Applying Decision Analysis To A Business Problem Using SMART Technique

Importance of Decision Making

Decision making processes are used to make important decisions; it is an essential part of making choice by gathering the information by assessing the solutions. It is an approach that is used to choose alternative solutions. There are few steps that are taken in the decision making process. It starts with identifying the problem by gathering the information and then identifying the alternatives. The best solution is selected among the alternatives then actions are taking by reviewing the decisions. It helps in achieving the determined goals of an organisation (Brown-Liburd, Issa and Lombardi,  2015). Decision making process is used in every department so that growth and drivability is achieved. The process of decision making is fast and used so that functionality is improved. There are various tools available for making decisions and is done so that outcomes are obtained in an optimized way. In this report the important and significance of decision making process is discussed along with its application. Additionally, a common business problem that is faced in an organisation is also listed by analysing it using SMART tool. The conclusion is done at the last and the major strengths and limitation of the business case is done (Brown-Liburd, Issa and Lombardi,  2015).

Importance of decision making process

Decision making process is important as it make sure that there is a better utilisation of resources so that objective of an organisation is achieved.  It also contributes in business growth for achieving the objectives (Hammer, 2015). It increases the overall efficiency and also facilitates innovation. Decision making process makes sure that decisions are taken in a way so that employees are motivated. It is important for business managers to take decisions by analysing in all the directions (Chen,  Lu and Wang, 2017). The importance of decision making is analysed and listed in some of the points below:

• They need to be taken by identifying all the issues as if taken in a wrong direction can cause downfall in the business. Thus, it is suggested that a step by step process should be followed for taking decisions (Chen,  Lu and Wang, 2017).
• Decisions are taken at every step and they are important for business with the purpose of making operations smooth (Jiao, Pan, Liang,  Feng and Yang, 2016).
• It also facilitates innovation as they develop new ideas and processes so that competitive advantage is offered to the organisation (Chen,  Lu and Wang, 2017).
• If decisions are taken in right direction it increases efficiency otherwise it can result in higher returns that too at lower cost.
• If decisions are taken appropriately the objectives can be achieved quickly. This is due to the fact that decisions are taken after analysing and evaluating all the facts.
• It also helps in choosing a best solution from all the alternatives. There are various solutions thus the suitable solution is chosen (Jiao, Pan, Liang,  Feng and Yang, 2016). Decision making process is one of the essential criteria that help in measuring the performance of the top level management.
• Decisions are made by following a framework by considering the staff and other members. The decisions are taken in a way that benefits are offered to the employees and they feel motivated to work for organisational requirement (Lamb,  Becker and Nunes, 2017).
• It also helps in achieving the goal so that desired results are obtained.

It is a process that is used to analyse, model and optimize the requirement so that optimization is done. The objective of decision making process is to make sure that optimized decisions are made and they can work in unexpected and uncertain situation. Decision making process first analyses all the solutions from different perceptive and then best outcome is selected (Hogarth, 2014). Decision making approach is even used by business as well as in government process. Some of the fields in which decision analysis is used are:

1. Government authorities

They take decision in a way so that risk could be minimised and research is implemented so that resources are used efficiently. It supports in managing all the emergency condition (Biswas, Pramanik and Giri,  2016).

1. In business

Application – Decision Analysis

They are used in business for launching a new strategy for idea, or while selecting a process or project to work on, it supports in making management efficient, it also help in choosing best portfolio and also used in business for making operations reliable and successful (Biswas, Pramanik and Giri,  2016).

• Other fields

There are various other fields were decision making process plays an important role. It is used to make decisions for all the legal processes and biddings (Judge and Talaulicar, 2017).

Decision problem arises due to difference between the present situation and expectation situation. The gap between current scenario and expected outcomes results in decision failure (Pennycook, Fugelsang & Koehler, 2015). There are various options available to solve the concerns with the motive that objectives met. A common problem is identified and listed below.

