Managerial Decisions Making in Business (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.
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