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Marginal Analysis
Evaluating alternatives may involve utilizing the techniques of
marginal analysis to compare additional revenues arising from
additional costs. Where the objective is to maximize profits,
this goal will be reached, as elementary economics teaches,
when the additional revenues and additional cost are equal.
Marginal analysis can be used in comparing factors other than
cost and revenues. For example, to find the best output of a
machine, inputs could be varied against outputs until the
additional input equals the additional output.
Cost Effectiveness Analysis
A improvement on, or variation of, traditional analysis is cost
effectiveness, or cost benefit analysis. Cost effectiveness
analysis seeks the best ratio of benefits and costs, this means,
for example, finding the least costly way of reaching an
objective or getting the greatest value for given expenditures.
Reliance on
the past
Experimentation
How to
select from
among
Alternatives
Research
and
Analysis
Choice
made
1) Experience
Reliance on past experience probably plays a larger part than
it deserves in decision making.
Experienced managers
usually believe, often without realizing it, that the thins they
have successfully accomplished and the mistakes they have
made furnish almost infallible guides to the future. This
attitudes is likely to be more pronounced to move experience
a manager has had and the higher in an organization he or
she has risen.
To some extent, experience is the best teacher. He very fact
that managers have reached their position appears to justify
their past decisions.
Moreover, the process of thinking
problems through, making decisions, and seeing programs
succeed or fail does make for a degree of good judgment (at
times bordering on intuition). Many people, however, do not
profit by their errors, and there are manages who seem never
to gain the seasoned judgment required by modern
enterprise.
2) Experimentation
An obvious way to decide among alternatives is to try
one of them and see what happens. Experimentation is
often used in scientific inquiry. People often argue that it
should be employed more often in managing and that the
only way a manager can make sure some plans are right
especially in view of the intangible factors is to try to
various alternatives and see which is best.
The experimental technique is likely to be the most
expensive of all techniques, especially if a program
requires heavy expenditures in capital and personnel and
if the firm cannot afford to vigorously attempt several
alternatives. Besides, after an experiment has been tried,
there may still be doubt about what if proved, since the
future may not duplicate the present. This technique
therefore, should b used only after considering other
alternatives.
MODERN
APPROACHES
UNDERUNCERTAINTY
TO
DECISION
MAKING
1) Risk Analysis
2)
Decision Trees
One of the best ways to analyze a decision is to use so-called
decision trees. Decision trees depict, in the form of a tree, the
decision points, change events, and probabilities involved in
various course that might be undertaken. A common problem
occurs in business when a new product is introduced. Managers
must decide whether to install expensive permanent equipment to
ensure production at the lowest possible cost or undertake cheaper,
temporary tooling that will involve a higher manufacturing cost but
lower capital investments and will result in lower losses if the
product does not sell as well as estimated. (Figure 6-3)
Decision tree approach makes it possible to see at least the
major alternatives and the fact that subsequent decisions may
depend upon events in the future. Decision trees and similar
decision techniques replace broad judgments with a focus on the
important elements in a decision, bring out into the open
premises that are often hidden, and disclose the reasoning
process by which decisions are made under uncertainty.
3)
Preference Theory
Sine managers not only must make correct decisions but also must
make them as needed and as economically as possible, and since they
must do this often, guidelines to the relative importance of decisions
are useful. Decisions of lesser importance do not require thorough
analysis and research, and they may even be safely delegated without
endangering an individual managers basic responsibility.
The
importance of a decision also depends upon the extent of
responsibility, so what may be of practically no importance to a
corporation president may be of great importance to a section head.
and
Formal Organization
General formal organization means the intentional structure of role
sin a formally organized enterprise. Describing an organization as
formal does not mean there is anything inherently inflexible or unduly
confiding about it. If a manager is to organize well, the structure must
furnish an environment in which individual performance, both present
and future, contribute most effectively to group goals.
Pres.
V.P.
Dv.Mge
Dept
Mgr.
V.P.
D.vMgr
Dept.
Mgr.
Informal Organization
Morning coffee
regulars
Dv. Mgr
Dept.
Mgr.
Dv. Mgr.
V.P.
Dv. Mgr.
Dept.
Mgr.
Informal Organization
Bowling team
Dv. Mgr
Dept.
Mgr.
Dv. Mgr.
Dept.
Mgr.
Dv. Mgr.
Dept.
Mgr.
Informal Organization
Chess group
Dept.
Mgr.
ADVANTAGES
DISADVANTAGES
Close supervision
Superiors tends to get
Close control
subordinates work
Fast communication between
Many levels of management
subordinates and superiors
High costs due to many levels
Excessive distance between lowest
level and top level
ADVANTAGES
DISADVANTAGES
Superiors are forced to
Tendering of overloaded superiors to
delegate
become decision bottlenecks
Clear policies must be made Danger of superiors loss of control
Subordinates must be careRequires exceptional quality of
fully selected
managers
2)
3) Clarity of Plans
Much of the character of a subordinates job is defined by the plans to be put
into effect. If these plans are well-defined, it they are workable, if the
authority to undertake them has been delegated, and if the subordinate
understand what is expected, little of a supervisors time will be required.
4) Use of objective Standards
A manager must find out, either by personal observation or through use of
objective standards, whether subordinates are following pans. Obviously
good objective standards, revealing with ease any deviations from plans
enable managers to avoid many time-consuming contacts and to direct
attention to exceptions of points critical to the successful execution of plans.
5)
Rate of Change
Certain enterprises change much more rapidly than others.
The rate of change is an important determinant of the degree to
which policies can be formulated and the stability of policies
maintained.
It may explain the organization structure of
companies railroad, banking, and public utility companies, for
example operating with wide spans of management or, on the
other hand, the very narrow span of management.
6) Communication Techniques
The effectiveness with which communication techniques are
used also influences the span of management.
Objective
standards of control are a kind of communication device, but
many other techniques reduce the time spent with subordinates.
7)
9) Other Factors
There are other factors that affect the span of management. For
example, a manager who is competent and well trained can effectively
supervise more people than one who is not. Furthermore, simple tasks
may allow for a wider span than tasks that are complex and include a
great variety of activities. There are still other factors that favor a wider
span of management, such as the positive attitudes of subordinates
toward assumption of responsibility, as well as their willingness to take
reasonable risks.
Similarly, with more mature subordinates, the
superior may delegate more authority thus widening the span.
10) The Need for Balance
There can be no doubt that, despite the desirability of a flat
organization structure, the span of management is limited by real and
important restrictions. Managers may have more subordinates than
they can manage effectively, even though they delegate authority, carry
on training, formulate plans and policies clearly, and adopt efficient
control and communication techniques. It is equally true that as an
enterprise grows, the span of management limitations force an increase
in the number of levels simply because there are more people to
supervise.