A critical analysis of decision- making methods/ heuristics
Decision making involves a process in which choices are made by setting goals, collecting relevant information, and performing an assessment of the available alternatives to make the best choice. Decision making is crucial to the management in determining the optimal choices from multiple alternatives available in business operations. According to Goodwin and Wright (2014), various heuristics are deployed in the process of decision making by the individuals or organizations depending on the alternatives involved. These methods include recognition, minimalistic, and lexicographic approaches.
Recognition method
In this method, the decision making is determined using set criteria for evaluating the available alternatives. Primarily, recognition heuristic is an approach that individuals or the managements use to evaluate the best decision between two options (Goodwin and Wright, 2014). It involves making inferences on the basis of a certain criterion where the decision makers do not have a direct access to the information pertaining to what they intend to base their conclusions. The process involves two alternatives which are evaluated against a particular criterion. If the set criterion more recognizes one of the alternatives, the decision maker takes that alternative as best. For example, in Mangle’s selection of suppliers, a decision regarding the best company could be evaluated using aspects like engineering and logistics and setting the criterion for the selection. If the criterion favors the logistics, then Mangel’s would select the company with the highest logistic information.
This method is relevant to various aspects of business operations such as management and marketing (Hogarth and Karelaia, 2007, p. 739). A correlation must exist between the alternative and the criterion. For example, a consumer wants to make a choice between two brands of a product. He considers all the features and set a criterion to evaluate the product on its best feature. If he considers price and quality and the quality is more recognized by the criterion, the consumer will buy the product with high quality even if the price of the other brand is relatively lower.
Minimalistic method
Sometimes, the decision making involves evaluation of complex alternatives. The decision maker wants to take the best alternatives by considering several attributes. In some cases, none of the alternatives appears best to the decision makers. Therefore, they must look for finer details on which to base their decisions. The minimalistic approach involves first applying the recognition method to determine the best option (Fülöp, 2005). If the criterion does not recognize any of the options, the decision maker must go deeper to evaluate the options using other methods.
Minimalistic heuristic involves guessing the best option if neither of the alternatives was recognized using the recognition method. If the recognition method does not give the best option, the minimalistic approach picks one attribute at random and evaluates the alternatives using this attribute (Goodwin and Wright, 2014). The decision is based on the best performance on the chosen attribute. If the options perform equally on this attribute, the decision maker chooses another attribute and continues with the process until the optimal decision is reached. For example, if a manager wants to decide on a particular marketing approach, he will evaluate the available alternatives based on some attributes like cost and effectiveness. If after applying the recognition method neither of the options is optimal, he will pick one of the attributes, say cost and evaluate the alternatives on it. If the alternatives perform equally on cost criterion, the decision maker will select the other attribute like effectiveness and evaluate his alternatives to it. If the alternatives still perform equally, he selects another attribute until the best decision is made. In the Mangel’s case, the selection of the best supplier of ECU using the minimalistic method would involve evaluating each aspect from engineering to logistics until the best decision is reached. For example, if all companies perform equally when evaluated under engineering, the decision maker considers the quality and continues until he makes the best decision.
Lexographic method
This method involves basing the decision on an attribute that is perceived to be the most important by the decision- makers (Keeney & Raiffa, 1993). Thus, the decisions made depend on what an individual perceive to be the best feature of something. The method involves adding value to the attributes on which the alternatives are to be evaluated and choosing the alternative whose value is the highest (Fishburn, 1974). For example, a consumer who wants to make the best decision about the best TV to purchase looks at the available brands, compare the features, and if he perceives features to be equal, he tends to purchase the one with the highest perceived important attribute. The selection of the best supplier in the Mangel’s case using the lexicographic method would involve adding value to all the attributes such as quality, logistics and production, and selecting the best company on the basis of the attribute with the highest value.
Analysis of the Mangel’s case using the SMART process
The decisions that an organization makes should be efficient to promote the success of achieving its objectives. The management needs to make decisions concerning various aspects of business operations such as the most efficient production method, the best marketing technique, and the best supplier. Such decisions need to be within the capacity of the organization in terms of resources and other necessary requirements (Nowduri, 2011). Mangel’s faces a decision- making situation involving selecting the best supplier. The decision to be made should consider various conditions.
An efficient decision should produce the highest returns if the organization chooses it (Figueira, Greco, and Ehrgott, 2004). He should identify the processes used by the manufacturers of the ECU and determine how these processes will affect the performance of the company and its customers. Also, Mangel’s needs to consider how the decision to select the ECU from a particular supplier will affect the quality of the new brand of automotive he intends to produce. Besides, the response from the various suppliers should produce a clear reflection of the main requirements of the ECU such as safety and maintainability. The risk involved in each decision should also be evaluated to determine the alternative with the lowest risk.
The degree to which the risk is spread is another critical factor that Mangel’s must put in consideration. Various alternatives have varying levels of risk. For example, the loss due to the selection of a company that does not disclose any information concerning the methods it uses in production is not the same as the risk of selecting the supplier who does not reveal logistic information (Keeney & Raiffa, 1993). Therefore, Mangel’s should be very specific as to what he wants to accomplish by selecting a particular company.
