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Name: Artem Lyapchuk

Date: due to

14.02.16

Assignment: Decision making

Contents:
1. Distinguish between a programmed and a non programmed decision.
2. Applying the steps in the formal decision making process to a decision on
applying to university.
3. To what extent is accurate and reliable information the most important
factor for a business when making a decision?
4. Distinguish between risk and uncertainty, explain how they affect decisions
and what might be done to reduce their effects.
5. What are the advantages and limitations of decision trees?
6. Decision Tree question.

Introduction
Every single person in this world, all the time facing with decision-making process. Each of us during the day
makes hundreds decisions, and over the life thousands and thousands of them. We can call person a manager
only when he or she adopts organisational solutions or actualise them through others. Decision-making, as
well as the exchange of information the main part of any management function. Therefore, understanding
the nature of decision-making is very important for anyone who wants to succeed in any business.

Distinguish between a programmed and a


non programmed decision.
Decision it is a conclusion or resolution reached after consideration.
Programmed Decisions
Programmed decisions are those that a manager has encountered and made in the past. The
decision the manager made was correct because he or she used the assistance of company policies,
experience of previous managers or his/her own. In addition, programmed decisions may be
repetitive or routine as their consequences ended up good in the past. It generally does not take a
manager long to deal with such as decisions because they are not new. As a result, programmed
decisions allow a manager to make an effective choices.
Examples of Programmed Decisions
Individuals naturally make programmed decisions on a daily basis. For example, in the case of fire,
most people automatically would decide to fire service. From a business perspective, company may
create a standard routine for dealing with any technical issues, customer service problems or
disciplinary matters. An employees duties may become routine with repetition, like the process of
weekly reports..
Non-programmed Decisions
Non-programmed decisions involve situations that are new and for which there are no proven
answers to use as a guide. In such a case, a manager must make a decision that is unique to the
situation and results in a tailored solution. Non-programmed decisions generally take longer to
make because of all the possibilities must be considered carefully and the fact that the information
available is incomplete, so a manager cannot easily bring out the decision.
Examples of Non-programmed Decisions
An individual may make an non-programmed decision when he or she visits a new restaurant, for
example. In the business world, the inventors of the earliest personal computers had to make nonprogrammed decisions regarding the type of marketing to use to attract customers who possibly had
never used a computer in the past. Fast-food companies also had to make an non-programmed
decision regarding consumer wants. In many fast-food restaurants there are some special offers,
which might be attractive for customers.
The chart below is describing the differences between both Programmed and Non-Programmed
decisions.
Programmed Decisions

Non-Programmed Decisions

These are for solving day to day and routine


problems and are repetitive in nature.

These are for solving non-repetitive


tactical or unique problems.

Rules and procedures are described for taking these


decisions.

Every decision will have to be taken


separately by analysing and evaluating
each problem.

These decisions remains consistent for a relatively


longer period of time and over many situations.

Every decision is different and there is no


consistency.

These decisions are made for solving both simple


and complex problems.

Such decisions are for solving complex.

Decisions are of routine nature requiring no


judgment.

Such Decisions require judgment in each


case.

Apply the steps in the formal decision making process


to a decision on applying to university.
Decision making is the process of making choices by setting goals, gathering information, and
assessing alternative occupations. According to the theory there is seven general and basic steps
which need to be followed in any decision making process
1
2
3
4
5
6
7

Identify a problem or opportunity


Gather information
Analyse the problem or opportunity
Develop options/alternatives
Evaluate options/alternatives
Select a preferred option/alternative
Act on the decision

