3 Making decisions
Given a set of proposals for which the feasibility has been assessed, management must now decide which proposals to pursue. What decision makers are looking for is the best option available.
Decisions are too often made on the basis of personal inclination and interest, for ‘political’ reasons – enhancing the power or prestige of an individual or a group within the organisational hierarchy – or for better reasons but in the absence of full information about the possible risks and outcomes of the decision. We have laid more stress on investigating how and why decisions are made and whether structured and scientifically based methods of decision making are possible, since making a bad decision will be costly. We now describe some factors to be considered and some methods that aid decision making.
At the end of Section 3, you should be able to:
- describe an appropriate model for deciding which proposal to pursue
- explain why it is necessary to calculate profitability in the same way for proposals which are being compared in order to choose from them
- calculate expected monetary value (EMV) for possible outcomes in a decision tree
- explain how proposal-ranking formulas work
- use a checklist or measured checklist
- state the main limitation of these techniques
- list some of the questions a decision maker needs to ask before making a decision.