Decision-Making And Its Importance In Business Administration – A Case Study On Rolls Royce Motor Cars London

Importance of Decision-Making in Business Administration

Decision-making is very important aspect for any business sector irrespective of service or manufacturing sector. At the time of decision making strong choices are given priority over the poor options, as the poor options are associated with greater risks. In the view of business analysts, decision-making is the function of management. Success and failure of a company depends on the decision-making. Managers are the responsible person for decision making of an organisation (Velasquez and Hester 2013). Techniques of decision-making depend on level of management and types of decision. Several aspects like planning, directing, controlling, managing human resource are involved with the decision making process. The report deals with the decision analysis. It is the process of decision making, where stepwise analysis is made at the time of solving a problem. The decision maker chooses an alternative solution against a initial choice to reduce the risk of wrong decision making (Kannan et al. 2013). Decision-making is widely used in the field of business administration.

This report considers to study the importance and application of decision making for a business firm. Rolls Royce Motor car London has been chosen as case study firm. Decision making regarding deployment of new ERP software package is the chosen case study. Rolls Royce is a big company having operation at a greater scale in the field of designing, manufacturing and supporting products and services for air, sea and land application. Therefore, information management is an important criterion for the firm. Decision making regarding type of ERP software, its suitability, process of implementation, its effectiveness are all-important of decision making for this company. Sensitivity analysis will be analysed followed by the literature review and decision problem section. SMART decision analysis is applied in this report. Criteria for SMART or strategic decision-making and several stages are discussed here. 

Theories on decision-making

As depicted by Yalcin, Bayrakdaroglu and Kahraman (2012), decision-making is the process of selecting best alternatives among several available options. Profitability of a business organisation depends on the managerial decision-making. The importance of the decision-making are discussed below.

According to Snyder, decision-making process is a crucial part of the business administration or any governmental department. There is human activity behind every policy action. A comprehensive management process, the affecting factors are situations, processes, persons and resources. In the view of Bravo-Lillo et al. (2013), decision-making process differs across society. Decision making process of a highly education and rational society is different from that of a backward society. Decision making theory of Synder considers political factors and internal setting of the society in decision-making. This theory focuses on the socialisation of the entire decision making process of a business organisation and the government organisation.

Application in Business

Herbert Simon is the pioneer of the organisational decision making theory and administrative decision making. According to Simon, human rationality is variable and depends on the environment of the organisation. Hence, the role of administration is creation of such an environment, where individual approach of employees can be rational. Three important aspects in administrative decision-making are the economic man, the administrative man and the perspective of the organisation. The economic man follows the rational model of decision making using empirical and factual elements. On the other hand, administrative man makes decision based on selective alternative courses of action and critical factors. Organisational perspective criticises the administrative perspective. This principle is based on authority, communication, training, criterion of efficiency in decision making. Alternative courses of action consider cost benefit analysis to evaluate feasibility of an option.  

This process of decision-making is based on mathematics, psychology, and particularly applicable in-group decision making. The decision makers find that approach of decision making, which is the most suited to their goals and their understanding about problem. This process quantifying elements of the potential alternatives based on the specified decision making criteria related to the given problem (Greenfeld et al. 2014). Right alternative is chosen based on the numeric value of each criteria fulfilled. The user of AHP designs the problems and sub problems into hierarchy so that problems can be analysed independently. Galliers and Leidner (2014) argued that AHP process does not always give correct measure as it is biased towards personal preferences. One may give less priority and lower rank to a factor, which has been given greater priority by another user in decision-making.

Execution of managerial function

According to Gal, Stewart and Hanne (2013), decision-making is associated with every aspect of managerial function such as planning, organising, controlling and directing. Management of operation, human resource management all need decision-making as this is followed by strategy formulation for the organisation. Yüksel (2012) mentioned that the collective decision-making is more effectively compared to individual decision making. Performance of the managers indicates the capability of decision-making.

Evaluation of the performance of the organisation

The growth of the organisation is greatly influenced by the managerial decision making regarding operational activities, financial and resource management. In the words of Yalcin, Bayrakdaroglu and Kahraman (2012), right decision-making results in the positive outcome and acts for the growth of the organisation and every wrong decision are painful for the organisation.

