Investigation And Analysis Of Business Decision Making Models

Introduction to the Project

In 1964 Ronald A. Howard, introduced business analysis as a systematic, quantitative and interactive method employed by organizations in evaluation of fundamental choices faced by the firms.

According to the (BABOK® 2016), “performing decision analysis is one of the 16 required techniques in the fundamental knowledge base of an effective business analyst.” A business decision is a deliberate choice arrived at, after considering all other possible strategies over a single or a group of correlating issues.  Decision analysis as well involves trade-off decision-making as in, a decision involves examination, evaluation and valuation of a number of objectives

In most recent times, businesses have related operational, managerial, and financial success to the business choices they adopt. Therefore, making it imperative for both established businesses and startups to evaluate means upon which they ought to base their decisions. Thence, the basis of business decision analysis.

An article by (Lexicon,2018) argues that, “Decision analysis is interdisciplinary and draws on theories from the fields of psychology, economics, and management science.” To come up with techniques aiding groups to come up with competitive and strategic decisions.

The project is about the investigation of the different methodologies of decision-making, process of deliberation of the business decisions and an application of an analyzed decision for a dummy business set-up.

In the first of part of the paper, we will explore a business case and examine the business problem as well as the process of decision-making employed by the executive. In the second part, the paper will explore a simulation method that a business uses to come up with adoptable decisions for the business and investigate the application of the method in other firms in the same industry as well as related. The paper will at last employ the simulation in part two to demonstrate how a business executive may come up with decisions.

Generally, we will research the methods used to come up with business decisions by the executive and report our findings.

The purpose of the research includes:

• Identifying an underlying business decision in a business case
• Exploring the assumptions occurring in the process of decision-making and how they influence the whole process
• Underpinning the requirements of a business decision-making process
• Applying a model simulation to a business in an industry of choice
• Exploring both controllable and non-controllable factors affecting business operations and how they fare in the decision-making process through Monte Carlo simulation
• Demonstration of business-decision making technique in the process through regression

At the end of our research, we expect to:

• Be able to establish a relationship between decision-making process and choice of decisions in a business firm
• Gain insights offered on data collected for the purpose of business decision-making
• Be able to apply successfully, the outcomes of data analysis to our decision-making
• Learn the effects of applying a decision-making model before applying to real business

A Business decision model is “…an intellectual template for perceiving, organizing and managing the business logic behind a business decision. An informal definition of business logic is that, it is a set of business rules represented as atomic elements of conditions leading to conclusions” (Barbara $ Larry, 2011, para 1).

Risk analysis comprises every detail of the decisions we make. This is true in a range of fields. Be it medicine, sports, governments, and even business organizations. Business management is in the constant face of unpredictability, equivocality, and volatility despite the free flow access to information. Nevertheless, the future is not predictable easily, therefore necessitating the process of investigating a business decision (Hui, 2013).

Business Decision Making

The process of management involves:

1. Resource coordination
2. Decision making

• Supervision and monitoring of business operations

1. Accountability to shareholders (Rouse, 2013)

Therefore the executive often require statistics, through which it will make sound decisions and make realistic plans, this depends on excellent communication in all the business organs.

Imperatively, financial statistics play a major role in influencing the path followed by the business, hence key in management decisions. (Vincent, 2015).

Change is vital for a business, it is through change that a business grows, adopts new technology, improves service provision, and develops means to increase productivity. It is thus important to be able to manage the change through the simulation tool. Simulation helps predict the outcome and the means to achieve the end outcome.

Variability exists universally in almost everything, this range from height, duration, profitability, worker productivity, rate of accident occurrences, etcetera; this is true in the business world, medicine fields, sports, and aviation even. (Turner & Marcomber, 2018)

Scope of the Project

The project covers analysis of the decision-making process in a fuel producing company, (Manna 2014). It investigates the process of conception of an idea through thorough empirical processes and the adoption as a business decision as a result. The report examines decision sciences and various researches related to the field of business decision-making. It follows a sound procedure of investigation and evaluation of a business case, upon which the focus of our study, is to draw the end structure of a sample decision-making template and investigate the logic of the company’s choice of it as a decision. Additionally, the report simulates a decision model for a mining company in order to outline probable decision suggestions to the company executive.

