Usefulness of Different Decision Making Techniques for Operational Planning Decisions
If managers are certain of an outcome they may make an instant decision, based on our prior experience, expertise and the predictable outcome; without using any decision-making technique.
However, when a manager lacks perfect information or whenever an information asymmetry exists, risk or uncertainty arises. Under a state of risk, the decision maker has incomplete information about available alternatives but has a good idea of the probability of outcomes for each alternative.[1] It is at this point that a manager would need to decide on the likelihood of an outcome based in his or her experience. This can be a perilous road if the manager lacks experience or fails to recognise a factor which could affect the decision and is a position that the majority of managers are uncomfortable with. Making decisions under risk should be avoided wherever possible and a proven decision making technique employed if possible.
We all make decisions on a daily basis. What cereal should I have for breakfast? Should I walk to work or take the car? Do I want pasta for dinner or a baked potato? So what do we do when decisions are much more serious and need to be based on facts and analysis? Or perhaps when we can’t see the wood for the trees?
Decision Trees are a popular method for making decisions and are used for weighing up to advantages and disadvantages (pros and cons) of a decision based in a number of inputs or factors. Carried our correctly, decision trees cover all options available and result in a range of outcomes. Using this information, managers can better understand the most likely outcome of a decision by evaluating the value of each possible outcome.
Cost benefit analysis can also be employed to assist in making decisions. For example, one of my employees may come up with a great new idea to bring in extra business. However, to do this, he will require a new van at a cost of £20,000. Using cost benefit, we can decide whether the investment of £20,000 is likely to result in a beneficial profit over a reasonable amount of time. Cost benefit analysis is a quick and simple technique that you can use for non-critical financial decisions. Where decisions are mission-critical, or large sums of money are involved, other approaches – such as use of Net Present Values and Internal Rates of Return are often more appropriate.
These techniques aside, whatever decision making technique a manager may decide to use, they can rarely be 100 per cent certain that we are making the right decision. Occasionally variables occur we simply could have expected or predicted. Nevertheless, by utilising the above techniques, managers can certainly increase our chances of making the right decision at the time.
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The Purpose of Risk Analyses and Risk Management in Operational Planning
Risk Analyses in Operational Planning
Risk analysis is assessing the probability of something going wrong, whilst at the same time also assessing the possible negative consequences if it does. Risk analysis can help reduce negative effects on an organisation is not completely eradicate them. Failure to conduct risk management can result in a lost of time, money, and status of managers. In more serious cases it can even lead to complete failure of a business.
When analysing risk, we may have to look at one or more factors which can affect the outcome. These might include (but are not limited to):
- Human – Illness, death, injury, or other loss of a key individual.
- Operational – Disruption to supplies and operations, loss of access to essential assets, or failures in distribution.
- Reputational – Loss of customer or employee confidence, or damage to market reputation.
- Procedural – Failures of accountability, internal systems, or controls, or from fraud.
- Project – Going over budget, taking too long on key tasks, or experiencing issues with product or service quality.
- Financial – Business failure, stock market fluctuations, interest rate changes, or non-availability of funding.
- Technical – Advances in technology, or from technical failure.
- Natural – Weather, natural disasters, or disease.
- Political – Changes in tax, public opinion, government policy, or foreign influence.
- Structural – Dangerous chemicals, poor lighting, falling boxes, or any situation where staff, products, or technology can be harmed.
[2]Credit for above in footnotes
Risk Management in Operational Planning
Once we have analysed and understand possible risks to our operation plan, we can set about managing risks and if possible completely eradicating risk altogether. One example of this is health and safety Risk Assessments which are discussed in more detail in the next section but risk can manifest in many other areas of an organisation including fiscal, reputational, and operational.
Managers should continually monitor and suspected risks on a regular basis to insure that the risk is being controlled as much as reasonably practicable. Controls can be implemented or changes made to keep any risk to a minimum. If possible, training or retraining can be provided. In my own organisation, we regularly train and retrain employers to ensure that any risk to them of exposure to asbestos fibres is minimised.
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Assess how the Interdependencies in Work Activities Impact on Operational Planning and Implementation
There are three main types of interdependences in an organisational structure: pooled, sequential and reciprocal (shared).
Pooled interdependence is defined as two or more entities being mutually dependent on each other. Such examples may include sharing knowledge and expertise as part of a team, or working with a co-worker to complete a specific project. This interdepndance can impact operational planning by ensuring that the right people with the relevant skillsets are placed together. In contrast, the operational plan can be detrimentally affected if the wrong people are placed together.
Sequential interdependence occurs when one unit in the overall process produces an output necessary for the performance by the next unit.[3] An example of such an interdependence is a car assembly line, where it is vital that the previous part of a vehicles assembly has been carried out before the next can commence. Operational planning in this exampling would need to ensure that the correct procedures have been put in place to ensure that the production can be carried out without delays. Are there enough parts in stock in the warehouse? Can the supplier keep up with demand? Are the correct tools in place to allow assembly to take place unhindered and on time? Failure to consider these basic requirements in the operation plan could result in delays in manufacturing and orders now being delivered on time.
Reciprocal interdependence is similar to sequential interdependence in that the output of one department becomes the input of another, with the addition of being cyclical.[4] It can be thought of as a chain where constant interaction is required. This can be particularly the case in R&D organisations where one area of the business is reliant on others sharing information, and equally an area of the business can be adversely affected if the operational plan is not adhered to and rules or systems change without prior discussion. In this case, the chain can be broken. If a football team fail to constantly interact with each other, they lose control of the ball.
References:
[1] http://www.businessmanagementideas.com/decision-making/decision-making-under-certainty-risk-and-uncertainty/3371
[2] https://www.mindtools.com/pages/article/newTMC_07.htm
[3] http://smallbusiness.chron.com/three-types-interdependence-organizational-structure-1764.html
[4] http://smallbusiness.chron.com/three-types-interdependence-organizational-structure-1764.html
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