Term paper

On

Decision making
 Alternative Decision making

The companies make alternative decisions

due to various factors such as:

 Make or buy a particular raw material or product or component

 Sell or process further a particular product or service

 Outsourcing

 Employee incentives

 Hiring more employees

 To train the employees on the job or off the job

 To invest in foreign or not

 To merge with other or not

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HERE IS THE TERM PAPER ON ANALYSIS OF VARIOUS FACTORS
WHILE MAKIN DECISIONS ABOUT VARIOUS FACTORS IN AN
ORGANIZATION

MAKE-OR-BUY DECISIONS

The alternatives

The make-or-buy decision is the act of making a strategic choice between producing an
item internally (in-house) or buying it externally (from an outside supplier).

The buy side of the decision also is referred to as outsourcing.

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 Make-or-buy decisions usually arise when a firm that has developed a product or part
—or significantly modified a product or part—is having trouble with current suppliers, or has
diminishing capacity or changing demand.

Key points:

• Make-or-buy analysis is conducted at the strategic and operational level.

 Obviously, the strategic level is the more long-range of the two.

• Variables considered at the strategic level include analysis of the future, as well as the
current environment.

• Issues like government regulation, competing firms, and market trends all have a
strategic impact on the make-or-buy decision.

• Of course, firms should make items that reinforce or are in-line with their core
competencies.

• These are areas in which the firm is strongest and which give the firm a competitive
advantage.

Outsourcing and Decision making:

• The increased existence of firms that utilize the concept of lean manufacturing has
prompted an increase in outsourcing.

• Manufacturers are tending to purchase subassemblies rather than piece parts, and are
outsourcing activities ranging from logistics to administrative services.

• A firm outsource all items that do not fit one of the following three categories:

1. The item is critical to the success of the product, including customer

perception of important product attributes;

2. The item requires specialized design and manufacturing skills or equipment,

and the number of capable and reliable suppliers is extremely limited; and

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 3. The item fits well within the firm's core competencies, or within those the firm
must develop to fulfill future plans.

 Items that fit under one of these three categories are considered strategic in nature and
should be produced internally if at all possible.

Make-or-buy decisions also occur at the operational level:

Considerations that favor making a part in-house:

* Cost considerations (less expensive to make the part)

* Desire to integrate plant operations

* Productive use of excess plant capacity to help absorb fixed overhead (using existing idle
capacity)

* Need to exert direct control over production and/or quality

* Better quality control

* Design secrecy is required to protect proprietary technology

* Unreliable suppliers

* No competent suppliers

* Desire to maintain a stable workforce (in periods of declining sales)

* Quantity too small to interest a supplier

* Control of lead time, transportation, and warehousing costs

* Greater assurance of continual supply

* Provision of a second source

* Political, social or environmental reasons (union pressure)

* Emotion (e.g., pride)

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Factors that may influence firms to buy a part externally include:

* Lack of expertise

* Suppliers' research and specialized know-how exceeds that of the buyer

* cost considerations (less expensive to buy the item)

* Small-volume requirements

* Limited production facilities or insufficient capacity

* Desire to maintain a multiple-source policy

* Indirect managerial control considerations

* Procurement and inventory considerations

* Brand preference

* Item not essential to the firm's strategy

The two most important factors to consider in a make-or-buy decision are

1. cost and;

2. the availability of production capacity.

Obviously, the buying firm will compare production and purchase costs.

Elements of the "make" analysis include:

* Incremental inventory-carrying costs

* Direct labor costs

* Incremental factory overhead costs

* Delivered purchased material costs

* Incremental managerial costs

* Any follow-on costs stemming from quality and related problems

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 * Incremental purchasing costs

* Incremental capital costs

Cost considerations for the "buy" analysis include:

* Purchase price of the part

* Transportation costs

* Receiving and inspection costs

* Incremental purchasing costs

* Any follow-on costs related to quality or service

Firms have started to realize the importance of the make-or-buy decision to overall
manufacturing strategy and the implication it can have for employment levels, asset levels,
and core competencies.