There is a small café situated in Sydney, Australia is planning to expand the business by opening up a new branch in other city. The owner has an innovative idea for expanding their business in different city. For opening up the café in another city, he plans to purchase shop on rent for initial time period and work on the factors through which profit and turnovers could be increased (Crego and Harris,  2017). He plans to open up a new brand in Perth and planned to open the café this time in a shopping mall so that more customers could be targeted. Some of the popular shopping centres of Perth were selected that include water town, forest chase, karrinyup shopping centre, carillon and hay street. These shopping malls are selected as they are very popular and customers visit these malls frequently according to the survey. The challenge that is faced for taking a shop on rent in these malls is cost. For buying even a small shop the cost is very high. On the other hand, the size of shop is very small as compared it the requirement. Thus, the owner thought of opening the café in Midland Gate Shopping Centre that is not much expensive but it is a popular mall that is visited by customers frequently.  It is located in the main market which means it is easily accessible by the customers. The mall is expanded with various products due to which they are visited frequently. Now it is difficult to make final decision as selecting the mall in which café could be opened involves various factors. Some of the factors that need to be considered while making decision are maintenance charge or the mall rent of the shop, electricity charges, customers gathering and other expenses (Norman,et. al,  2017). While making decision the cost as well as benefit caused is considered. The benefits are gained after the shop is established it is earned due to the turnover and working environment. The factors through which profit margin can be increased is the number of customers visiting the mall, size of the shop, services offered to the customers, goodwill and brand image. Thus, it is crucial decisions that need to be taken owner regarding shop location (Reyna, Wilhelms, McCormick and Weldon, 2015). To make a correct decision SMART approach is used as it helps in selecting the best options from the entire available one. The options that are available for the owner are:

• Water town shopping centre
• Forest chase shopping centre
• Karrinyup shopping centre
• Carillon shopping centre
• Hay street shopping centre
• Midland Gate Shopping Centre

Decision Problem

SMART approach

It is a technique that works on the approach of MAUT (Multi Attribute Utility Theory). The decision is taken by considering the weightage given to the each attribute. The attribute that has high weigh is given more value (Ten Cate,et. al,  2016). It makes thedecision making approach easy and make sure that best decision is taken by the owner (Amoyaw and Abada, 2016).

The problem of selecting the location for starting up a café

Name of the Mall	Annual Rent ($)
Water town shopping centre(A)	320000
Forest chase shopping centre (B)	40000
Karrinyup shopping centre ( C)	28000
Carillon shopping centre (D)	35000
Hay street shopping centre ( E)	25000
Midland Gate Shopping Centre (F)	23000

Value tree

The value tree tells about the cost and benefits associated with the decision problem. The cost that is linked with the rent expenses, payment to staff, maintenance and security deposit. The benefits through this project can be calculated by turnover that completely depends upon the goodwill, brand image, size and location of café (Ten Cate,et. al,  2016). The working condition also plays an important role that could be improved by having a healthy and safety department and also due to friendly staff members.

Annual Cost related to the malls

Malls	Annual rent and other expenses($)	Miscellaneous cost ($)	Maintenance cost ($)	Security Deposit ($)	Total Cost ($)
Water town shopping centre	32000	2000	3500	2000	39500
Forest chase shopping centre	40000	2000	4000	2500	48500
Karrinyup shopping centre	28000	900	2800	1700	33400
Carillon shopping centre	35000	1800	3600	1800	42200
Hay street shopping centre	25000	1500	2000	1200	29700
Midland Gate Shopping Centre	23000	1700	2000	1000	27700

Ranking for the Goodwill

Ranks are been given from the most preferred to least preferred.

Name of the Mall	Ranks
Hay street shopping centre	1
Forest chase shopping centre	2
Water town shopping centre	3
Carillon shopping centre	4
Midland Gate Shopping Centre	5
Karrinyup shopping centre	6

The rating of the goodwill is represented by the graph, showcasing by the numbers

Values  Hay street shopping centre

    80 Forest chase shopping centre

    70 Water town shopping centre

    60 Carillon shopping centre

    40    Midland Gate Shopping Centre

    30 Karrinyup shopping centre

Value function Graph

The value chain graph is made between the rent of the shop and the floor area of the shop.

Assigning the values to the malls as per different factors

The six malls are marked as A,B,C,D,E,F. The values are assigned to each mall on various attributes like the goodwill of the mall, location of the café, the brand image in other city and the size of the shop.

Attributes	Malls
	A	B	C	D	E	F
Goodwill of mall	100	80	50	70	60	50
Location of café	100	70	40	60	30	60
Size of café	60	90	75	80	60	50
Brand image	80	60	60	75	35	50
Health and safety	60	80	70	90	80	60
Friendly staff	70	70	40	80	50	80

The swing for goodwill of mall is taken to 80%, the location of café is taken to 100%, size of the café is taken as 60%, brand image is taken as 60%, health and safety is taken as 50% and staff of café is taken as 70%.

