A crucial part of the management of a company is to make good decisions.MO decisions in the long term are clearly important - with a virtue of the fact that they often have to commit large amounts to a project - using the right techniques to make short decisions are even more important.Management is repeatedly made in the short term decisions in many different areas, such as prices, purchasing, maintenance of storage and personnel level and determining which products to sell and which must be interrupted.
For example, a company can have to decide whether it wants to produce components themselves or buy them;whether an order is accepted or rejected;To process or sell a product at its split -off point;Or how best means when one or more of them become scarce.
There are four basic steps involved in making this type of operational decisions:
- It becomes aware that a decision must be made
- Identifying the available alternatives
- Evaluation of the alternatives
- Make the decision.
One of the most common ways to evaluate alternatives is to use a technique called "differential analysis", which is exactly as it sounds - analyzes the difference between two or more alternatives and then makes a decision based on the quantitative analysis, while also a consideration of qualitative problems.
For example, let's say that Carl Less is president of Tuff Boots, Inc., a producer of hiking shoes by 100% made in the US on each box.Due to the rising raw material costs and labor, the profit of Tuff Boots is steadily in recent years Carl is concerned about falling profit and Abby Kerr, vice president of operations, has assigned to do what is needed to reduce costs.Carl has agreed to pay Abby a bonus that is equivalent to 25 percent of all production costs that will achieve that in the coming year.
The average device product costs for the production of a few boots are $ 90 and the company earns 10,000 boots each year and sells them for $ 129 each.Abby believes that the company can save considerable amounts of money by having an external supplier to make the boots in the site to do it internally.A supplier in China has a member of giving himself boots for each $ 70.
Tuff Boots is confronted with a decision that has many organizations in common: whether you want to produce your own product or another company want to produce the product under the Tuff Boots brand.We come back to this scenario differential analysis to make sensible business decisions.
