Business Decision Making Methods and Examples Essay

Joint versus separate preference reversal

Joint evaluation is making a decision after jointly considering several options whereas separate evaluation is making a decision in which options are considered one by one and decided separately. Joint and separate preference reversals affect our decisions in different situations in life.

There are times we make a decision after considering several options, but there are also times we choose from several projects presented to us in the office, and then decide and work on that project. These two preferences have different methods. If we try to differentiate the reversals, we may reach a point that joint and separate should be seen as a ‘continuum’ (Hsee et al., 1999).

Preference reversals have been studied and applied in the context of choice and matching. An example is when two applicant candidates are evaluated in respect to their passing average in technical and human relations. One had a technical score higher but lower human relations score than the other.

Using choice reversal, the participants preferred the one who had a higher technical score. Tversky et al. (1988 as cited Hsee et al., 1999) explained about the prominence principle in preference reversals: that in real situations people would usually prefer the most important trait in choice than in comparison.

Decision making in the Challenger space shuttle disaster

After several delays, the Challenger space shuttle made its tragic take off on January 28, 1986. The explosion was caused by a gas leak in what they termed as Solid Rocket Booster (SRB) which penetrated the tank and exploded the Challenger. Before the decision to launch, engineers already discovered a major defect in the SRBs and its O-ring. The SRBs were attached to the main tanks and its purpose was to accelerate the shuttle in order to be freed from the Earth’s atmosphere.

The investigation centered on the O-ring and the SRBs and the statements of the Morton Thiokol engineers who designed the SRBs. The low temperature on that morning of the launch would make the rubber O-rings brittle. NASA knew of this, but the management did not want to be criticized or embarrassed, so it decided to proceed with the launch (History, 2014, para. 5).

There were some cultural factors involved, such as NASA people failed to discuss the O-ring flaws with the launch team. Another problem noted by the Rogers Commission was staffing for the team involved in the shuttle’s scheduled flights. Organizational culture and management could have caused some of the faults in the disaster because this allowed technical errors to remain unresolved in the actual launch.

Expected-value decision rule

Calculation for expected value provides evaluation and comparison of several choices with risks and improbability as variables. Expected value results into best forecast of an expected return, such as an investment. EV can be obtained after identification of all possibilities and net profit. Net profit can be calculated by obtaining the difference between gross profits and overall costs (Decision trees, 2007).

I used expected-value decision rule when I acquired a franchise for fast-food store in my area. It was at first an experiment but a few relatives provided support, financial and moral, and so I had to prepare myself. My knowledge of expected-value decision inspired my “supporters” (who included my parents), and me of course.

I made some calculations. The variable focused on location. If I opened up the store inside a mall, I would get a probability of 0.70, a project cost (NPV in $) of $30,000, and a total probability of $21,000. But if I opened up in front of a university, the probability would be 0.30, a project NPV of $20,000, and a total probability of $6,000. The expected value (EV) for my franchise fast food was $27,000.00. This is a simple calculation that demonstrates what I would expect if I pushed through with my project.

Certainty, uncertainty, and risk in decision making

Sometimes we are swayed by our emotions that we become irrational. Our decision-making is uncertain and ambiguous which may not count to good decisions if we allow emotions to reign inside us (Gutnik et al., 2006). But attitudes that influence decision-making make us more distinct than others, and it also affects our relationship with others.

There was a time when I almost lost a friendship because I used my emotion which hindered my ability to make the right decision. I wanted to help a friend by counseling her about her recent relationship with somebody, because that somebody had other relationships. But I forbade myself and tried to forget about it; I was mad and angry that this friend was not sure of what she was doing and I thought she was always wrong. Why didn’t she use her mind?

This thought covered with emotion prevented me from making right decisions. Instead of giving advice, I prevented myself from doing the right thing because I was angry. I thought she was the one whose decision-making was hindered by her attitude, but it was me. This has happened several times that I consider this attitude a hindrance to my relationships and my future.

Banks rejection of federal bailout money

The government has many conditions in providing bailout funds to the banks and financial institutions. The banks want to return the money because this will destroy their position. Government conditions to the money are given any time and go as far as cutting dividends and preventing banks from giving excessive bonuses or buying unnecessary items for their corporation. An administration official said the banks should perform some sacrifices for the sake of the economy (Labaton, 2009, para. 1).

Some industry experts have warned that the conditions set by the government are tantamount to enforcing economic and social reforms by way of the weak banks, and by doing so it could exhaust more the public funds. They further argue that the bailout is helpful in the short run but this will force banks to make moves like lending the money, and banks may end up losing more money.