In this case I will describe those steps for the applying process to the university.
1. First thing to do, is to identify the problem or opportunity of any decision that needs to be done.
In this case is opportunity of further education - applying to university. Great Britain is famous
for good universities with a high level of entrance. To apply to the right university and do not be
later disappointed with the choice, any student needs to know his or her abilities and
approximate level of their knowledge.
2. Secondly, every applicant needs to find information about the universities he or she wants to
apply to. It is important to know at least general information about the chosen universities to
decide which should be chosen first choice, second and so on. Also if student is interested in
additional subjects, therefore he or she needs to look up the information about those on the
universities` websites to choose and possible correct the university choice order.
3. Then he or she needs to analyse all advantages and disadvantages of applying to university and
decided whether it worth to do or not. According to the worldwide statistic around 60% of the
students either do not satisfied with the course chosen or do not go to university at all. Therefore
it is important for student to decide if he or she necessarily needs to go to university or he or she
just can finish prof-courses.
4. Afterwards the analysis has been conducted and decision was made, applicant needs to find few
more alternatives to his or her university. Of course, that could be done earlier at the second
stage of decision making process, however some students do not think about this problem at
first. Consequently this is important to find other options in case if student fail to enter the first
choice university. Obviously alternatives should have lower conditions otherwise there would be
none point in choosing them.
5. After the alternatives were chosen, applicant should find information about those universities
and basically do the same actions as in the second step. Except the evaluation process which
should be done after all information is gathered and considered. Evaluation is important step
especially which university should become the second choice, because this university should not
be higher ranked than first choice one, however be higher than others in the list. And also
possible offer better conditions than lower in order, but more suitable if did not get an offer
from the first choice.
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6. Sixth step is quite important because student needs to ensure that the right choice has been
made and no more changes should be done. After the requests sent, it is hard to change your
choice. So all possible consequences needs to be outlined and carefully analysed. And applicant
would better to check everything in case if something might have been forgotten. Because it is
important to understand that after the final decision made, there is no way back.
7. And finally, the last step is to act on the decision. If you got an offer from the chosen university,
you only need to get all the grades you have been asked for and pass your exams in the end of
the year. Or if you not a student and getting second university degree, therefore you needs to retake your final exams to show that you still suitable for the chosen university. However the only
problem postgraduate applicant taking second degree might have is an increased fees for
university which might be equal to the overseas students fees.

To what extent is accurate and reliable information


the most important factor for a business when
making a decision.
Each decision manager makes at the business might affect main goal of any company - profitability.
Understanding the basic factors when making any decision helps business and its staff make better
plans or react to individual situations. Made decision depends on reliability and falsity of the given
information.
Reliability means that the person, who is making decision, has availability to all necessary
information. In this case, the managers know the conditions of the operations, costs of the resources
or restrictions on them as well as possible outcomes. However, in reality, not all decisions are made
in terms of reliability. Most of them are accompanied by risks or inaccuracy.
Falsity means that managers know what goals they are want to achieve, but y do not have full
information on alternatives, and future outcomes. They have lack of the information to identify
alternatives or assess the risks. Factors that influence decision, difficult to analyse and predict. These
factors may include price, costs, sales, future interest rates. Managers can get an idea on the basis of
which a decision will be made, although it may be a mistake, because the vision of the situation
would be wrong due to wrong information. Sometimes managers use all of their creativity,
experience and intuition in order to choose the best alternative.
So we can say that accurate and reliable information is one of the most important factors that can
influence business when making a decision, but additionally there is more factors that are taking into
consideration in business making decision process. Those general and basic factors are:
Market Research
According to economist Rob Hyndman*, to be successful, every business needs to be familiar with
the market environment and this is why research is necessary to conduct and to obtain necessary
information. The student explains that business organisations need to always pay attention to what
is happening in business world, what are the trends among consumers and what is demanded the
most. For instance, after exploring market, Taiwanese technology producer HTC incorporated
Android software in its mobile devices. This step increased the sales of HTC products due to the
high popularity of the Android operational system.
Competition
Competition is another factor that strongly influences decision making processes within businesses.
Since market nowadays is highly competitive, businesspeople always pay attention to the business
operations of their rivals. For example, when Apple released its iPad tablet, Samsung quickly
responded by releasing its Galaxy Tab which proves that while taking decisions on future
developments, businesses consider competitors and their business development plans.
Economic Environment
Economic environment is particularly important because it is related to the buying capacity of the
customers and what products people in general can afford. When taking decisions, business people
bear in mind that they must comply with some standard and not, for instance, impose high prices on
their production in times of financial recession. For example, Apple produces the iPhone mobile
devices which are more expensive than similar devices by other brands. However, when major
consumer states like UK entered into severe financial crisis in the beginning of 2011, the company
announced that it is developing a cheaper version of the iPhone that would respond to the
economic environment in countries where there are financial problems.
* https://ideas.repec.org/e/phy3.html