Case Study: Deployment of New ERP Software Package in Rolls Royce Motor Cars London

Pervasive function

Liao and Xu (2013) discusses that decision-making varies across different tier of management. Top-level management takes decision regarding directing, controlling, planning and organising. On the other hand, middle level management mostly takes tactical decision such as work division, division of responsibility, integration of individual effort. A large organisation has operation level managers, who take decision on daily operation, preparation of daily work schedule and delegation of authority. Roy (2013) argued that decision making function depends on the needs of the organisation and hence differs across different organisations. Management needs to be careful while recruiting staffs, choosing suppliers. Recruitment of efficient staffs increases productivity of the organisation.

Improvement in competencies

As stated by Krohling and de Souza (2012), in order to achieve global standard from local status, a firm needs to access similar resources and competition as a global firm. Therefore, decision-making becomes a basis for gaining competitive advantage. Superior decision making improves the efficiency of the staffs, proper use of resources and daily operation. Wastage of resource and wastage of time both are costly for an organisation (Ingram et al. 2013). Efficient decision-making can reduce cost and increase. Without planning, team members cannot be engaged to perform different tasks with similar objectives.

Identification of a decision problem involving multiple objectives 

Rolls Royce is the giant business firm in UK having business in manufacturing motor cars.  Managing different departments of the large organisation is the difficult for the decision makers. The staffs are efficient to provide profession high standards services to the customer. Main decision maker of the company are brand director, sales manager, sales specialist, sales executives (rolls-roycemotorcars-london.co.uk 2017). Interlinkage among different departments is required to manage a large manufacturing organisation. Manufacturing of products is not the only activity of the company. Maintaining strong supply chain, information systems are important activities.  This paper focuses on the problems regarding management of information system in this company. The company wants to deploy of an enterprise resource planning software for resolve data and project management issues within organisation. As discussed by Willcocks (2013), the decision makers may face some problems before installing the software such as employee training, lack of proper analysis, effectiveness of the new software, lack of support to the staffs, compatibility issues with previous infrastructure, cost. The problem to the company is how to choose the best suitable ERP solutions for the company.

Objectives

The objectives to implement ERP software are management of logistics, financial decision-making, human resource management, project management, daily productivity, and ergonomics. The objective of the company is to minimise manufacturing cost and increase in resource utilisation, cutting down production bottleneck, on time delivery performance and transparent operational control (Brodie and Mylopoulos 2012).

As mentioned by Ishizaka and Nemery (2013), decision-making process has seven stages as described below:

1. Identification of purpose	· What is the problem? · Why the problem needs to be solved? · Who are affected by the problem?
2. Gathering of information	· Identification of affected stakeholders and gathering information related to the problems.
3. Principles for judging alternatives	· Defining baseline for judging alternatives
4. Analysis of different choices	· Cost benefits analysis using cause and effect diagram or Pareto chart tool.
5.Evaluation of alternatives	· Evaluation of each alternatives based on specified criteria
6. Selection of the best alternatives	· Decision maker chooses the best alternative, which has least cost and maximum benefits.
7. Execution of decision	· Resources are allocated to execute the final decision.

Application in business

Rolls Royce has to make decision in several steps before the application of the ERP software in the organisation. The first task that the company needs to do is to pay attention to the version of the software. AS ERP software takes long, time to be installed and to be effective. A new product may be launched in the market by the time. Technology used in the software, level of dynamism of the system, internal and external system security, usability, future development options, requirements for hardware, software and networking, cost of installation and cost of operation, return on investment and efficacy of the team members (Kannan et al. 2013). There are some risks associated with the implementation of the ERP system. Therefore, appropriate decision-making is very important.

As identified by Macharis, Turcksin and Lebeau (2012), there are seven steps of SMART decision making at a managerial level in an organisation. The first step is identification of the problem. The second stage is determination of the requirements that the solution of the problem must meet. At this stage, the decision makers gather relevant information along with establishing goals. Third stage is identification of the alternatives solutions to resolve the problem. Fourth stage is development of the value criteria based on goals. Decision makers need to weight the alternatives according to their potential and alignment with the organisational goal. Fifth stage is choice among alternatives. As ERP software is costly, the management of Rolls Royce needs to choose only one solution that is best suited to the organisation both in terms of efficiency gain and cost minimisation . At the sixth stage, management implements the decision and installs the software and the stage requires the review of the decision (Manshaei et al. 2013).