The research draws inferences from various scholarly works and real-life examples of decision-making. The research gives an application of the simulation model as to be in “…Finance, project management, energy, manufacturing, engineering, research, and development, insurance, oil & gas, transportation, and the environment…” Palisade (2017)

The main objectives of the report are:

1. To establish that for a business process to be fruitful, it is prudent to define clearly the decision-making ideas underpinning it
2. To explore various decision-making techniques, their application and the logic of their development

• To investigate the relationship between variants in a business and the effect of their variation in making a decision

1. To outline the process of applying a business decision to the business

The report employs various statistical methods as well as empirical methods to analyze each of the three parts of the research. The statistical methods used to analyze data for decision-making are:

1. Simulation

The risk analysis was through Monte Carlo simulation is done through developing statistical and mathematical models by restituting a range of values. Given any variant, having elements of unpredictability, a probability distribution is developed.

Simulation efficiently aids in modeling a variety of systems that are key to the executive monitoring. Ideally, a business simulation is a prototype of a real-world business system. In enterprise, the executive and business firms are interested in the features of operation in the given system; therefore, a way of assessing the performance is to follow up close on the actual operation of the system.

1. Linear regression

Simulation Models

Linear regression was used to test for relationship between variables.Both the response and predictor variables.

The data used for the business case constitutes six input variable: Gold grade, Ore Tons, Gold price, Exchange rate, mining cost, process Unit cost Hui (2013). It is important for simulation exercise

Data analysis was done using StatisticsXL in Microsoft excel. The outcomes were graphed and used for interpretation in coming up with a business decision

Comparative Report

Risk prediction, assessment, and management are fundamental for any manager and dictate the business decision process. (Management Study guide, 2017).

Uncertainty and Decision-Making: A Strategic decision-making process

In the year 1984, oil was discovered in Alba (Scotland). These were large crude oil estimates of around 760 million barrels in the field, however, there were several structural issues surrounding exploration and drilling of the precious liquid gold:

• Difficult geological structure with loose sands
• Unsuitable reservoirs
• Too much water lying underneath the oil deposit

Back then, access of the Northern and southern oil fields would only be via construction of an extensive central terrace albeit facing ambiguity of producing hefty and languid oil from the end-points of the fields.  

Nevertheless, Chevron settled on a decision to bolster the development of the drilling process, owing the ambiguity of the uncertain risks; in particular, the oil reservoir fruition and the refinery process of the oil. (Manna 2014)

This comprised fitting a central terrace along for unified oil production, oil perforation and residing area for the staff. In the Northern area alongside ANP and the fuel sending unit, the Alba Northern Platform (ANP), with a 227 million oil barrels projection given 20 oil generation wells through catheterization using prevalent sanction and horizontal oil shafts.

The company’s inceptive aim was to augment both the southern and Northern terraces in a period of 5 years. Operations involving the two terraces would curb the well’s angles and eventually costs. The process was constraint to availability of the then technology. That would access up to 9,500 feet.

Establishing a correspondence team

Following this, Chevron put together a paltry correspondence team, whose role was to investigate and identify feasible development options, a move that was in line with the company policy on the process of project development and the whole execution process. Part of the team’s responsibility included provision of a visionary and creative approach. (Chevron way 2016)

In coming up with a better option, the correspondence team suggested oil perforation (drilling), through use of the now newly developed technology, which would allow oil exploration from the Northern terrace, ensuring feasibility. This is through the extended reach drilling (ERD) option developed by the team, an important innovation in the oil industry that facilitates vast oil access from a given terrace.

The correspondence team came up with twenty-one alternatives, four of which were dropped for their inadequate feasibility, nine were preferred, another four fell short of economic potential, the remaining five were considered for extended research.

Linear Regression and Analysis

Following further determination. Either the choice was to be on upgrading the original terrace or on constructing another, which would be for conjoining to the Northern terrace.

After considering the pros and cons of the two-decision scenarios, Chevron settled with addition of new systems and technology to the original Northern terrace, i.e. retrofitting. Hence upgrading the Northern terrace instead of building on the southern platform

Chevron divided facet 2 into 2 stages, through adoption of the proposed ERD technology, this ensured production sustainability, and mitigation of the degeneration rates through raising the oil holding capacity.

Mining Industry

In the mining industry, profitability of gold business is dependent on a number of factors such as:

• Quality of gold ore
• Prevailing exchange rates
• Number of competitors
• Worker productivity
• Gold price
• Process unit cost, etcetera

All this factors are put into consideration when making any decision, even the simplest one as to when to start the business day to complex ones as to which constraints to vary in order to obtain optimal returns.

