 5301, Methods of Analysis for Business Operations 3
UNIT x STUDY GUIDE
Title
Decision-Making Environments
According to Render et al. (2018), all decisions are made within environments. These environments are not
dealing with weather or geographic location, but rather the environments consist of decision-making under
certainty, decision-making under uncertainty, and decision-making under risk. Let’s now discuss each one of
these.
Decision-Making Under Certainty
Consider yourself the decision-maker using the diagram in Figure 2 to map out your decision. You more than
likely make decisions based on consequences that you know will happen. For example, if a heavy ice storm is
taking place; your decision to not go to the local grocery store for milk is a smart decision after seeing on
television that five accidents have happened on that street. Here is another example: assume you have
$1,000 to invest for one year. Your choices are a high-flying biotech company in the stock market, (returns
range from -30% to +30%), a savings account paying $1.20 a month, or a certificate of deposit (CD) for 1 year
paying 2%. Looking at certainty, you, as the investor, see that in the first option, although it could provide a
30% return ($300), you could also lose $300 and your principle would then be $700. This is uncertainty. The
other two investment vehicles have low rates of return, but your decision-making will be based on when you
need the money; that is the critical element. Savings accounts have easy access and withdrawal. CDs have
locked-in time periods, and early withdrawal will have a penalty that the CD owner will have to pay. Many
banks charge a flat fee, for example, a percentage of the principal.
Decision-making Under Uncertainty
According to Render et al. (2018), there are five criteria that dictate uncertainty: optimistic, pessimistic,
criterion of realism, equally likely, and minimax regret. For the purpose of our objectives, we will only cover
the first four criteria for decision-making under uncertainty. Frankly, decisions under uncertainty are decisions
you really want to avoid. If the environment is uncertain, then you have incomplete information to make a
decision. There could be multiple solutions that produce a probability of success based on the uncertainty.
Most of us are likely familiar with the first two criteria: optimistic and pessimistic. Optimistic deals with the best
payoff or highest probability of success. Pessimistic refers to the worst case scenario with the best of the
worst payoffs.
The criterion of realism is a new term created from the old term called weighted average or average outcome.
This criterion is the middle ground (hence the mean average) of all the outcomes that use a coefficient of
realism x that is selected. Let’s use some information from the textbook on page 67 to illustrate this point.
Assume John Thompson sets his coefficient of realism x at .80 to construct a plant. Given the data from Table
3.4, we have the following criterion of realism:
Formula: Weighted average = x (best in row) + (1-x) (worst in row)
Solution: $124,000 = (.8) ($200,000) + (.20) (-$180,000)
The equally likely (EL) criteria assumes that all probabilities are equal. Looking at the data in table 3.5 in the
textbook, we see the following:
Construct a large plant $200,000 (favorable market)—180,000 (unfavorable market) = $20,000/2 = $10,000
EL
Construct a small plant $100,000 (favorable market)—20,000 (unfavorable market) = $80,000/2 = $40,000 EL
The benefit of the formula and computations is to make comparisons on which option is the best. In business,
remaining competitive in the market is based on many factors: quality of your service or product, repeat
customer business, controlling cost, expanding your market, and profit margins. When growth is a factor to
gain more market share, plant expansion costs are critical. Executives want to know what the best value is for
the money.
LDR 5301, Methods of Analysis for Business Operations 4
UNIT x STUDY GUIDE
Title
Decision-making Under Risk
Render et al. (2018) review decision-making under risk through the formula applications of expected
monetary value (EMV). However, risk takes on more than just formulas. Certainly, all of us could ignore every
type of psychological behavior known and just grind through a formula to determine the risk. However, there
is a lot going on when making decisions under risk. Look at Figure 3. Our own personal values and
preferences first come into play; they cannot just be ignored. The ground zero of decision-making is
influenced by both sides of the risk scale; either we have perfect information or uncertain information. We see
this all the time in Hollywood movies and TV shows dealing with war, police dramas, and investigations
because things such as information and intelligence gathered drive decisions. Note also that time is usually a
factor; you have one minute to evacuate 500 people from your office on the 35th floor because of a bomb
threat with only one exit, the main door.
Figure 3
displays all the factors that affect decision-making. Some we can control, some we cannot. As you
can see, our personal values affect the immediate direction, and for each of us, our values are different. From
these values, we face the challenges of internal and external influences such as time, risk, new information,
certainty, and uncertainty. Factor all these in and the bullseye in the center is “What will you do?” “What is
your decision?”
Now, let’s go back to the same game show example we used in Unit II with expected value (EV), only this
time we are going to look at the situation from a decision-making, emotional support, certainty, and
information standpoint.
