Analytical Thinking AND Decision Making PDF

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ANALYTICAL THINKING AND DECISION MAKING

INTRODUCTION This module titled analytical thinking and decision making to understand the different importance of decision making and the application of decision analysis in order to solve the problem that involves various objectives and to analyze the strength and limitations of my analysis. Here the technique called simple multi attribute rating technique also called as SMART. Analytical thinking involves critical analysis of the problem in order to find out the efficient and effective solutions of the problem as quickly as possible(Cook et al., 2014). It involves step by step approach of thinking in order to identify major issues and gathering of relevant information, in order to solve the problems. The whole complex problem is broken into various parts and these parts are solved in order to solve the complex problem as a whole. Decision making is the process of making the important decisions to solve the problem (Hoffenson & Söderberg, 2015). The approach of in today’s organization, everyone is equally responsible for making decisions. So, as the analytical skills are very common and many people have got it the problem solving can be done easily using the analytical thinking. Analytical thinking can be used in order to make decisions and find out the most appropriate decisions among the list of alternative decisions (Kremer-Asaf, 2015). It involves the process of selecting the most appropriate options among all the alternative options. In this report the common problem found in organization i.e. selection of raw materials suppliers are identified and discussed and the simple multi attributes ranking method is used to analyze and solve that problem.

IMPORTANCE OF DECISION MAKING AND THE APPLICATION OF DECISION ANALYSIS Decision making is the process of selecting best alternatives from the alternatives available (Kida et al., 2010). Decision making is one of the most important parts of the business function. The

management has to make different decision daily which ranges from too simple to highly complex decisions. Some of the key decisions the management has to make are workforce decisions, decisions related with the employee input, supplier’s choice, production location, etc (Arvai & Froschauer, 2010). It involves analyzing all the alternatives available in order to find out the most appropriate alternative in that situation or the alternative which can solve the problem effectively. According to Kremer-Asaf (2015) decision making is the step by step approach, analyzing the incremental progress towards solving the problem instead of making the decisions for achieving certain goal. The Organizational procedure view of decision making states that the previous experience of organization should be used to formulate the standard procedures that are used to make decision (Domingues et al., 2015). As the consequences of selected alternatives can be either successful or failure, the decision making should be done more effectively. The various importance of decision making is listed below:

Decision making helps in better utilization of resources.

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Decision making helps in growth of the business.

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It helps in facing problems and challenges and to grab the opportunities.

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It helps to increase efficiency.

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It helps to facilitate innovation and motivate employees.

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Decision making is one of the most important concepts that help in choosing the most appropriate alternatives among the various alternatives available. Here the decision makers analyze the various benefits and limitations regarding all the possible alternatives and choose the best alternative that fits in the situation.

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The decision making is the key for the implementation of various functions of management like planning, organizing, staffing, directing and controlling because the work done by employees and other members in the organization are carried out through the process of decision making.

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As decision must be taken by all the members of the organization, it influences all the activities related with the management.

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Decision making can also help in evaluation of managerial performance. For e.g. if the decisions taken by managers are appropriate and effective then they are qualified and if the decisions taken by managers are inappropriate then they are disqualified (Arvai & Froschauer, 2010).

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Decision making is also helpful in planning or policy making in an organizations. Without the proper use of decision making no plans and policies can be carried out because the appropriate decisions should be made from the many alternatives available while carrying out planning process (Steele et al., 2007).

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For the successful operation of business or in order to accomplish the long- term and short term goals of the organization the decision making plays an important role.

Decision analysis is the systematic approach of making decisions in case of uncertainty. It is the formal process of making decision done by analyzing the components decision while solving the problem (Nasseri et al., 2015). Decision analysis helps to provide the framework for costeffectiveness, cost- utility and cost benefit analysis in the process of selecting the best alternative from among the available alternatives(Cheng, 2010). This method is mostly used by the business organizations in order to make various investment decisions. Decision analysis is useful in the case if there will be conflicting consequences due to the various possible actions taken. Decision analysis has been mostly applied in many areas of health care in order to analyze various methods of diagnosis and treatment procedures of various diseases (Menzel, 2013). In business it is mostly used to analyze various alternative investment options and its future consequences, making technology choices, product planning, finance planning, project selection, strategic choices, etc. The decision analysis is done by first of all identifying the structure of the problem (Kida et al., 2010). After identification of the structure of the problem the analysis of various alternative actions and potential consequences of these actions are done. The most used method of decision analysis is decision tree method.

