Chapter 3 Ashwin Mridul Sanjay Neelesh

7/29/2019 Chapter 3 Ashwin Mridul Sanjay Neelesh

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Mridul Borgohain 11BM60021Ashwin Variyar 11BM60039Sanjay Kumar 11BM60049

Neelesh Khattar 11BM60070


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According to Peter Drucker: Decision making

is a rational and systematic process and that its

organization is a definite sequence of steps,

each of them in turn rational and systematic.

The Decision Making Process that will bedescribed here is called the DECIDE Method


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Define the Problem Enumerate Decision Factors

Consider Relevant Information

Identify the best Alternative Develop a Plan for Implementing a Chosen

Alternative

Evaluate the Decision and the Decision

Process


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According to philosopher John Dewey: Aproblem well defined is half solved

The Problem Definition Framework consists of:

- Objectives of the Decision Maker- Recognition of Constraints

- Clearly articulated Success Measure

Eg: How can we maintain our quality brand image(objective) and regain our lost market share(success measure) given limited funds foradvertising and sales promotion (constraint).


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There are two sets of Decision Factors:- Alternative Courses of Action: These are

controllable as the decision maker has completecommand over them. Eg. Product Market

Strategies or Changes in various elements of theorganizations marketing mix.

- Uncertainties in the competitive environment:These are uncontrollable factors that the

manager cannot influence. Eg. CompetitorActions, Buyer response to a marketing action,Market size, etc


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Relevant informationconsists of information thatrelates to the alternatives identified by themanager as being likely to affect future events.Includes characteristics of the following:

- Industry- Consumers

- Competitors

- Organization: Competitive Strengths and Position

- Alternatives


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Identifying relevant information is difficult:- There is often too much information and viewpoints.- Determining what does and does not matter

is a skill learned through experience.

- Dont consider everything as factual information.- Sometimes relevant info must be created

Eg. Blending several pieces of data: calculation ofsimple breakeven point.

After completing Steps 1 to 3, the manager hascompleted the Situational Analysis.


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This step consists of Decision Analysis:- Matches each alternative with the uncertainties in the

environment.

- Assigns a quantitative value to the outcomeassociated with each match

Uses a decision tree and a payoff table toshow the relationship among alternatives,uncertainties, and potential outcomes


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Example : El Nachos Food: Product: FrozenDinners

Alternative Courses of Action:- Reduce Price- Maintain Price

Uncertainties about Competitors:- Maintain Lower Price- Reduce Price further


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Decision Tree

Company Action CompetitiveResponse Financial OutcomeReduce Price -Maintain Price

-Reduce PriceFurther

$150,000

$110,000

Maintain Price -Maintain Price

-Reduce PriceFurther

$175,000

$90,000


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We will now make use of a Payoff Table:

A Payoff Table displays the alternatives,

uncertainties, and outcomes facing a firm.

It includes managements determination ofthe probability of an uncertaintys occurrence


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Payoff Table for El Nacho Foods

Uncertainties

CompetitorsMaintain Price(p=0.9)CompetitorsReduce Price(p=0.1)

Reduce Price $150,000 $110,000

Maintain Price $175,000 $90,000


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Decision Analysis and Value of Information:A1 Reduce Price A2 Maintain Price

EMV Expected Monetary Value EMVPI EMV of PerfectInformation

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

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

EMV(Certainty)=(0.9$175,000)+ (0.1$110,000)=$168,500EMVPI = EMV(Certainty) EMV(Best Alternative)

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


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EMVPI is viewed as the upper limit to pay for perfect information.

It is a useful guide as far as expenditure on Marketing Researchis concerned.

Decision analysis is important because it:

- Is a fundamental tool for considering what if situations.

- Forces the manager to quantify outcomes associated withspecific actions.

- Is useful in a variety of settings

- Can be used in determining the value of perfect information


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The Execution phase is critical. Planning for itforces case analyst to consider resourceallocation and timing questions.

Allocating marketing, financial, andmanufacturing resources.

The time needed to develop a marketing plan


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With respect to the decision itself, ask:

Was a decision made?

Was the decision proper given the situation?- Insufficient information present?

- Failure to consider and interpret relevant

information?- Logical assumptions made regarding data gaps?


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Ask 5 questions of the decision-making process:

- Was the problem defined adequately?- Were all the pertinent alternatives and uncertainties

identified? Were the assumptions realistic?- Was all the relevant information considered?

- Was an appropriate course of action recommended?Was the logic consistent? Was any important piece of

information overlooked?- How can the recommendation be implemented?


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Approaching a Case:- On the first reading, you should concentrateon getting acquainted with the situation theorganization finds itself in.

- First reading is used to gain insights into thecase and also to obtain backgroundinformation on the organization and

environment.- Second reading is used to determine the

reliability and relevance of data.


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Approaching a Case: Pitfalls- Rushing to a Conclusion

- Working the numbers before their fullmeaning and derivation is understood.

- Confusing Supposition with Fact.


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Formulating the Case Analysis- Nature of Industry, Market and Buyer behavior1. Assessment of the structure, conduct and performance of

Industry and competition.

2. An understanding of who the buyers are and why, where,when, what, how and how much they buy.

- The Organization

1. Develop an understanding of the organizations financial, humanand material resources

2. Fit between the organization and the environment.


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- Plan of Action

1. What actions are available to thefirm based on the situation analysis?

2. What are the costs and benefitsof action in both qualitative and quantitativeterms?

3. Is there a disparity between what the

organization wants to do, should do, cando, and must do?


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- Potential Outcomes1. Potential outcomes of all possible courses

of action should be evaluated.

2. On the basis of the appraisal one course ofaction should be recommended

3. The evaluation must also tell why the othercourses of action were eliminated.


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- Teams for Case Analysis1. Should be a balanced team with the skill

sets of the members complementing eachother.

2. Avoid Groupthink Tendency of groupsthat work together for a long period of timeto produce poorly reasoned results.


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Communicating the Case Analysis- Class Discussion1. 4-5 hours of case preparation prior to the

discussion2. Carefully listen to the viewpoints of other

students during the discussion3. Prepare short summary after the discussion.

- Oral Presentation1. It provide an opportunity to verbalize youranalysis and recommendations and visuallyenhance your remarks with visual aids.


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- Written Report1. Be carefully organized and grammatically

correct.

2. Has three major sections:

i. Strategic problem and issue identification

ii. Analysis and evaluation

iii. Recommendations

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Chapter 3 Ashwin Mridul Sanjay Neelesh

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