Decision Making Techniques

The following techniques are used frequently by business and government managers. Some are familiar (Benefit-Cost Analysis), others more esoteric (Linear Programming). Some are used for planning projects, others for analyzing data. Most of these techniques are mathematical or have mathematical aspects to them. They all can be used during one or more of the steps of he General Approach, as just outlined.

Systems Analysis

Can be used by the business manager to study the inputs, processes, and outputs of the entire company, a division, or an office, depending on the nature of the problem. Inputs are the resources (manpower, materials, facilities) used by the business to produce the output (goods or services). Processes are the methods and organization which manager the conversion of inputs to outputs. By using Systems Analysis decision makers can evaluate the system's various components separately on the basis of established objectives (like cost or error rate). If a problem can be identified as belonging to a specific component of the system, it can be corrected.

Benefit-Cost Analysis

Is used to compare the pros and cons of various alternative solutions to a problem. To perform this type of analysis the manager must define the problem, determine objectives, develop alternatives, put a dollar value on all benefits and costs of each alternative, calculate the Benefit Cost Ratio (B divided by C) and/or the Net Benefit (B-C), and make the decision. This type analysis established a clear relationship between expenditure (cost) and purchase (benefit). It can be used to study problems in which the costs and benefits of alternative ways to achieve an objective can be assigned dollar values.

Input-Output Analysis

Charts the flow of a product from one industrial sector, company, department, or facility to another. It shows what inputs produce what outputs. I/O Analysis uses Transaction Tables, showing the purchasing and selling activities of buyers and sellers, and I/O Coefficients, the product sold by A to B divided by the output of B. It is used most often by larger companies to help with longer term planning but smaller manufacturing firms also may find this useful.

Regression and Correlation Analysis

Is used to study the relationship between or among variables, for example, the relationship of household income to product sales. It can be used to determine how increases in household income affect sales volume. If management wants to study the relationship between sales, and income, interest rates, and education, they would use Multiple Regression Analysis, Correlation Analysis refers to the study of how strong or accurate a relationship is, as well as such technical factors as measurement fit, deviation, and error. It often is used by companies to study demand, pricing, supply and cost curves.

Modeling

Is used by management to simplify the complex world. A model is a (simplified) representation of a system, situation, or process. A model may be physical, symbolic, verbal, graphic, or mathematical. A good model strips away excess detail but leaves essential behavior. For example, a model could be a representation of a distribution system illustrated graphically with a flow chart. Models show relationships among the parts of a whole and assist with forecasting. Model building is used in the physical and social sciences, as well as in business management.

Linear Programming

Is a widely used mathematical method of determining an optimum, single solution to a problem such as finding the minimum staff cost or the most nutritional mixture of ingredients. This technique can be done by hand but today's computer software business management packages often contain Linear Programming instructions. The technique can only be used with problems that can be translated entirely into numbers and have with a single, optimum objective or solution. For example, in an office situation (say processing invoices) where there is a given total workload, an established workload per worker by skill (pay) level, and given staffing requirements, linear programming could be used to determine the least expensive mixture of worker skill levels to handle the given workload.

Econometric Analysis

Is used by companies (and the Government) for planning, forecasting, and model building. Through this type of analysis businesses can estimate demand cycles, cost and supply functions, income distribution changes, and so forth. Econometrics uses regression and correlation analysis. It is an attempt to quantify as many variables affecting a business as is possible. Larger companies often develop econometric models to get a picture of the future economy.

Forecasting

Is making decisions based on predictions of future trends and events such as inflation and interest rates, employment levels, or supply costs - all of which can affect sales of small businesses. There are three types of forecasting techniques: 1) Subjective or qualitative where you rely on expert judgments, 2) Time-Series Projections where you use quantifiable observations over time, and 3) Casual Models where you emphasize causal/correlational relationships. The principal emphasis in forecasting is looking for patterns and fluctuations over time.

The Decision Tree

Technique plots the sequence of alternative decisions needed to solve a larger problem. The actual decision tree looks like a flow chart. Each alternative decision has consequences that lead to other decisions. These are all drawn as branches of the tree. One can also add probability and payoff calculations for each decision. The major feature of the Decision Tree technique is that solutions to a complex problem can be sketched out on a single sheet of paper.

PERT - Program Evaluation and Review Technique

Sequentially charts the individual tasks and activities needed to complete a project. The result is a flow chart of the entire job. A time schedule and probabilities of meeting that schedule can be plugged in. The Critical Path also can be determined (the longest time it will take to complete all the important tasks, which gives the completion date). PERT helps managers make decisions about scheduling and resource allocation and reduces uncertainty. PERT is often used on construction projects and was pioneered by Admiral Rickover when he ran the Nation's nuclear submarine production program. However, PERT is a very flexible tool and also can be used, for example, to do market research.