Fig: - A Decision Tree (Subramoniam et al., 2013) According to figure, the tree starts with the question or problem which has two alternative solutions. And after those possible consequences of each alternative choice is provided. These possible consequences involve uncertainty. In decision tree approach the probability of occurrence of each possible outcome are also assigned (Hoffenson & Söderberg, 2015). Hence, Decision analysis is used order to make decision by analysis the possible outcomes of different actions taken.

OUTLINE OF DECISION PROBLEM RELATED TO THE ORGANIZATION Every organization faces various problems while carrying out its day to day operation. Among them some problems are quite simple and the rest are complex. The organization can use the concept of analytical thinking and decision analysis while

solving these problems (Cheng, 2010). In this module I have identified the common problem faced by many organization i.e. problem in finding a raw materials supplier. The process of choosing the right supplier is one of the most important decisions in this competitive era. The selection of the right supplier for supplying raw materials in the organization is one of the most important tasks as they are the source of competitive advantage for the organizations (Li et al., 2015). So, this problem must be analyzed and solved. This decision making involves multiple objectives.

The multiple objectives

decision making problems have various components like a set of objectives that can be quantified, a set of constraints related with the problem that are well defined and a process of obtaining the information (Cook et al., 2014). There are various techniques of multiple objectives decision making like global criterion method, goal attainment method, objective method, etc. In solving these types of problems following steps should be followed that includes finding out the conflicting objectives as the most important features of multiple objectives decision making problems is that they involves different conflicting objectives (Steele et al., 2007). After identification of the conflicting objectives, the efficient solution should be finding out by finding the optimum value of each of the objective functions. And lastly the among the various possible solutions most preferred solution should be find out. The selection of raw material suppliers involves various objectives like:

Minimizing the time of delivery of supplies.

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Minimizing the transportation cost and inventory cost by using Just- In- Time Inventory approach by making good relationship with the suppliers.

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Minimizing the cost of supplies i.e. variable cost.

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Minimizing the total annual operating cost.

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Maximizing the service and product delivery in the market.

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Maximizing the quality of products by using the quality supplies or raw materials.

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Enhancing the competitive advantage by making strategic alliance with the rawmaterials suppliers.

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Minimizing the risk of scarcity of raw-materials.

Besides them there are many other objectives of selecting a good raw-material supplier. While choosing the raw materials supplier from among various suppliers is a difficult process. The organization must have to check the financial status, financial viability, capacity of the suppliers to increase the quantities delivered within a short lead time, quality of the raw-materials that the suppliers provide, whether the supplies are certified with ISO 9000 certification, whether the suppliers can meet the specifications of the organizations or not, whether the prices of raw-materials are justifiable or not, etc (Popovič et al., 2012). Furthermore supplier selection criteria are listed below:

Net price of the raw-materials including discounts and other charges offered by different suppliers.

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Ability of the individual suppliers to meet quality specifications.

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The possible repair service that the individual suppliers will provide.

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Ability to meet the specified schedules of delivery.

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The financial position of the individual suppliers.

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The various productions facilities and capacities used by the individual suppliers.

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The history of past business done with the individual suppliers.

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The capability of technology including research and development facilities of the individual suppliers.

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The management approaches used by the individual suppliers.

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The purchases suppliers will make from the organization in future.

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The system for communication like data records and information used by the suppliers.

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The market position or market share of the suppliers within the industry.

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The relation with labor shown by the individual suppliers.

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The attitudes of the individual suppliers towards own organization.

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The approaches used in Operations management like inventory control techniques, quality control techniques used by the suppliers.

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The desire shown by the suppliers to do the business with own organization.

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The various policies related with various claims and warranties of the individual suppliers.

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Ability of individual suppliers to meet the packaging requirements of the organization.

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The personal impression made by individual suppliers.

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The availability of various training for use of the product of individual suppliers.

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The history of performance shown by individual suppliers over past years.

The various options regarding the selection of the suppliers may include:

Selecting the suppliers from the domestic country.

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Outsourcing the suppliers from outside the home country.

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Acquisition of Supplier Company.

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Making alliance with the supplier company.

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Producing the raw materials within the own production unit.

SIMPLE MULTI- ATTRIBUTE RATING TECHNIQUE (SMART) TO THE OUTLINED DECISION PROBLEM The simple multi- attribute rating technique (SMART) technique uses linear additive model i.e. the overall value of the certain alternative is calculated as the total of the performance score or value of each options multiplied with the weight of that option (Arvai & Froschauer, 2010). In the above section I have chosen one of the most common problems that can be seen in any organization i.e. Selection of Raw Materials Suppliers. The Simple multi- attribute rating technique for the outlined decision problem is shown below:

Step 1 Identification of the decision maker : While selecting the raw materials supplier for the organization the major role is of Operations manager. Hence Operation manager is responsible for decision making related with the choice of

raw materials suppliers. Furthermore, the operation manager may seek the advice from the other employees working in operations department and from the manager of other departments can be taken. 