In response to this, some firms have adopted total cost of ownership (TCO) procedures for
incorporating non-price considerations into the make-or-buy decision.

Sell or process further a particular product

or service
A Short-term, nonroutine decision about whether to sell a product at a particular stage of
production or to process it further in the hope of obtaining additional revenue.

 When two or more products are produced simultaneously from the same input by a
joint process, these products are called joint products.

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  The term joint cost is used to describe all the manufacturing costs incurred prior to the
point where the joint products are identified as individual products, referred to as the
split-off point.

 At the split-off point some of the joint products are in final form and salable to the
consumer, whereas others require additional processing.

 In many cases, the company might have the option to sell the products at the split-off
point or process them further for increased revenue.

 The decision will rely exclusively on additional revenue compared to the additional
costs incurred due to further processing.

OUTSOURCING

Outsourcing is involving the contracting out of a business function - commonly one

previously performed in-house - to an external provider.

Two organizations may enter a contractual agreement involving an exchange of services and
payments. Of recent concern is the ability of businesses to outsource to suppliers outside the
nation, sometimes referred to as off-shoring or offshore outsourcing.

Reasons
Organizations that outsource are seeking to realize benefits or address the following issues:

 Cost savings — The lowering of the overall cost of the service to the business. This
will involve reducing the scope, defining quality levels, re-pricing, re-negotiation, cost

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 re-structuring. Access to lower cost economies through offshoring called "labor
arbitrage" generated by the wage gap between industrialized and developing nations.

 Focus on Core Business — Resources (for example investment, people,

infrastructure) are focused on developing the core business. For example often
organizations outsource their IT support to specialised IT services companies.

 Cost restructuring — Operating leverage is a measure that compares fixed costs to

variable costs. Outsourcing changes the balance of this ratio by offering a move from
fixed to variable cost and also by making variable costs more predictable.

 Improve quality — Achieve a steep change in quality through contracting out the
service with a new service level agreement.

 Knowledge — Access to intellectual property and wider experience and knowledge.

 Contract — Services will be provided to a legally binding contract with financial

penalties and legal redress. This is not the case with internal services.

 Operational expertise — Access to operational best practice that would be too

difficult or time consuming to develop in-house.

 Access to talent — Access to a larger talent pool and a sustainable source of skills, in
particular in science and engineering.

 Capacity management — An improved method of capacity management of services

and technology where the risk in providing the excess capacity is borne by the
supplier.

 Catalyst for change — An organization can use an outsourcing agreement as a

catalyst for major step change that cannot be achieved alone. The outsourcer becomes
a Change agent in the process.

 Enhance capacity for innovation — Companies increasingly use external knowledge

service providers to supplement limited in-house capacity for product innovation.

 Reduce time to market — The acceleration of the development or production of a

product through the additional capability brought by the supplier.

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  Commodification — The trend of standardizing business processes, IT Services, and
application services which enable to buy at the right price, allows businesses access to
services which were only available to large corporations.

 Risk management — An approach to risk management for some types of risks is to

partner with an outsourcer who is better able to provide the mitigation.

 Venture Capital — Some countries match government funds venture capital with
private venture capital for start-ups that start businesses in their country.

 Tax Benefit — Countries offer tax incentives to move manufacturing operations to

counter high corporate taxes within another country.

 Scalability — The outsourced company will usually be prepared to manage a

temporary or permanent increase or decrease in production.

 Creating leisure time — Individuals may wish to outsource their work in order to
optimise their work-leisure balance.

EMPLOYEE INCENTIVES

These are given keeping in mind the total growth, profit and budget in a company.

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An incentive is any factor (financial or non-financial) that enables or motivates a particular
course of action, or counts as a reason for preferring one choice to the alternatives. It is an
expectation that encourages people to behave in a certain way.

Incentives aim to provide value for money and contribute to organizational success.

Incentives can be classified according to the different ways in which they motivate agents to
take a particular course of action.

1. Remunerative incentives (or financial incentives) are said to exist where an

agent can expect some form of material reward — especially money — in exchange for acting
in a particular way.

2. Moral incentives are said to exist where a particular choice is widely regarded as the
right thing to do, or as particularly admirable, or where the failure to act in a certain way is
condemned as indecent.