The assessment of the measurability of the risk associated with selecting any of the companies is crucial to ensure the selection of the company that exposes Mangel’s to the minimal risk. The decision maker needs the information concerning various aspects such as quality and the delivery method to assess the reliability of different suppliers (Bruns, 2016). This information is crucial to help the management at Mangel’s in the description of the specific requirements and determination of the performance of ECU in relation to these requirements. The information on the four aspects which include engineering, production, quality, and logistic should be measurable since the decision is made depending on what Mangel’s wishes to achieve after evaluating each aspect.
The company to be selected to supply the ECU to Mangel’s has to meet some requirements. For example, the supplier must disclose the information about the production process for the ECU. The information should guide the decision maker on how selecting a particular supplier would improve the operations and minimize the risk for the company (Nowduri, 2011). The operational and financial performance of Mangel’s should also improve. Additionally, improved productivity and returns should be achieved after making the decision to purchase the ECU from a particular supplier. The company sets some realistic conditions before performing an evaluation to assess the amount of information each company could disclose for various aspects. Mangel’s does not expect the suppliers to disclose 100% of their information nor does it expects zero information.
A company that lies within the efficient frontier is the one that meets the criteria for selection set by Mangel’s. The company seeks to select the supplier who discloses the information it requires for decision making without exaggeration. The information concerning every aspect is significant to facilitate the decision making (Bruns, 2016). Barrow reveals all the information and does not exaggerate. As such, it lies on the efficient frontier since it does not expose Mangel’s to loss of investments due to lack of sufficient information for making decisions and its quotation price is fair.
Recommendation on the company that should be chosen to supply the ECU
Every business organization aims at maximizing profits and operating at the lowest possible risk. Additionally, the success of an organization depends on how it relates to its stakeholders. The reliability of suppliers is of central importance to the business in terms of making it realize its objectives (Mwikali & Kavale, 2012). The supplier constitutes the central pillar of the business since the manufacturing process relies on suppliers for raw materials. According to Thanaraksakul and Phruksaphanrat (2009), a company with all information about its supplier is able to make its decisions efficiently because it has an assurance of the supply of resources needed to implement such decisions.
A company considers various factors when deciding on which supplier to contract. The quotation is one of the most crucial considerations that Mangel’s makes when selecting the best supplier. The company seeks to minimize the cost to maximize profits. Therefore, it must select the supplier with the most reasonable billing rates. However, the reliability of the supplier is of paramount significance to the business (Ozaki et al., 2012). Thus, a combination of fair price and reliability is a strategic mix to put the producer at the lowest risk. Mangel’s would select the supplier who is the most efficient and reliable. Considering the information disclosed by each supplier regarding the various aspects, Barrow is the company to be chosen to supply the ECU because apart from disclosing all the information, it is reliable in all aspects. Furthermore, the quotation price of Barrow is quite reasonable to be considered as the best supplier.
A critical analysis of Milton Friedman’s statement
It is undeniable that companies’ main objective is to maximize profits by satisfying their customers. Additionally, companies operate under a certain legal framework which ensures the protection of their stakeholders. Companies tend to be self-focused in the pursuit of their profitability objectives. The owners consider only the benefits of undertaking the business without taking into account the social costs (Johnson, 2003). Business organizations operate in the same environment that is meant to benefit the outsiders. The natural resources that facilitate various processes come from the environment. However, most companies do not pay attention to the rules relating to the environmental sustainability. Therefore, to constrain the egocentrism in companies, the society must tighten environmental regulations to safeguard its future.
Manufacturing processes have various social costs which do not reflect on the market value of the products. Such costs constitute negative externalities because they affect the third party to the business. The society is the ultimate sufferer from the negative externalities produced by the selfish companies. Most companies focus on cost minimization. Therefore, they cannot invest in the modern methods of disposing of wastes (Johnson, 2003). The environmental pollution resulting from the factories affects the entire society. However, the market value of the products or services does not include the social cost to the society. This compromise the future of the majority and the companies themselves since continuous pollution is a threat to human existence.
The society is the major supplier of labor to the companies. However, conflicts always exist between the companies and the society due to poor wages paid by the companies as they strive to minimize the costs. Due to excess labor supply, companies tend to set wages below the minimum. According to the Marxist theory, the modern corporate society is characterized by the conflicts between the capitalists who own the companies and the majority who supply labor as the capitalists as each strive to maximize their benefits (Johnson, 2003). Companies tend to exploit the society for the benefits of the owners. Therefore, society must set the appropriate labor regulations to protect it's members from such exploitations.
In conclusion, it is apparent that some companies tend to control major resources in the society. They own and protect these resources and knowledge, claiming that they are their intellectual properties. As such, they tend to be the sole producers of particular products or services. Therefore, they determine the market prices since they monopolize the markets. Additionally, these companies exercise very high levels of nepotism when it comes to employment. They set wages that maximize their benefits and compromise the welfare of the society. Because these companies are the sole producers, they set exploitative prices for their products or services. The products' quality is often compromised since the society does not have any other source. Therefore, unless the society enacts effective anti-monopoly regulations, it will continue to suffer exploitation as the capitalists and their families continue to improve their status.
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