Business problem

Suppose a gold mining firm, Jewelry mining co, seeks to identify new ways in which to allocate their resources and other variants taken into consideration in quest to maximize their profits while lowering the risks involved in operation. Concerns such as scheduling of workers, the expected work rate, business-operating hours, how many workers to employ, how to distribute them would also be in question

These constitute decision variants that are largely under the influential control of the company executive. However, there is also a range of uncontrollable variants in the situation. These include, exchange rates, competition from other firms in the industry, operational hazards such as accidents that hinder operations, and the prevailing market demand for gold.

Following the instability of exchange rates, the company decision makers would want to decide on which gold grade would ensure optimum profits given the shaky exchange rates over a given period. Producing more gold would not be the only ideal course of business. Maybe 2,000,000 tons of gold with 1.68 g/t gold would be sufficient for profits compared to 2,500,000 tons of gold with 1.2 g/t gold. The executive would be drawn to issues such as profits generated, operating costs, and working hours together with the expected mining volumes per day, which are influenced by exchange rates, competition, responsibilities to shareholders, and legislations.

Analysts may simulate the company being able to mine a given amount of gold with varying gold concentration, to the extent that given the prevailing conditional variants; the business still makes optimum profits. I.e. to the point, the prototype is valid. They could come up with the optimal number to maximize the productivity and the mode of distribution of all the variants to achieve this. The fact that exchange rates can solely be estimated statistically means there would be a convincing random composition of the marketing system and the prototype simulation will be a fundamental measure in identification of the firm’s operating characteristics.

Data Analysis and Interpretation

The prototype heavily relies on empirical evidence when possible. Such a prototype involves mathematical abstraction aiding in approximation of the situations realness. Problems arise when placing weight on the desire to achieve profits and consideration of the solution’s rational amenability

Unfortunately, achieving ideal simulations are not entirely possible, except maximizing the workability of the given prototype in relation to the business problem.

Given the unpredictability of exchange rates, difference in gold ore concentration, and expected operational hazards such as accidents as the key factors affecting the profitability, the analysts develop a program for simulation of the system operations over a given period such as a two-month period. Then again, simulate the program for more many more periods for the business activities. All the while gathering via suitable computer software, observations for:

1. Exchange rate patterns
2. Performance of revenue collection for different gold ore concentration given standard ore volumes

• Effect of a given number of workers given different skills on production

1. Competition performance with other firms in the industry
2. Profits generated from varying some of the variants

Moreover, including other variants of interest, after which distributions of the variables would be obtained. For instance, the effect of ore concentration, variation of exchange rates on the profits and revenue generated, that enables configuration.

There are a number of simulations present for coming up with suitable working prototypes. The most used simulations are:

• Monte Carlo
• Event-scheduling approach

Monte Carlo Modeling

Suitable when time variable is not fused in the simulation prototype. I.e. the measured variables are not dependent on time exclusively.

Takes account of the time constraint explicitly.

The simulation used by the company is a Monte-Carlo approach. Where a mining process of a random given amount of ore is done under the mining conditions, accidents probability considered and processed into the final product, sales are then made given the prevalent exchange rates and the competition rates from other firms. The simulated process would take some time before the whole process ends. Meanwhile, another mining process takes place but by the time the process is over, the exchange rates may have changed and accidents occurred, and other variable that affect the volume produced or otherwise. The interval between concluding the first business process under its own variants and the second that also has its own variants would develop a queue (Laguna & Marklund, 2005). Using a suitable computer software that imitates the whole process, a wide period of supposedly business activities can be simulated and the operating characteristics gathered and analyzed using means and statistical distributions. The whole process can be done involving effective decision-variant combinations that the decision-makers want to put into consideration.

After collection of all relevant, enough simulated data on all the possible effecting combinations. Most probably, some combinations emerge as more prevalent that than some, the designs are filtered until the best rise to the top and if not one, the ones having enough potential are chosen for further study and consideration.