We argue that the government is doing right because it wants to revive the economy, at the same time protect public money. Criticisms about the demands are one-sided. Banks and financial institutions should make some sacrifices because this is for the good of the U.S. economy.

Ponzi schemes

Ponzi schemes were introduced by a man named Charles Ponzi who collected small and large amounts of money from investors with the pretext that they would earn as much as 40 to 50 percent return of investment for a short time, but the purported interest comes from new investors and not from profits of a company (U.S. Securities and Exchange Commission, n.d., para. 1).

People are made to believe that they are investing in a real investment firm and they would get high interest or return of their money in one to three months. The investors decide on investing large sums but do not mind investigating whether the business they are involved in is legal or not.

Others also do not want to believe that it is illegal because of the big return of investment. People have high hope because of the promise of big interest, which can be translated as reward. It is exponential accounting wherein the interests multiply for as long as there are more investors. If the schemes run out of investors or if a big number of investors want cash, there will be no more money to pay. That is the time when the scam comes out in the open.

Decision influenced by emotions

Our organization is a service organization. It has several branches in other countries and prides itself with competent employees whose personal careers and advancement are encouraged. My co-employees thought this was so, until one time this was tested. One of the managers, who was holding a top position in one of our branches, was retiring.

Before this memorable day, there were rumors inside the company of the possible replacement. We were all hoping it was one of our valued model employees who was very qualified and had years of experience with the company. In a decision like this, seniority plays a significant role in addition to qualification. To our great surprise, the CEO chose his nephew over our model employees. We questioned the decision but he said it was done with the company in his mind.

Seo and Barett (2007) argued that this was a problem in decision making. We knew the manager had personal motivation when he gave the promotion to his nephew and not considering the normal course of action. We defended our choice but he was influenced by his emotion when he chose somebody who had questionable qualification to be the replacement of the retiring employee.

Internal conflict between “must” and “want” in decision making

For me motivation is a personal choice. It affects my work performance and how I look at work (Abdulla, Djebarni, & Mellahi 2011). A recent decision forced me to change focus because I did not want to contradict what I thought was right. I was employed by a company for a few years after which I decided to find another company because my manager kept on nagging me to do a task that I thought I had performed well.

I told my manager I was motivated in my job because it was what I had been doing – selling, but there were times that I could not meet my quota because of time constraints and inadequate resources. When I fulfill my quota, the manager still asked that I must exceed. We had changing moods that sometimes resulted in exchange of words, until I decided to quit. It was hard because the salary was good, but then I had to make a decision.

I later found out that I did the right thing when I heard that one after another, my former co-employees also decided to part ways from the company, citing the same nagging manager. Then the company found out the manager’s faults and indifference to employees, and they told him to resign.

Decision to build the supersonic transport Concorde

Research and decision to make the Concorde took twenty years, until a consortium of British and French manufacturers finally made the supersonic jet. The two governments decided to pioneer the age of supersonic flights to shorten flight time from Paris to New York; instead of 8 hours it was cut to three hours and forty-five minutes.

There were many firsts in the decision to make and fly the Concorde, such as a unique flying experience where one can see the planet Earth at a distance. The British and French governments decided to go on with the project because they were motivated by the “first” factors (Hooks et al., 2009), but they disregarded the disadvantages.

There were technological factors and the insufficiency of materials for the Concorde’s body, but most significant factor was the overall cost in the manufacture and maintenance work for the aircraft which reached £654 million. Another disadvantage was the exclusivity of Concorde flights. Only the rich and top businessmen could afford the ticket costing about $9,000 for a flight from Paris to New York and back

The decision makers were not affected by these because they were confident supersonic flights had a distinct appeal from the public. One Concorde crash changed all that.

Strategic Defense Initiative during the Cold War

The paradigm espoused in the Strategic Defense Initiative is “one offense or defense program after another,” which may refer to “competitive escalation paradigm,” a program of the United States to counter the Soviet’s missile program. First, the program was called MAD (or “Mutual Assured Destruction”) which was actually to compete with the nuclear capability of the Soviets.

The Cold War was a war that did not occur, and yet the East and the West were developing and positioning their weapons and nuclear-armed missiles. Reagan’s “Star Wars” started with missile defense and laser weapons.

When Reagan was presented with the new technology of tracking and sensing, he was shocked that an incoming missile could be detected but nothing could be done about it. This was the beginning of the SDI – to defend the U.S. from missile attacks. More defense programs were developed one after another by succeeding administrations.