Figure 3
LDR 5301, Methods of Analysis for Business Operations 5
UNIT x STUDY GUIDE
Title
You are the
contestant, and
you have three
friends and family
members cheering
you on and
helping you make
decisions. Here is
where the
decision-making,
emotional support,
uncertainty, risk,
and information
come into play
because you must
determine whether
to stay in the
game or quit. Is
the $1million case
still in play? What
other values are
left on the board?
You obviously
want to eliminate
as many of the lowest case values possible to increase the EV of the banker’s offer.
Emotional support in this situation are the friends and family that help you determine if the banker’s offer is
good or bad. Alternatively, if one of your friends has never had $200,000 before, he might urge you to take it
and run. There could be unmet needs here with the person that we do not fully know. Some things to consider
is whether they have debt, have college loans to pay off, or need the money to pay off a mortgage or buy their
mom a new home. So, the question of emotions comes down to this for you, the contestant.
Contestant Example: What Do You Do?
Assume you have made it to the final four cases that are up on the board. You know with four cases left you
have a 25% chance of having the $1million case. The case values are as follows: $25, $1,000, $250,000, and
$1million. Therefore, you are still in the game! The host of the show has the banker compute the payoff at this
point, which is $200,000.
Having taken this course, you know to take out your calculator and determine the EMV of the expected
payout offer. During the commercial break, your emotional support is giving you mixed recommendations.
Once the show starts back, the audience begins to get involved with lots of mixed screaming from the
audience and your emotional support team: “Take the money!” “Stay in the game!” What do you do?
First, you tell the host the payoff is too low. You computed the EMV, and it should be $312,000 (see the chart
below); the banker is very short. All of that aside, you have proven to the host you know your stuff, but the
$200,000 payout still stands. What do you do?
Value Expected Payout
$25 $25 x .25 = $6.25
$1,000 $1,000 x .25 = $250
$250,000 $200,000 x .25 = $62,500
$1,000,000 $1,000,000 x .25 = $250,000
Total = $312,756 (rounded to nearest dollar)
It is now decision time:
• Is there a right answer? Maybe.
• What is your risk level?
LDR 5301, Methods of Analysis for Business Operations 6
UNIT x STUDY GUIDE
Title
• How badly do you need the money?
• What is your emotional situation?
• What are the odds? There is a 25% chance you have the winning case and a 75% chance you do
not.
Reflect on the figures in this lesson and think about emotions, certainty, uncertainty, and risk-taking. What
decision would you make?
Conclusion
In this unit, we looked at decision-making analyses, which included reviewing and analyzing the six steps,
types, and the environments decision-making is used in (certainty, uncertainty). The lesson also brought
forward the fact that decision-making is complicated when emotions become involved, and it also highlighted
the amount of risk an individual is willing to take. Again, the example of Deal or No Deal was used from an
emotional decision-making standpoint to emphasize what factors affect the decision, as well as how emotions
and risk can affect judgment.
Reference
Render, B., Stair, R. M., Jr., Hanna, M. E., & Hale, T. S. (2018). Quantitative analysis for management (13th
ed.). Pearson. https://online.vitalsource.com/#/books/9780134518558
In order to access the following resources, click the links below.
The Chapter 3 PowerPoint Presentation will summarize and reinforce the information from this chapter in your
textbook. You can also view a PDF of the Chapter 3 presentation.
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
For an overview of the chapter equations, read the Key Equations on page 92 of the textbook.
Then, complete questions 1–16 on the Self-Test on page 97. You can use the key in the back of the book in
Appendix H to check your answers for self-tests.
Complete Solved Problem 3–2 on page 94. For the solved problems, the problem is presented first, followed
by its solution. Challenge yourself to apply what you have learned, and see if you can work out the problems
without first looking at the solution, only using the solution to check your own work.
Finally, complete Problems: 3–20 and 3–22 on page 99. You can use the answer key in Appendix G in the
back of the textbook in order to check your answers
https://online.columbiasouthern.edu/bbcswebdav/xid-145745443_1
https://online.columbiasouthern.edu/bbcswebdav/xid-145745442_1
-
Course Learning Outcomes for Unit V
Learning Activity
Required Unit Resources
Unit Lesson
Introduction to Decision-Making
Decision-Making Environments
Decision-Making Under Certainty
Decision-making Under Uncertainty
Decision-making Under Risk
Contestant Example: What Do You Do?
Conclusion
Reference
Suggested Unit Resources
Learning Activities (Nongraded)
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Formatting
Title Page
Citation
Outline