The next step in this approach is assigning weights to each and every attribute. The table below assigns weight to the entire attribute.

Future, calculating the benefits associated with each mall

(A) Water town shopping centre
Attributes	Values (1)	Weights (2)	(1*2)
Goodwill of mall	100	23.81	2,380.95
Location of café	100	23.81	2,380.95
Size of café	60	14.29	857.14
Brand image	80	19.05	1,523.81
Health and safety	60	14.29	857.14
Friendly staff	70	16.67	1,166.67
			9,166.67

Average benefit= 9,166.67/100= 91.66  or 92.

(B)Forest chase shopping centre
Attributes	Values (1)	Weights (2)	(1*2)
Goodwill of mall	80	19.05	1,523.81
Location of café	70	16.67	1,166.67
Size of café	90	21.43	1,928.57
Brand image	60	14.29	857.14
Health and safety	80	19.05	1,523.81
Friendly staff	70	16.67	857.14
			7,857

Average benefit= 7857/100= 78.57  or 79.

Attributes	Values (1)	Weights (2)	(1*2)
Goodwill of mall	50	11.90	595.24
Location of café	40	9.52	380.95
Size of café	75	17.86	1,339.29
Brand image	60	14.29	857.14
Health and safety	70	16.67	1,166.67
Friendly staff	40	9.52	380.95
			4,720.24

Average benefit= 4720/100= 47.20  or 47.

(D) Carillon shopping centre
Attributes	Values (1)	Weights (2)	(1*2)
Goodwill of mall	70	16.67	1,166.67
Location of café	60	14.29	857.14
Size of café	80	19.05	1,523.81
Brand image	75	17.86	1,339.29
Health and safety	90	21.43	1,928.57
Friendly staff	80	19.05	1,523.81
			8,339.29

Average benefit= 8339/100= 83.39  or 83.

€ Hay street shopping centre
Attributes	Values (1)	Weights (2)	(1*2)
Goodwill of mall	60	14.29	857.14
Location of café	30	7.14	214.29
Size of café	60	14.29	857.14
Brand image	35	8.33	291.67
Health and safety	80	19.05	1,523.81
Friendly staff	50	11.90	595.24
			4,339.29

Average benefit= 4339/100= 43.39  or 43.

(F) Midland Gate Shopping Centre
Attributes	Values (1)	Weights (2)	(1*2)
Goodwill of mall	50	11.90	595.24
Location of café	60	14.29	857.14
Size of café	50	11.90	595.24
Brand image	50	11.90	595.24
Health and safety	60	14.29	857.14
Friendly staff	80	19.05	1,523.81
			5,023.81

SMART Technique

Average benefit= 5023/100= 50.23  or 50.

Now, summarising the aggregate benefits for each mall

Name of the Mall	Aggregate benefit
Water town shopping centre(A)	92
Forest chase shopping centre (B)	78.57
Karrinyup shopping centre ( C)	47.20
Carillon shopping centre (D)	83.39
Hay street shopping centre ( E)	43.39
Midland Gate Shopping Centre (F)	50.23

Now representing the cost benefit graphically

Name of the Mall	Aggregate benefit	Cost
Water town shopping centre(A)	92	39500
Forest chase shopping centre (B)	78.57	48500
Karrinyup shopping centre ( C)	47.20	33400
Carillon shopping centre (D)	83.39	42200
Hay street shopping centre ( E)	43.39	29700
Midland Gate Shopping Centre (F)	50.23	27700

The cost against graph is plotted below:

The plotted above shows the benefit of each mall against its cost. The mall that has highest benefit but lowest cost will be preferable from all the available. As it is seen from the above graph that, it is seen that water town shopping centre and Carillion shopping centre has highest benefit among all. Thus, from the other mall the mall A and D are selected on the basis of benefit. But if considering the cost that would be needed to open up the café is high of Carillion shopping centre as compared to water town shopping centre. So, from the analysis it is said that carillon shopping centre is preferable.

Sensitivity Analysis

It is fundamentally money related displaying device which measure the degree to which the needy variable is influenced by the diverse estimations of free factor. For picking the best alternative among the accessible five, affectability investigation is done based on the Net Present Value for every shopping centre (Shepherd, Williams and Patzelt, 2015). NPV is the needy variable and loan cost is free factor. The examination measures the adjustments in estimation of NPV as and when the loan cost contrasts.

