Financial decision making in any organisation is usually supported by a range of quantitative techniques that are presented to management in a variety of ways, whether these are basic techniques or more sophisticated techniques, the end objective is to help management make a more informed decision.

Requirements:

You are required to discuss the importance of the presentation and analysis of management information and evaluate the different techniques in terms of how useful they are in helping management make more informed decisions.  You should use examples to illustrate your discussion from an organisation of your choice.

Discussion should include points such as:

What types of statistics are used?

How are these presented to management?

What types of decisions are the statistics used for?

How successful are the statistics in assisting management to reach decisions?

What types of additional information might you like to see?

Your assignment should be in the form of a written report of between 1,000 to 1,500 words.

Critically evaluate the most appropriate forecasting model for specific business needs

SOLUTION

Decision making is a natural mental process to select a course of action from several alternatives options. Each and every decision making process (Reason, 1990) produces final choices.  In business, decision making process plays an important role, and any decision related to finance is of utmost importance. The finance department of an organization generates a handful of financial information, which helps in decision making process. This information includes:

• Information related to balance sheet giving details related to assets and liabilities of a business.
• Information related to liquidity of the company.
• Details about about sales and purchase of the company, and deals with various kinds of customers and suppliers.
• Details regarding the acquisition of assets and liabilities.
• Details regarding cost.

By giving the details about all the above mentioned points, a company becomes able to make appropriate decisions related to:

v How to decrease cost

v How to increase sales

v How to increase profitability

v When can new capital be purchased

v What is the best source of finance, and what is its duration.

2. Types of Decision Making

Basically, there are various kinds of decision making process (Baker, Sorenson, 2002):

ü  “Whether” decision: This is the type of decision making includes options like, yes/no, either/or. These are the decision are taken to bring any department of the organization out of doubt.

ü  “Which” decision:  These types of decision include a choice of one or more substitutes among a set of possibilities.

ü  Contingent decisions: These are the decisions that the decision makers put on hold till the time some condition is met.

3. Decision Making Levels

Decision making is essential for any and every business. There are levels of decision making that help a company to decide how urgent it is to take any decision:

1. Strategic Decisions

These are the decisions of highest levels. Here the concern of a business is general direction, long term aims, objectives, and goals. These decisions are least structured and majorly imaginative. They are more risky and out of the uncertain results, partially since this reach far enough due to its importance.

1. Tactical Decision

This type of decision supports strategic decisions. They are inclined to be of medium significance, medium range, and moderated or medium consequences. In this type of decision making, the managers of company are required to research about the data that can possibly help the company to decide about the extension or a unit.

c. Operational Decision

These decisions are related to the day-to-day loosing the hold the business. These are mainly the routine decisions of any company, take by junior or middle managers.

These decisions are important for any small or a large company. For example, the drilling technology company Tesco Corporation, creates million of data every day against thousands of cost and sales headings. This data gives a clear picture of trends that the business can use in forward planning. It also helps the managers to record the performance of the company and take all necessary decisions. These decisions include investment of the profits earned, buying or selling of assets, paying off the loans, etc. These decisions are very important for the company financially.

4. Process of Decision Making

Decision making is considered to the study of identifying and selecting alternatives and substitutes on the basis of preferences and values of the person who is liable for taking decisions (Harris, 1980). Most of these decisions imply that there are options to be considered for a company, while other states that sometimes it becomes compulsory for a company to decide against its benefit for the survival. Following is the process that a decision maker follows while taking some essential decisions:

ü  Defining the problem

Before taking any decision is really important to know the actual problem, against which one needs to take the decision. The main aim of a decision maker is to make the issue clear to the company, and all initial, desired and worst conditions that could take place from that problem.

ü  Determination of Requirements

Requirements are the conditions that any acceptable solution to the problem must achieve or meet. These spell out on what is the most basic and essential step to solve a problem. If a company faces a problem, specially related to finance, then the managers are expected to know and tell the basic requirement of that problem. This is considered to be first step for solving any problem.

ü  Establish Aims objectives

Then the manager sets some goals. Aims are the broad statements of target and desirable values related to programs. Here also requirement plays a good role. These decide out on what is the most basic and important step to find a solution for any problem. If a company faces a problem, specially related to finance, then the managers are expected to know and tell the basic requirement of that problem. This is considered to be first step for solving any problem.

ü  Identification of  Alternatives

Decision making is a natural mental process to select a course of action from several alternatives options. Alternatives provide different approaches and ways to change the initial situation into the desired one. It is compulsory that requirement must meet the alternatives, or alternatives must also meet the requirements.

ü  Explanation of Criteria

After knowing the problem, finding the requirements and defining the alternatives, the next step is to explain the criteria that the manager will follow to find the problem to that solution. Decision criteria are based on the goals and objectives of the decision maker. It is really important to define the criteria that include the large number of steps that are essential for decision making process.

Basically these criteria should be (Keeney, Raiffa, 1976):

• Able to differentiate among the substitutes and to support the comparison of the performance of the substitutes of a business or a department,
• Finish to comprise all objectives,
• Meaningful and operational,
• Non-redundant, and
• Less in numbers

ü  Selection of a decision making tool

Every correct way of making a decision includes a proper tool of decision making. These tools include involve putting inputs, evaluation of substitutes, and measurement of the problem.

ü  Validate solutions against problem statements

This is the last step in the process of decision making. This summarizes about the problems, requirement of solution, details about the alternatives, criteria, and then selection of decision making tools.

5. Conclusion

Decision making is an important step for every business. It is a natural mental process to select a course of action from several alternatives options. Each and every decision making process (Reason, 1990) produces final choices.  In business, decision making process plays an important role, and any decision related to finance is of utmost importance. The finance department of an organization generates a handful of financial information, which helps in decision making process. It includes tools, methods, techniques and processes. There are three types of methods techniques of decision making process. It is a natural mental process to select a course of action from several alternatives options. Each and every decision making process (Reason, 1990) produces final choices.

6. References

James Reason (1990). Human Error. Ashgate. ISBN 1-84014-104-2.

Baker, D., K. Sorenson. (2002), “Guidebook to Decision-Making Methods.” WSRC-IM-2002-00002, Department of Energy, USA.

Barron, F.H. and B.E. Barrett. (1996).”The efficacy of SMARTER – Simple Multi-Attribute Rating Technique

Extended to Ranking.”, Acta Psychologica, 93, 23-36.

Brans, J.P. and Phillip Vincke. (1985). “A preference ranking organization method“, Management Science, 31, 647-656.

Marechal, B. (1986) “How to select and how to rank projects: The PROMETHEEmethod“. European Journal of Operational Research. 24, 228- 238.

Mareschal, B. (1994).”The PROMCALC & GAIA decision support system for multicriteria decision aid”. Decision Support Systems. 12, 297-310.

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