Social Responsibility
Social responsibility towards customers is also a factor that influences business decision making.
Economist Paul Hohnen* from the International Institute for Sustainable Development as well as
well known businessman, Richard Branson**, emphasises that its concept is that business must be
acting for the common good and in the interest of the general public. For example, UK legislation
does not allow banks to impose unreasonably high fees on customers who are late with their
mortgage payments. This legislation is followed by leading banking institutions in UK such as
HSBC and Lloyds TBS.
Cost and Benefit
Financial expert April Dmytrenko highlights that for successful business decision making, it is
required that business bodies create cost and benefit analysis.*** This approach takes into account
expenses for business from the process of production and revenue that would be generated when the
production is put on sale. Thus business people are able to determine whether certain products
would be a good business opportunity. For example, before releasing the LEAF hybrid car, the
business developers in Toyota analysed a detailed cost and benefit plan. It determined that the
revenue from LEAF hybrid sales would justify the expenditures of its production.

* https://www.chathamhouse.org/about-us/directory/70653
** Branson, R. (2011). Screw business as usual. New York pp 132-135.
*** https://www.questia.com/magazine/1G1-19188011/cost-benefit-analysis

Distinguish between risk and uncertainty, explain how they


effect decisions and what might be done to reduce their
effects.
Every single day we are facing a number of circumstances, where we have to take risks and often
there is a situation of uncertainty regarding the upcoming events, which we have no idea how to
deal with it.
Risk
There several meaning of the risk regarding to different circumstances and conditions. Generally
risk it is a probability or threat of damage, injury, liability, loss, or any other negative occurrence
that is caused by external or internal vulnerabilities, and that may be avoided through preemptive
action.
Uncertainty
By the term uncertainty, we mean the absence of certainty or something which is not known. It
refers to a situation where there are multiple alternative resulting in a specific outcome, but the
probability of the outcome is not certain. This is because of insufficient information or knowledge
about the present condition. Hence, it is hard to define or predict the future outcome or events.
The differences between risk and uncertainty:
1. Risk is defined as the situation of winning
4.
or losing something worthy. Uncertainty is
a condition where there is no knowledge
about the future events;
2. Risk can be measured and quantified,
through theoretical models. Conversely, it is
5.
not possible to measure uncertainty in
quantitative terms, as the future events are
unpredictable;
6.
3. The potential outcomes are known in risk,
whereas in case of uncertainty, the
outcomes are unknown;

Risk can be controlled, if proper measures


are taken to control it. On the other hand,
uncertainty is beyond the control of the
person or enterprise, as the future is
uncertain;
Minimisation of risk can be done, by
taking necessary precautions. As opposed
to uncertainty that cannot be minimised;
In risk, probabilities are assigned to a set of
circumstances which is not possible in case
of uncertainty.

While there is no single decision rule that managers can follow to guarantee that profits are actually
maximised, we discussed a number of decision rules that managers can use to help them make
decisions under risk:
1. the expected value rule,
3. the coefficient of variation rule.
2. the meanvariance rules,
These rules can only guide managers in their analysis of risky decision making. The actual decisions
made by a manager will depend in large measure on the manager's willingness to take on risk.If a
manager maximises expected utility for profit, the decisions can differ from decisions reached using
the three decision rules discussed for making risky decisions.
In the case of uncertainty, decision science can provide very little guidance to managers beyond
offering them some simple decision rules to aid them in their analysis of uncertain situations. There
is four basic rules for decision making under uncertainty: the max max rule, the max min rule, the
minimax regret rule, and the equal probability rule.
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What are the advantages and limitations of decision trees?