A new team needs to be developed in Rolls Royce to plan and execute the software instalment programme. There are several activities comprising within the entire project and several departments are associated with the project. The main responsible person is the project manager, who monitors the entire project starting from planning to execution (Moe, Aurum and Dyba 2012). Director of Engineering and Technology will play the role of project manager. Along with the project manager, the finance manager and chief operating officer of the company are associated with the project.

In the market, most popular ERP software are Microsoft Dynamics, Odoo, Sage, Sap Business One, Oracle Net Suit, Deltek and others. These products are close competitors of each other in UK and world market as product features are more or less similar. Among several software, the alternative software that can be applied in Rolls Royce are as follows:  

Alternatives	Platform technologies
1. ERPNEXT of Web Notes Technologies	Python, JavaScript, MariaDB
2. OneSoft Connect by OneSoft COnnect	Cloud, Saas, Web
3. SAP Business One by Uneecops Technologies	X86/ x4
4. Dynamics AX by Microsoft	MS SQL Server, Oracle, Cloud-Based (Saas), Microsoft Azure
5. Odoo	Python, Javascript, PostgreSQL

Identification of attributes

As Rolls Royce is the second largest provider of defence aero engines in the international market, it has strong competitive position in the market during 50 years. In order to achieve the vision of the company, the management needs to give priority to innovation, empowering employees and cleaner growth (Parnell et al. 2012). Investment in technological development in the form of ERP software is aligned with overall efficiency of the organisation. The alternatives are ranked based on the criteria such as time of installing software, installation cost, cost benefit analysis, controlling and monitoring.

Alternatives	Function /attibutes
1. ERPNEXT of Web Notes Technologies	Can be used in HR management, collaboration tools, and inventory management
2. OneSoft Connect by OneSoft Connect	Manage everything in day-to-day business including managing tasks, meeting minutes, activities with customers, asset management and others.
3. SAP Business One by Uneecops Technologies	Manage entire business including sales, customer relationship, finance and operation, specially designed for small business.
4. Dynamics AX by Microsoft	Every organisational activity
5. Odoo	Sales, operation, marketing, boosting productivity, human resource management, CRM, finance

Overall Benefits

The objectives to implement ERP software are management of logistics, financial decision-making, human resource management, project management, daily productivity, and ergonomics. The objective of the company is to minimise manufacturing cost and increase in resource utilisation, cutting down production bottleneck, on time delivery performance and transparent operational control (Perera et al. 2013).

Main benefits of ERP system is integration of all functions performed in Rolls Royce, online communication facility with the suppliers and vendors, improvement in decision-making within specified time limit and resources, improvement in process time, reduction in planning inadequacy and enhancement of feasibility of administering.

Costs

Organisation may be unwilling to install due to high cost or due to resistance to change. Change in total system may take longer time that may cause cost overrun. There are also risks of data error. In case of data error or power fault, the system may become inactive. Sánchez-Lozano  et al. (2013) highlighted that maintenance of the ERP software and system is costly as well as time consuming. . As pointed out by Schmoldt et al. (2013), cost of a ERP software installation in a large organisation is $5 million to $100 million based on the features and capacity.

Alternatives	Price
1. ERPNEXT of Web Notes Technologies	$300 for 5 users/per year
2. OneSoft Connect by OneSoft Connect	$6 /month/user
3. SAP Business One by Uneecops Technologies	$17,200.00/one-time
4. Dynamics AX by Microsoft	$20K-750K
5. Odoo	$25.00/month/user

The price listed in the above table against each product is the starting market price. Prices vary with the differentiation in product features. Prices are determined according to the market demand, quality and product features. The price of the dynamics is high because of the brand value. Above the listed alternatives most useful would be ERP NEXT from the viewpoint of functions and cost effectiveness. Hence, this product can be assigned with 100 values in the decision making procedure. Dynamics is assigned with value 80 as due to its brand value and technology. Although initial cost is high, Dynamics may be very effective in the long term. Others alternatives are assigned with subsequent numbers accordingly. At the time of assigning values, the decision makers need to give priority those attributes, which are more aligned with the objectives of the organisation (Schmoldt et al. 2013). The values are needed to be assigned according to the growth goals of the company, efficiency goals, functional requirements, underlying technology and future scalability and budget.