1. Exchange rates are highly unstable
2. Occurrence of accidents during day operations is out of the executive’s control but have effect on profits

• Factors that influence profits are both internal and external

1. Internal factors can  be varied and controlled

Risk Prediction and Management

The model used by Jewelry mining co is applicable to businesses in mining industry and other related industries such as tourism, horticultural products production, in that the management will be able to predict and monitor the performance of business sectors in terms of profits given varying variables in production and marketing. In addition, risk assessment would be possible considering inclusion of various risk considerations in the simulation prototype such as competition effect, uncertainty of market influence and operating risks such as accidents.

In conclusion, simulation aids the executive to mitigate risks associated with conducting business without having to feel the bluntness of trial and error. Through model simulation, profits can be estimated, resources allocated, production projected and key decisions made by the business management.

Regression (Forecasting) 

In their paper on decision making (New generation 2017), debate that, “regression analysis can analyze the impact of varied factors on business sales and profits” and therefore, the role of forecasting is fundamental in outlyng the examined relationships so as to equip the analyst with sufficient insight to draw inference from. As such, the role of regression is:

• Optimizing operation efficiency
• Offering new insights on business operations
• Enabling predictive analytics
• Providing ground to support decisions
• Facilitating correction of errors

Forecasting investigates whether there is a relationship between profits (dependent variable) and gold ore concentration, gold ore size and currency exchange rates- independent variables

The response variable is fitted against the predictor variables.

Linear Regression Results for:
Jewelry mining co. Independent variable entry method: Enter All
Summary
R2	R	Adj. R2	S.E. of Estimate
0.985	0.993	0.985	1516.070
ANOVA
Source	Sum Sq.	D.F.	Mean Sq.	F	Prob.
Regression	########	4	########	########	0.000
Residual	########	996	########
Total	########	1000
Regression Coefficients
Source	Coefficient	Std Error	Std Beta	-95% C.I.	+95% C.I.	t	Prob.	Part Corr.	Partial Corr.	Tolerance
Intercept	########	2361.159		########	########	-7.884	0.000
Column G	########	2377.640	-0.037	########	########	-9.663	0.000	-0.037	-0.293	0.995
Column H	16.383	0.498	0.128	15.406	17.360	32.909	0.000	0.127	0.722	0.992
Column I	########	493.857	0.159	########	########	41.086	0.000	0.159	0.793	0.998
Column J	41.479	0.166	0.966	41.154	41.805	249.888	0.000	0.965	0.992	0.998

Deductions and possible suggestions

From the graphs and tables:

1. Profits increase with increase in ore concentration
2. The more volumes the company is able to mine, the higher the chances of making more profits

• Currency rates have relatively low impact on the profit generated

Conclusion

The main purpose of a decision-making process is to ensure mitigation of risks in the business ventures of any given firm, interestingly; risk assessment plays a fundamental role in emphatic decision-making endeavored by business organizations.

The risks may include:

1. Financial risks
2. Schedule risks

• Technical/ structural risks

1. Operational risks
2. Health risks

Therefore, to ensure adoption of top decisions and those with the most promising results, organizations employ different mechanisms, this include: setting up decision drafting teams to suppose the best available options that can be explored by the business, using decision analysis technology and even to consolidate the two.

In the Chevron business scenario, the choice of setting up a business decision correspondence team top draft the best available decisions ensures top choice in the decision to be adopted by the business organization. This should be the starting point of decision-making.

Consequently, it is the collective decisions made and adopted by the business, which end up defining the line of business operations and also its growth or demise. Therefore, the decision making process should be undertaken seriously since its through it the management can posit the business direction and improve productivity in the process while ensuring the output is more than the input, thereby advancing the business profitability.

Given the results of simulation:

1. The executive should identify areas with higher ore concentration and more mining operations carried out on such areas, this will ensure more  ore with high gold concentration
2. Measures should be put in place for readiness against factors such as accidents and other external factors that are uncontrollable by the executive

• Gold prices should be varied relative to market demand and not exchange rates which are highly volatile

1. Further research should be conducted to determine the costs of mining high quality ore compared to mining lower quality ore but in larger quantity and their relative returns. This will aid to determine which decision will be more profitable.
2. Employ mechanisms to ensure more ore production, such mechanisms as increasing worker count, encouraging overtime working
3. Alternatively, the company can also concentrate its processes on areas with high ore concentrations and lower the volume of ore produced. It can nevertheless also employ both variants simultaneous.

• The cost of gold products should be stabilized at an optimum to ensure fluctuations in exchange rates do not affect the profits severely.

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