 A person acting on a moral incentive can expect a sense of self-esteem, and approval
or even admiration from his community; a person acting against a moral incentive can
expect a sense of guilt, and condemnation or even ostracism from the community.

3. Coercive incentives are said to exist where a person can expect that the failure to act
in a particular way will result in physical force being used against them (or their loved ones)
by others in the community — for example, by inflicting pain in punishment, or by
imprisonment, or by confiscating or destroying their possessions.

Hiring more employees

The company have two act upon the following steps while deciding

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 for the Hiring of new Employees:

• Step One: Before Start

 Is company hiring an employee or independent contractor?

 Retain a payroll service provider or a professional employer organization

 Have job descriptions in place

 Have a benefits package in place

 Determine overall costs of new employees

 Create an employee handbook

• Step Two: Hiring Employees

 Attracting applicants

 Interviewing practices

 Drug screening

 Americans with Disabilities Act

 Understanding workplace harassment

 Prevention of workplace violence

 Employment eligibility verification

 Selecting outstanding employees

 Legal considerations

• Step Three: Create Training Disciplines

 Indoctrination

 Growing employee skills

• Keeping Good Employees

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  Importance of retention

Employee turnover is very costly. Not only the cost of rehiring and retraining but in disruption of
production, customer service and the damage to company morale.

The major reasons that good performers leave:

1. Limited advancement opportunity (39%)

2. Unhappy with management (23%)

3. Lack of recognition (17%)

 How to retain good employees

Ways to keep valued employees:

• Tune into whether employees are happy with their roles and with you.

 Ask their opinion on changes that might enhance their loyalty.

• Reward extra effort.

• Give praise. It should be frequent and personalized. A simple thank you note can be
effective.

• Avoid burnout: Bring in temporary help during crunch times.

• Have a little fun: Boring, no-fun jobs and businesses are…boring!

To train the employees on the job or

off the job

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We can generally categorize training as on-the-job or off-the-job:

 On-the-job training takes place in a normal working situation, using the actual
tools, equipment, documents or materials that trainees will use when fully
trained.

o On-the-job training has a general reputation as most effective for

vocational work.

 Off-the-job training takes place away from normal work situations — implying
that the employee does not count as a directly productive worker while such
training takes place.

o Off-the-job training has the advantage that it allows people to get away
from work and concentrate more thoroughly on the training itself.

o This type of training has proven more effective in inculcating concepts

and ideas.

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The company chooses according to its budget and the requirements that what type of training
it should give.

To invest in foreign or not

The companies decide that do they have to invest in the foreign market or not.

The foreign direct investor may acquire voting power of an enterprise in an economy through
any of the following methods:

 by incorporating a wholly owned subsidiary or company

 by acquiring shares in an associated enterprise

 through a merger or an acquisition of an unrelated enterprise

 participating in an equity joint venture with another investor or enterprise

To merge with other or not

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The company have to make decision on merger or acquisition in many different ways:

Key points to study ion decisions of mergers and acquisitions:

 development of preliminary organizational designs and identification of the top three

levels of management

 assessment of critical players and deployment of appropriate resources in the new

company

 retention of key people and separation of redundant staff

 development of a total rewards strategy for the combined companies

 communications strategy development and implementation

 integration of payroll benefits and HR-IS

 an ability to do all of the above with speed.

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 REFERENCES
1. http://ezinearticles.com/?Use-Alternative-Choices-to-Boost-Sales&id=2523658

2. http://www.referenceforbusiness.com/management/Log-Mar/Make-or-Buy-

Decisions.html

3. http://www.answers.com/topic/make-or-buy-outsource-decision

4. http://en.wikipedia.org/w/index.php?title=Outsourcing&printable=yes

5. http://www.allbusiness.com/glossaries/accounting/4941809-1.html

6. http://en.wikipedia.org/wiki/Incentive

7. http://www.outsourcing.org/

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8. http://www.myownbusiness.org/managing_employees/

9. http://findarticles.com/p/articles/mi_m4467/is_10_54/ai_66499153/