Bill Clinton enhanced the missile defense programs and advanced ballistic missiles to counter Soviet ballistic missiles. More tracking systems were introduced and more weapons systems developed. Finally, Reagan asked the American scientists to develop weapons to save humanity, and this was the start of the destruction of the Berlin Wall and the end of the Cold War (Infoplease, 2014, para. 1-4). The Star Wars program was abandoned and took on a different path.

President George W. Bush’s decision to intervene Iraq

There were several policy mistakes attributed to the Bush administration in going to war in Iraq in 2003. First, the intelligence community did not have a real comprehensive assessment of the situation and it was selective in its approach.

The administration also did not anticipate that guerilla warfare could be launched by the remnants of President Sadam Hussein’s forces. Bush also pre-judged that Sadam Hussein was in possession of, or in the process of making, nuclear weapons. This was later found to be untrue. Lastly, the Bush war staff did not have a postwar plan.

The intelligence community fed the media into believing that indeed Hussein was making nuclear weapons. The Bush administration was clearly informed of the consequences in invading Iraq, but key members of the Cabinet did not heed to the warnings.

Bush’s biases stemmed from his delegating authority to his security advisers and he took little role in the management of the foreign affairs that led to the Iraq invasion. Before the president decided to invade Iraq, his advisers provided several options wherein he could not refuse. The options were reinforced with the existing belief that Sadam was making nuclear weapons (Mitchell & Massoud, 2009).

Causes of Polaroid’s bankruptcy

Once a prospering technological company, Polaroid had to go to court to protect its assets. But many think Polaroid could not be saved. The company prospered through research and development and was one of the leading companies in the 1960s. Due to the emergence of new competitors and new technology, such as the digital cameras, its shares went down to 28 cents. The bankruptcy filing stated that Polaroid owned about $2 billion in liabilities which were more than its assets.

The company was in crisis since 1988 due to poor management. But it continued to borrow money and issue bonds. This went deeper when digital technologies defeated its photography business, and competitors were becoming more aggressive.

Polaroid continued to invest and spend for technology, adding more problems to the company. Its partner-retailers were selling other cameras which were further sank Polaroid products. To make matters worse, Polaroid hired more office employees and had only few sales representatives (Deutsch, 2001).

Two of Polaroid’s technologies were an attraction for other telecom companies, the Onyx and Opal. It should have invested on this and stopped investing on other technologies which required more investments. These technologies could not stop the bankruptcy. Polaroid should also have addressed issues on management.

Ethical problems of The American International Group’s financial decision

AIG was one of the companies on the brink of bankruptcy during the financial crisis which received billions of dollars from the government in order to stay solvent. This is ethical for the government but the unethical side of it is that after receiving their government “reward,” the company gave more than $200 million in bonuses to its top executives.

This was a select group of executives that the company favored, given special treatment (a spa, a vacation, a retreat costing hundreds of thousands of dollars, etc.), but the ordinary employees were left behind. The reaction from the Obama administration and the two houses of Congress was one of outrage (Vandermyn & Canty, 2013). The administration and congressmen argued that those top executives should not be hailed as heroes and be awarded with taxpayers’ money.

Many have argued that AIG’s actions were not ethical, and we agree to this statement. A Utilitarian view would suggest that AIG employees should have been included or given more attention and not the top executives who were responsible for the company’s bankruptcy. The top management was not acting rationally but instead focused on the happiness of a few.

Fairness in Punishment for school violence

Six African Americans were expelled from the Eisenhower High School after they were found to be involved in a fight during a football game. The punishment was too harsh – expulsion for two years – and the school board announced that it would not tolerate anymore such school violence.

Critics from the African American population argued that such punishment was meted only to the gravest of violations in school. They cited past cases which got a two-year expulsion but this was one was even lighter because no one was injured and no weapons were used during the fight. It was an ordinary fight by zealous fans in a ballgame.

The student punishment spawned enormous disagreement, especially from the rights group headed by Reverend Jesse Jackson, who came to Decatur to argue for the students. He said that the black population in the place disagreed to the Board’s decision, and that it was not fair that only after the incident did the Board declare the “zero tolerance” policy. This is a revengeful policy against the students in America and harsh to students of color. Jackson cited a student accused of a bomb threat and was only suspended for a few days (The Simon Center for the Professional Military Ethic, 2000).

Ethics in Enron and Arthur Andersen relationship

Enron was a large commodities firm with main office in Houston, Texas, which catered to international and domestic markets. Enron’s businesses were diverse in which its top managers and auditors were not prepared to handle the growing business. CEO Kenneth Lay knew beforehand that there was something wrong in Enron’s financial reporting and when rumors were becoming clearer, he wanted to cover it up, as this was also the recommendation of the law firm (Cunningham & Harries, 2006).