Step 2 Identification of the issues related with the supplier selections: The process of choosing the right supplier for supplying the raw materials for the organization is one of the important decisions. The supplier selection decision can determine the competitive advantage of the organization (Kremer-Asaf, 2015). The quality of the raw materials determines the quality of the product or service produced using those materials. Operation manager faces difficulty while choosing the best suppliers from the range of different suppliers.

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Step 3 Identification of the alternatives:

The alternatives for suppliers

selections involves whether to produce the supplies within the production plant of the organization by making strategic alliance or acquiring the supplier’s company or to outsource for the raw materials from the organization within and outside the home country. For simplicity I have here included three alternatives of supplier i.e. Supplier A, Supplier B and Supplier C. 

Step 4 Identification of the criteria: There are various criteria while selecting the suppliers of raw-materials for the company. Those criteria are listed in the sections above. Among them four criteria are chosen for simplicity. They are Pricing Structure, Delivery, Quality and Service as these are the important criteria. Furthermore, the delivery criteria contain sub criteria of timeliness and cost. Quality criteria consists of quality of incoming lots and costs and service criteria contains personnel, facilities, R&D and capability. This is represented using the figure below :-

Fig:- Decision tree diagram for supplier selection (Li et al., 2015) 

Step 5 Assignment of values for each criteria: The criteria identified above are ranked as the most important criteria is quality, second delivery, third price and the fourth service. Furthermore ranking of suppliers A, B and C in various criteria is done as below:-

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Criteria/supplier

Supplier A

Supplier B

Supplier C

Quality

2

1

3

Delivery

3

1

2

Price

2

3

1

Service

3

1

2

Step 6 Determination of weights for each criterion: The most important part is to assign the weights for each criterion. Using the ROC weights (Roberts and Goodwin, 2002) weights are assigned as 0.5208 for quality, 0.2708 for delivery, 0.1458 for Price and 0.0625 for service criteria. Again for the rankings of supplier using the ROC weights rank 1= 0.6111, rank 2= 0.2778, rank 3= 0.1111.

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Step 7 Calculations of a weighted average of the values assigned to each alternative :- Hence the weighted average for different alternatives are

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Criteria/supplier

Supplier A

Supplier B

Supplier C

Quality

0.2708*0.5208= 0.1410

0.6111*0.5208= 0.3182

0.1111*0.5208= 0.0578

Delivery

0.1111*0.2708= 0.0300

0.6111*0.2708= 0.1654

0.2778*0.2708= 0.0752

Price

0.2778*0.1458= 0.0405

0.1111*0.1458= 0.0161

0.6111*0.1458= 0.0890

Service

0.1111*0.0625= 0.0069

0.6111*0.0625= 0.0381

0.2778*0.0625= 0.0173

Total

0.2184

0.5378

0.2393

Stage 8 making a provisional decision: Hence according to the above calculations the most preferable alternative is of Supplier B because the weighted average of supplier B is the highest among three. The Supplier A and Supplier C are almost similar.

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Stage 9 Performing sensitivity analysis: Sensitivity analysis is the technique that is used in order to find out the impact of an independent variable in a particular dependent variable under certain conditions (Popovič et al., 2012). In this analysis the weights of criteria and alternatives are independent variables and the weighted averages of the different alternatives are dependent variable. It can be seen that the overall weights of the different alternatives i.e. suppliers depends upon the weights of the individual criteria like quality, price, delivery and service, and the rankings of the different suppliers according to this criteria (Li et al., 2015).

STRENTH AND LIMITATIONS OF THE ANALYSIS IN THE CONTEXT OF DECISION MAKING

The analysis done above has various strengths and limitations in the context of decision making. Strengths 

This analysis has made the decision process simpler and easier.

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This analysis helps in assigning value to different criterions.

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This analysis breaks down the complex problems into simpler parts which can be easily solved.

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This analysis helps to rank the attributes or criteria and to avoid the criteria that are of low importance.

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This analysis helps to assign quantitative values to qualitative attributes.

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It takes account of both subjective and objective criteria.

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This analysis involves low cost in decision making.

Limitations 

The rank assigned to various criteria may not be appropriate and it differs in different situations.

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It is difficult to rank various alternatives.

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In a screening phase, it is possible that some of the important criterions are neglected.

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This method of analysis has oversimplified the problem which can lead in the negligence of the essence of the problem.

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It neglects the uncertain behavior of suppliers.

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It doesn’t lead to the optimal solution of the pr...