Decision Tree is a popular method used in the most diverse areas of our lives: tree management
decisions effectively in project management, management, as well as in the analysis of all possible
risks; decision tree method has been successfully used in the quality control of products in the
industry; medical decision tree is used to diagnose diseases.
Advantages
1. Easy to understand and interpret. Users are able to interpret the results of the model decision
tree after a brief explanation
2. It does not require training data. Other techniques require data normalisation, adding dummy
variables, as well as the removal of the missing data.
3. Able to work with both categorical and with interval variables. Other methods only work with
the data, where only one type of variables is present. For example, the relationship method can
be applied only for nominal variables, and neural networks method only variables measured on
an interval scale.
4. Using the model of "white-box". If a particular situation is observed in the model, it can be
explained with the help of Boolean logic. An example of a "black box" can be Artificial neural
network, since the results of this model be explained with difficulty.
5. It allows you to evaluate the model by means of statistical tests. This makes it possible to
evaluate the reliability of the model.
6. It is a reliable method. The method works well even if the original assumptions were violated,
included in the model.
7. It allows you to work with large amounts of information without special preparation
procedures. This method does not require any special equipment to work with large databases.
Disadvantages
1. Information may not be exact or incorrect. That causes big problems and uncertainty if
decision was taking.
2. Also some people decisions might be influenced by others. For instance, parents are saying to
the child that he or she should better go to any particular university and he or she just saying yes
without considering whether is it going to be right decision or not.
3. Also sometimes by the time the decisions is about to be made, the data may be out of date. Such
as situation are dangerous because even a little change in data might cause big changes in the
consequences of the decision.
4. Further all decisions are taking a plenty of time to be made. This time usually includes analysis
of decision and issues of that.
5. Also data provided might be especially wrong so therefore the person who is taking the decision
would make the wrong one.
6. Usually the dynamic nature is not being taken on account, what is a mistake, because even over
an hour a lot may change in the world economy.
7. Except the reasons above, the person who is taking the decision needs to not let overfitting
happen.

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Decision Tree Question

Calculations:
1st option = 550m x 0.5 = 275m - success
= -50m x 0.5 = -25m - failure
= 275m - 25m = 250m
2nd option = 500m x 0.9 = 450m - success
= -100 m x 0.9 = -90m - failure
In my opinion, third option is the best, because the risk of failure is much lower in in other two.
Moreover, it will not cost company itself anything, whereas other options include cost of either
further development or geological research, which however might not pay off later.
First option tells about 50% of either success or failure what means that the result is not clear yet
until the work have been done. This option causes uncertainty and a big risk involved in it.
Second option is more positive, nevertheless the actual profit will only be around 50m, if positive
results achieved. What does not promise that in the following year the mining is not going to finish.
That causes risk of such as possibility. As well as the third version of the negative issues. What
followed by loss of 20m.
Eventually the third option is the most suitable and safest one. The percentage of risk is minimum
as well as the cost of production process which is none.
Information, which was gathered from the Market Research, is one of the factors that might
influence the company's decision. Fresh news, recent articles and so on. For example, there was
predicted a rise in the cost of the minings in the following year, which may stop company's
administration from taking a quick decision.
Also Competition. It affects most of the decisions being taken in the business. Competitors do not
want to be on the last place and trying to follow all of the innovations in the world. Competition is
one of the important parts in the business which encourages companies to be up to date and follow
all news in the business world.
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Conclusion
Decision-making is one of the main components of any management process and it determines the
effectiveness of any organisation. Only an effective process of development, adoption and
implementation of management solutions can provide survival and the effective functioning of the
organisation. Thus, the practice of design and management of decisions in each organisation has its
own characteristics, determined by the nature and specifics of its activities, its organisational
structure, the current communications system, internal culture.

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