Decision Problem in Company

Any kind of decision would be easy to make if it first could be measured before making action. Measurement means quantification of its impact and projections of impacts as contibution in profit. It would be piece of cake to decide between different profit amounts, and to choose the decision with highest positive impact on profit.

For business decisions it would be even better to judge upon impacts on Economic Value Added – EVA instead on profit. EVA sums long term extra profit and if it is positive it means good investment. It is the best financial indicator for meausrement of business performance.

Decision A generates * in EVA, decision B generates **, decision C generates **,  and etc.

Decision problem lays in the fact that it is extremely hard to correlate actions according to decisions with financial statements. Sell more product X… That is easy but costs are also raised and that is not easy to trace and to quantify. Especially not in big companies.
There is a permanent need for army of business and financial analysts (controllers) and to prepare business scenarios. It is demanding and time consuming operation despite the fact that many invested tremendous amounts in management information systems or decision support system

Core problem of decisions are their corresponding measures in financial world. If they could be measured in transparent way that every business man aka entrepreneur or manager understands it would be child’s game.
Even lack of information is not such big problem as possibility to measure and to play with decision variations.

Solving decision problem

To solve decision problem in companies following Main Decision Problems need to be included as features in tools and/or processes:

• Trustability – Can Information be trusted, are they distorted?
• Completenes – Is it all, or is it much more hidden – lack of information. Does decision maker has complete picture over analyzed situation?
• Transparency – How to choose, among different scenarios. Are they transparent between?
• Speed – time to generate information for scenarios. If information gathering and scenario preparation takes too much time, decision is meanwhile without basic component – quality information.
• Overload – too much information is like no information at all. Handling of information and creating relations between information sets needs to be allowed.

Mother lord of all management decisions is,

• Financial impact – What is the impact of decision on financial projections?

If you need more information on how to handle decision problems download Business Intelligence PDF.