Weighed values are assigned according to their needs in the company.

	Weight	ERPNEXT	OneSoft Connect	SAP Business One	Dynamics AX	Odoo
Price	30	100	90	60	50	80
Ease of implementation	20	80	90	60	100	70
Ability to fit with business	10	100	75	70	80	90
Level of support	25	90	80	75	100	95
Quality of documentation	15	90	82	80	85	87

Table : weighted values of attributes

	Normalise Weight	ERPNEXT	OneSoft Connect	SAP Business One	Dynamics AX	Odoo
Price	30	100	90	60	50	80
Ease of implementation	20	80	90	60	100	70
Ability to fit with business	10	100	75	70	80	90
Level of support	25	90	80	75	100	95
Quality of documentation	15	90	82	80	85	87
Weighted average	100	92	83.4	69	83	84.4

According to cost and benefits analysis in the previous section, the best-chosen option is ERPNEXT as weighted average combining all attributes is highest for this software. In terms of cost, this software is the cheapest among five alternatives. Odoo has also a greater weightage and applicable for large organisations. However, in terms of consumer choice and ration, ERPNEXT is more popular compared to Odoo.

Price is the main determining factor while choosing ERP software for the first time. As a large number of software is available in the market, each product is price elastic for the first time buyer. Any small increase in price of ERPNEXT may shift the consumer demand towards the alternative solution. However, when Rolls Royce uses the product for the second time, price is not a factor. The company then needs to give greater priority to the level of support provided by the software and ability to fit to the business along with the growth potential (Velasquez and Hester 2013). The use needs to consider the risks associated with the use of the software. As the goal of the company is to integrate all departments through software for better functioning of the company, functionality and efficiency become crucial factors.

Strength of the study

The study considers vast literatures on the decision-making problems. Literature review has helped significantly to develop SMART techniques to focus on the problems. Every step associated with the project has been explained. Process of decision-making has been explained clearly to apply this theory on the company. From the discussion, it has been clearly understand, which company is needed to undertake.

Limitation of the study

The main limitation of the study is no use of data. Cost benefit analysis could be analysed in a better manner. Descriptive studies have been considered. Choice of the best alternative solution could be represented more clearly and using more data on price and cost. This report has suggested only brief overview of the decision making process. Quantitative analysis would have done for every alternatives in more details, however could not be feasible. Cost benefit analysis using, quantitative method of sensitivity analysis, expected return on investment have not been conducted in this study, which could have made the analysis more vigorous.

Based on five alternatives, the company needs to choose ERPNEXT, as it is flexible and open source software. It needs to be considered that upper management of the company should support to the team members. The company needs to make an extensive list of requirements and look for vendor of the ERP software package. Most necessary part of the decision making is to clear communication with the staffs. Staffs need training on technical change and also for the change management. As installation of ERP software bears a huge amount of cost, employees may fear of rise in cost of production and cut off in employment. Therefore, motivations are required at this stage. Upper management support can make the change in operational process easier. Based on cost benefit and expected result analysis, The Company is suggested to undertake ASP software as it has low cost, higher efficiency and less risk. The decision makers need to consider organisation specific hidden cost before making final decision.

Conclusion 

The report focuses on the decision process in a organisation. The report is based on the case study of Rolls Royce motorcar manufacturing company of UK. This company requires an integrated information management system that is effective for tasks of the entire department. Decision making in a company includes several aspect such as planning, diagnosis of problem, findings alternatives and cost benefit analysis. Installation of ERP software is a difficult task for a manufacturing firm. ERP software has significant impact on the technological, financial and operational aspects of the company. Moreover, as this software is expensive to install, decision makers has to consider cost, time line and benefits from the software.

The objectives of the decision makers are financial decision-making, human resource management, project management, daily productivity, and ergonomics. In order to fulfil the objectives, cost benefit analyses are important factors. Suggested cost benefit analysis for this project may be payback period, net present value and internal rate of return. The alternative with higher benefits requires undertaking. The decision regarding ERP software is taken based on present and future value, initial cost, time line, lowest payback period. Qualitative analysis has been done instead of quantitative. However, quantitative analysis such as game theory, Bayesian theory, sensitivity analysis can be used for efficient decision making.  

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