Andersen auditors made matters worse by shredding the documents in the Enron audits. Enron and Andersen saw a potential result of a big loss in their cover-up that they tried to hide more. This refers to bounded ethicality where at first Enron and Andersen were involved in “small lies,” until matters got bigger when they could not anymore control the “big” lie.

Enron misled the public and its shareholders by providing incorrect accounting. Andersen collaborated to commit the ethical malpractice and violated accounting principles. Andersen did not mind Enron’s not telling the truth; instead, it pushed Enron to help in the cover up. Supposedly, Andersen’s role was to keep watch on Enron’s financial records but they became allies violating ethical standards. Both misrepresented the financial reports and were guilty of ethical misconduct, but a number were jailed for a criminal offense.

Bernard Madoff’s decision to run Ponzi schemes

Madoff was operating a seemingly legitimate company, Ascot Partners, which was later found to operate a Ponzi scheme. He had confessed to the crime and sentenced to be in jail for 150 years, but how and why he did it are still some of the subjects of investigation. He started with a modest sum and he was a good businessman, building his new “trading” company, which many think was legitimate. He was motivated to make it big.

He traded for big companies and was motivated to have “secret trades”. Most of these were illegal because he traded for companies not listed on the New York Stock Exchange. He was a “good” money manager, providing returns to his clients and even helped found Nasdaq (The Wall Street Journal, 2014, para. 1-5).

Madoff was motivated by the quest for good living, like the rest of us. He was closed to a Jewish community, and when wealth grew he moved to a residence on Manhattan’s Upper East Side where he held some position. His business centered on making wealth or big sums, but he was keen to doing it without ethical considerations. He involved his family and people who could help him acquire lots of money.

The United States’ and Iran’s negotiations about nuclear power

In November, 2013, Iran, the U.S., and other world powers reached a temporary agreement over Iran’s nuclear program. Iran would gain a relief of some economic sanctions but must stop operation of its centrifuges and development of uranium which can be used to make nuclear bombs. Iran has said time and again that it was only apt to producing nuclear energy in which the United States and the international community would not like to buy.

Obama has appealed to Congress not to impose more sanctions within six months because he relied on the Iranian leadership’s commitment to the conditions. New hopes emerged when the deadline is extended because of Iran’s continued fulfillment of the agreement. Iran is rewarded $5 billion from its frozen assets (Slavin, 2013).

The U.S. and the countries involved in the negotiations have to provide safeguards, to see if Iran continues to comply with the conditions. Iran has allowed daily inspection into its nuclear facilities by UN inspectors. The ultimate goal of the international community is to dismantle Iran’s centrifuges and make them inoperable for making nuclear weapons. This is the purpose of the negotiations – the ultimate dismantling of the nuclear apparatus for a nuclear bomb.

Negotiations while purchasing using BATNA

Purchasing seems easy but when we consider several factors, we find that we have to deal each factor before doing the purchase. The real estate agent presented to me several options, over which I thought and analyzed first the cost and location. The cost was not too difficult to deal with because I only had to compare it with my current income, and I had the agent help me with it. What we also know is that cost is related with aesthetic attributes of the house. The real-estate agent presented to me prices, names, locations, and terms of payment.

When the agent and I made a trip to see how it physically looked like, I had plans and prices in my mind too. He knew I was looking for a house where I could settle my family but he did not know what price I could afford. I had the leverage in the negotiation because he did not know my price. The agent was a different one because he had command of the prices. I knew it so I had to settle for a bargain. I won my card, settling for cost and location. I got this with a prepared BATNA in mind (Spangler, 2012).

Negotiations around embryonic stem cells research

We have to extend the pie by discussing the cause of the impasse. Ethical and religious beliefs have never met on the subject of embryonic stem cells. This subject refers to moral values or dignity-based principles. The National Academy of Sciences (NAS) has clearly defined how embryonic stem cell research should be conducted.

It states that embryonic research should not combine cells of human and nonhuman because this may result into transfer of human cells to animals (Robert, 2006, p. 838), and of course that is morally unacceptable. Stem cell research must be controlled and must consider the moral side of it.

We have to consult the religious views on embryonic stem cell use. The church is against this because the embryo is a complete human being. To terminate the life of an embryo for the sake of treating another human life is murder.

However, the Catholic Church recognizes the value of scientific research and promotes the study of adult stem cells and use of these cells for medical purposes. The two sides of the project have to extend the pie and understand that the use of embryonic stem cells has to stop. Instead, science should improve studies on adult stem cells, for use in the treatment of diseases.