Summary of sensitivity analysis:
Interest rate (%)	final NPV of A	final NPV of D
8	49,851	47,736
10	56,206	45,139
12	42,776	42,699
14	39,546	40,405
16	36,499	38,243

As per the cost benefit, mall A and mall D were shortlisted. Then sensitivity analysis is performed on these two malls. The cash flow was calculated hypothetically for next three years of each mall. The value of NPV was also calculated as per various interest rate of the café. It is seen from the analysis that with increasing interest rate the value of NPV decreases. The change of NPV in both the malls is almost same thus, the mall A that is water town shopping centre is selected as its aggregate benefit is maximum. From both the analysis it was selected that water town shopping centre is the best mall in which café should be opened. It offers maximum benefits that will help owner to make huge profit (De Maio,et. al, 2016). The NPV for both the malls that were shortlisted after cost and benefit analysis is considered for NPV calculation. The NPV is calculated for different interest rate so that it can be analysed in both best and worst condition.

Analysis- Strengths and limitations

Strength

• SMART analysis is a method that is used to calculate the value associated with every attribute. Once the value for each attribute is found, weights are assigned to them by considering all the criteria (Lin, Wang and Huang, 2018). Each criterion is considered and the n one of the best alternative method is selected.
• The method takes into consideration all the values of attribute and then decisions are taken accordingly.
• Once the weights are assigned, a direct rating method is used that helps the owner to make accurate judgment. It supports the owner to select the best mall that has low cost but high benefit (Scyphers, Picou and Powers,  2015).
• The weights assigned need to be simplified using the normalization method so that analysis is done easily (Chemweno,  Pintelon,  Van Horenbeek and Muchiri, 2015).
• SMART approach is an easy way of making decision and is a less time consuming process. They apply weight analyses method so that decisions are taken accurately.
• It also offers cost benefit analysis. It helps in finding out the ratio of cost and benefit so that profit margins can be maximised (Thokala, et. al,  2016). The cost and benefit associated with every mall is calculated and then decisions are taken accordingly. The mall that offers favourable condition is selected (Crane and Matten, 2016). This approach makes easy for the café owner to select one mall. The mall that has minimum cost and maximum benefit is selected. Once the values are found they are represented on the graph that makes analysis easy (Chemweno,  Pintelon,  Van Horenbeek and Muchiri, 2015).
• The last part of SMART technique is sensitive analysis that is carried out by every organisation. This analysis is used at last by the owner to select one out of two. If two malls are shortlisted by the above method that is cost-benefit analysis. This helps the owner to make the final decision (Van der Linden,  2017).  

Limitation

• This is a simple approach but it cannot be used in cases where the business structure is complex. Using this for complex structure is not suggested as the procedure is very lengthy and it is not convenient (Vohs,et. al, 2018).
• It is used only for making decision of shorter duration. The problem for a longer duration can be solved by using this approach. The reason for not using this approach for longer time duration is that the attributes will increases. This in turn will make the problem complex and complicated (Trimble & Hamilton, 2016).
• The results obtained are not accurate as estimation and approximation is done of the figures and values (Baghaei Lakeh and Ghaffarzadegan, 2015). The constraint of the analysis is that the values are estimated and approximate figures are taken, which can affect the accuracy of the decision.
• It requires patience to undertake this approach (Solomon, et. al,  2014).

Conclusion

From the above discussion in the report, it can be concluded that decision making process is a crucial part of every organisation. The success of business is related with the decisions that are taken in the process.  The report covers the SMART that is Simple Multi-Attribute Rating Technique. It is one of the best possible solutions that are used to make decisions. This approach helps in selecting one from all the available options. In consists the case of a owner who is planning to open another café shop in Perth, Australia. Before selecting a mall in which café should be opened he carried out SMART approach. This also made use of cost and benefit approach. The mall that has lowest cost amount and highest benefit amount is selected. So overall, it can be said that, the tools of decision analysis helps in making better decisions and also resulted in the success of the organization as well as the people involved in it. From the calculation, the mall A that is water town shopping centre is selected. The cost and benefit approach was used for shortlisting the malls that has maximum benefit and minimum cost. After that NPV calculation was done, from that mall A has been shortlisted for the owner to open café.

Strengths and Limitations of Analysis

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