As Soon as You have Determined what Kind of business you want to Begin and The investment requirements, you are ready to select a
location. The number of aggressive businesses already in the region should affect your choice of location. Some regions are
overloaded with service stations or certain types of restaurants. Check on the number of your type of business in Census figures,
the yellow pages, or by checking out the location.

Factors Aside from the potential market, availability of employees And number of aggressive companies must be considered in
choosing a place. For instance, how adequate are utilities - sewer, water, electricity, gas? Parking facilities? Fire and fire
protection? What about home and environmental factors such as colleges, cultural and community activities for workers? What's the
average price of the place in taxes and rents? Check on zoning regulations. Evaluate the business of the local business-people,
the aggressiveness of civic organizations. In short, what is the town spirit? Such aspects should give you an idea into the city
or city's future.

Chambers of Commerce and nearby universities usually have created or Are familiar with local polls that may provide answers to
these questions and the a number of other questions that will occur to you.

Next you have to decide in what part of city to find. If the town is Very little and you are establishing service or retail
business, there will probably be little choice. Only 1 shopping place exists. Cities have outlying shopping centers in addition to
the central dining area, and stores spring up along principal thoroughfares and neighborhood streets.

Think about the shopping centre. It's different from other locations. The shopping center building is pre-planned as a
merchandising unit. The site was deliberately selected by a developer. On-site parking is a common feature. Clients may drive ,
park and do their buying in comparative speed and safety. Some centers provide weather protection. Such conveniences make the
shopping centre an advantageous site.

There are also some limitations you should know about. As a tenant, You become part of a retailer team and has to pay your pro
rata share of their budget. You must keep shop hours, light your windows, and set your signals based on established rules. Many
communities have restrictions on evidence and the center management might have further limitations. What's more, if you're
thinking about a shopping center for your first store you could have an extra issue. Developers and owners of shopping facilities
look for successful retailers.

The type and variety of merchandise you take helps determine the Kind of purchasing area you select. By way of example, clothing
shops, jewelry stores and department stores are more likely to be prosperous in shopping districts. On the other hand, grocery
stores, drug stores, filling stations, and bakeries usually do better on principal thoroughfares and local streets beyond the
shopping districts. Some sorts of stores customarily pay a low rent per square foot, while others cover a high rent. In the"low"
category are furniture, grocery and hardware stores. In the"large" are cigar, drug, women's furnishings, and department stores.
There's not any hard and fast rule, but it's helpful to observe in what type of area a store like yours most often appears to
flourish.

After determining an area ideal for your type of business, Obtain as many details as you can about it. Examine the competition.
How many similar businesses can be found nearby? What exactly does their sales volume appear to be? If you're establishing a shop
or support transaction, how far do people come to exchange in the region? Are the visitors patterns positive? If the majority of
your customers will be local populations, research the population trends of the region. Is population increasing, stationary or
decreasing? Are the folks native-born, mixed or mostly foreign? Are fresh cultural groups coming in? Are they mostly laborers,
clerks, executives or retired persons? Are they all ages or principally retired, middle aged, or young? Judge buying power by
assessing average house rental, typical real estate taxation, number of telephones, number of automobiles and, if the amount is
available, per capita income. Larger shopping centers have this sort of information out there, and will ensure it is available to
serious potential tenants.

Zoning ordinances, parking availability, transportation facilities And natural barriers - such as bridges and hills - are all
important considerations in locating any sorts of company. Possible sources for this info are Chambers of Commerce, trade
associations, property businesses, local newspapers, banks, city officials, local merchants and private observation. If the Bureau
of the Census has developed census tract information for the particular region where you're interested you will find this
especially valuable. A census tract is a small, permanently recognized, geographical area within a big city and its environs. The
Census Bureau provides population and housing characteristics for every tumor. This information could be valuable in measuring
your marketplace or service potential.

Deciding upon the actual site in a area might well be taking what you Can get. Very few buildings or plants will be appropriate
and at precisely the same time, available. If you do have a choice, make sure you consider the possibilities carefully.

For a manufacturing plant, consider the condition and suitability Of the building, transport, parking facilities, and the sort of
lease. For A store or service establishment, check out the nearest competition, traffic Flow, parking facilities, street location,
physical facets of the construction, Kind of rental and price, and the speed, cost and quality of transportation. Also Look into
the history of the site. Find answers to these questions as: Has the Building remained vacant for any length of time? Why? Have
various Kinds of Stores occupied it for short periods? It might have proved unprofitable for them. Sites where many businesses
have failed ought to be avoided. Vacant buildings Don't attract traffic and are usually considered poor neighbors, therefore check
on nearby unoccupied buildings.

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