Contingent contracts in improvement of negotiations results

Contingent contracts are made to deal with issues and are not finalized until all the problems are resolved. Failures of agreements to materialize are a common occurrence in business. This is because both parties have many biases and perceptions against each other. Contingent contracts are used in uncertainties and not to fix prices while uncertainties are still being discussed.

There are four ways where contingent contracts can lead to an agreement. Parties discuss on their differences and perceptions in order to create value. They may have different predictions but if these are joined together, they may create value and an agreement is reached.

Next is the question of biases or beliefs which are a hindrance to an agreement. The biases should be allowed and not contradicted to avoid disagreement. Contingent contracts can help us detect or understand the sincerity of the parties in question.

One may be bluffing and this can be revealed through the continuous discussion between the parties. If the other party is bluffing, the opposing view can ask for a guarantee, in which the bluff may be revealed. Contingent contracts can help make parties sincere and also motivate parties to perform well or make a good contractual performance (Bazerman & Moore, 2009).

Linear decision-making

This process involves choosing several alternatives or inputs in which we are not certain of what would happen in our choices. An example of this is when we are looking for a job. There are several offers from employers, and so when we choose one job we do not know if there are future jobs offered to us. Another example is when we find ourselves in a situation where we have to choose and that choice is uncertain.

In a stretch of road, we find a restaurant and we do not know where to park, perhaps a place closer to the restaurant. There can be one space available in that long stretch, but many of the spaces are occupied. One place can be occupied, or empty, and another can be available. The decision depends whether a near spot is empty or available for parking.

Linear models are used in researches and studies wherein data and inputs are available and a spreadsheet is used. Methods used are multiple regression or multivariate analysis (Dawes & Corrigan, 1974). I can use this in ordinary situations. If I have to choose between marriage or not, several inputs could be obtained from past romantic situations and current romances. I really do not know what will happen. I can choose which one but I have to analyze the uncertain future.

Unstructured employment interviews in predicting future job performance

Many managers do not have experience and educational background or training in conducting interviews, and unstructured interviews are one of the easiest to be done. You just have to ask questions referring to the job and the qualifications of the applicant, which may result in a mix of ideas and we get the wrong person for the job.

We can compare structured and unstructured interviews. Structured interviews can produce quality answers, although in unstructured interviews we can also draw quality information. But that would depend on the skill and experience of the interviewer. If the manager-interviewer is not experienced in interviewing applicants, he/she may fail in getting the right person for the job.

Structured interviews are systematic, carefully studied questions that focus on the job and the qualifications of the person applying for the job. These questions were created, maybe not by one person alone but by several managers and their assistants. In this, we get the right results. Unstructured interviews can get the right results if the manager is an intelligent and experienced interviewer. The manager must be good enough because she may end up being interviewed or being asked for a date by the skilful applicant (Kihn, 2012).

Analogical reasoning

Analogical reasoning is used in referring one particular example (situation or thing) with another example. The information of a particular situation is used to refer to another situation, the purpose of which is to give further explanation or meaning to that situation. It is ever-present in human reasoning and cognition.

We explain by referring a past similar experience in order to make it easily understandable. We utilize analogies in ordinary conservation, in literature, in poems and stories, because human understanding accepts it easily. The human mind is like a computer with computer programs and when we think or search new ideas, the mind acts by searching from stored ideas in our memory (Vosniadou & Ortony, 1999).

My recent visit to a department store could have been more meaningful had I applied analogical reasoning. I saw a shirt which looked familiar – the color and the size. But I was in a hurry to find something to wear for a party, and I did not have time to ponder about that shirt. I realized when I reached home that the shirt looked like the one worn by someone special to me, my dear dad. I wanted to purchase it but it wasn’t there anymore.

Kurt Lewin’s model for change

Kurt Lewin’s change model involves three stages which are applicable to any organization or individual. The first phase is “unfreezing” which refers to changing the ice form. Lewin refers this to old behavior or organizational processes that need to change for a new process.

The next step is change wherein people in the organization have to look forward for a new direction. Change will not happen instantly but through a process and it takes time. People will have to understand this concept and where they are going. The last phase of the change process is “refreezing,” meaning to be back in the form of the ice again, to be stable and make the change a status quo (Mind tools, 2014, para. 4).

I think this is important for me, because I have to change too as the world is changing, although what I have found to be my good traits I have to retain them. But I have to combine my good traits with a new one. I still have to “unfreeze,” like what Lewin indicated, to be able to admit new traits. Then I have to change; I become a new form, to battle the forces around me, and be stable once again.

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