Managerial Decision In Businesses, Differential Analysis (Essay Sample)

Managerial decisions making
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Managerial decisions making
Management is a phenomena that in the late century has changed in its social and economic content. It involves the activities of making a strategy and coordinating the activities of employees planning, directing and controlling organization resources to achieve the given objective (Anderson, Sweeney, Williams, Camm, Cochran2015). For any business or financial institution to run smoothly decision making is a very vital component .This has a long history that involves choosing best alternative among many but research has advanced decision making as a process of finding the problem source ,solving ,legitimization and providing technical aids. Decision based on extreme knowledge with sound reasoning can lead a firm to long term prosperity whereas decision based on flawed logic, emotions and incomplete information can cripple the company operations. Amongst the factors that managers put into consideration in decision making regarding the issues affecting their respective firm are
Differential analysis. This involves analyzing the different benefits and costs that will arise upon taking different solutions regarding a particular problem. A proper analysis of differential revenues differential costs, and relevant revenues which involves future revenues that differ depending on the given course of action, difference in revenues between two expected revenues and difference in costs for two alternatives. (Steckler McLeroy, Goodman, Bird, McCormick 1992) Accordingly management is tasked with the responsibility of selecting the alternative that will yield the largest volume of revenue. This involves selecting the alternative that has the greatest and most viable positive difference between the expected Future revenues and incurred expenses (costs).
Profitability is a common factor that manager use in decision making. Instead of looking at revenues and costs in regard to the product lines firms track customer information and records. Fixed costs that cannot be directly assigned to clients are assigned to customers. Given an example from in income statement variable and fixed costs are assigned to customer A and B. From analysis the costs are compared as to which yields higher profit hence drop the other option that might be leading company to have negative impact.
Decision to drop or add a product line. A decision on whether to continue an old product line or not, or start a new product line or not is referred to as add or drop decision. It is based purely on the given relevant information such as revenues and costs directly relevant to a product line or department. An example of such information is revenue from sales, variable overhead, direct fixed overhead, and direct costs. Given products A B and C with the units assigned in production a manager can use incremental approach to determine which product is viable for business and which is not as the profit margin from the income statement will show clearly which product is making profits and which is making losses. Differential analysis gives a format for such decision through continued assess of whether to add a new product or do away with the current product line.
Make or buy decision. This is the situation of choosing between manufacturing a product or outsourcing from an external supplier .The most important factors to be considered are include part of quantitative analysis such as the required costs of production and the business capability to produce the required output level (Neuman, 2002). In such regards to production house the firm will include all expenses related to purchasing and maintaining the required production equipment, costs for production material, labor and storage capacity. Costs related to purchases of products from outside must have the prices of goods, shipping cost, applicable tax and all costs associated to the good must be factored in. The quantitative analysis results may be enough to make a proper determination based on the virtue it’s more economical than production. The firm decision to buy rather than produce will be influenced by factors like lack of proper trained expertise , desire for sourcing small volume requirement’s and the firms not in critical position to produce. In-house operations are activities performed within the same business by using employees and firms resources instead of outsourcing from outside. This will involve analysis of various costs associated and the risk faced by such.
While making the decision both qualitative and quantitative factors are factored in like quality of the component, supplier reliability, production capacity before coming up with the best conclusion as a manager. Qualitative analysis rely on information that cannot be measured while quantitative deals with data (Cavana, Delahaye, Sekaran2001). Qualitative have long term effect of the business and can easily mess-up profitability if not considered. Employees morale is best example with history of lay off employees will always work with feeling of uncertainty regarding their job security hence producing bad productivity results.
In capital budgeting sunk cost are costs that have been incurred and have no impact on the firms productivity .They cannot be easily recovered like a typing machine that has already been replaced by current level of technology. Opportunity costs on the other hand are costs that don’t involve cash outflows but are representative of a foregone profit that could have been earned in other markets (Kiker, Bridges, Varghese, Seager, Linkov 2005). They reflect a foregone opportunity to make a profit from alternative use of resources allocated to the project that was considered. Manager must consider such factors while making a decision as there is probability of occurrence of unseen opportunity for future use, political decision based on bias of a product .They are also important in calculation of net present value of the business projects, and could be loss of potential gain from the foregone project.
The management is not however constrained to such means in decision making of a firm. They can frame the problems of firm and use a different approach in handling the problem based on experience of such matters, make evidence based decision that challenge the management with new better strategy of making profits .such matters can also be backed by employees opinion as they have distinguished ideas from different backgrounds that can do better in production.
References
1.Anderson, D. R., Sweeney, D. J., Williams, T. A., Camm, J. D., & Cochran, J. J. (2015). An introduction to management science: quantitative approaches to decision making. Cengage learning.
2. Cavana, R. Y., Delahaye, B. L., & Sekaran, U. (2001). Applied business research: Qualitative and quantitative methods. John Wiley & Sons Australia.
3. Kiker, G. A., Bridges, T. S., Varghese, A., Seager, T. P., & Linkov, I. (2005). Application of multicriteria decision analysis in environmental decision making. Integrated environmental assessment and management, 1(2), 95-108.
4. Neuman, L. W. (2002). Social research methods: Qualitative and quantitative approaches.
5. Steckler, A., McLeroy, K. R., Goodman, R. M., Bird, S. T., & McCormick, L. (1992). Toward integrating qualitative and quantitative methods: an introduction.
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There are various actions that a manager can take to build trust based relationship, develop effective communication, share information, enhance consultative decision making process, develop staff competencies, building network, creating legislative awareness, code of conducts and ethical practices in business and overall improvement of an organization and its ongoing processes. Managers influence performances. According to Winterton and Winterton (1997), there is significant relationship between management and performance of an organization. Managers therefore have great influence in an organization but the action they take in their management is what matters.
To build trust with employees, managers should enhance honesty and openness to their employees when discussing issues affecting an organization and changes that might be taking place in the organization. Guest (1999) argued that the way employees behave and act is highly determined by the management and their practises. Enhancing openness and honesty therefore will build trust with employees. Besides, managers can confront issues and problems affecting employees in a calm and professional approach. Solving issues like absenteeism and poor performance amongst employees in a timely and fashionable approach will enhance trust and overall improvement of the organization. Moreover, managers can create trust by protecting the interest of the employees who are under them. Protecting employees will involve warning against blame game and name calling among employees. It is in such environments that employees feel appreciated when they are not blamed learn to change, put efforts, improve efficiencies and trust and improve overall performance. In addition, trust can be built by managers by minimizing direct supervisions through delegations of duties to employees. This will demonstrate that the manager has faith on employees and thus creating trust.
Performance of an organization can also be through engaging employees in decision making process. Allowing employees take part in decision making by consulting them creates sense of ownership and belonging in the organization’s structure. According to Ellis and Sorensen (2007), engaging employees in decisions making improves performance and create satisfactions to customers. To create a workforce that is highly engaged in decision making processes, managers should empower employees on decision making, encou...