Please respond to the following discussion topic. Your initial post should be a minimum of 300 words in length. Do not write in 3rd person! Then, make at least two thoughtful responses to your fellow students’ posts.
Making decisions in business can be difficult. Fortunately we have a lot of great tools to help us! Choose two decision-making tools you learned in our materials this week and explain how you would use them to make a decision with an actual problem you have faced in your professional life.
During my nine year career in the military, I've been taught and trained on many different tools to use when it comes down to decision making. We have a methodology called the Military Decision Making Process. This is a seven step process for decision making in a tactical and non tactical enviornment. In a nut shell, you can achieve this by understanding the situation and mission, developing more then one course of action and then producing an operations order. It is considerably a lot of steps to take to determine what the outcome of a situation should be. However, in the finance world, it is similar, a bit more difficult, and tedious. In any profession your career advancement, and future may depend on making the right decisions. Therefore, utilizing the right tools to make a decision, minimize cost and risk and maximize on benefits for any organization is keys to ones success.
Sensitivity analysis made me a bit unsure when reading about it in the beginning. Simply because it seems like a guessing game. What if I do this or what if I do that. After reading more about it, I would consider using this tool because of its ability to identify underlying variables. This analysis also shows the effect of changes to a project and if information about a variable is collected, how that would make NPV more sensitive.
Using historical, true data for a situation within my profession would help me determine something that sounds simple but becomes a challenge and that is the distribution of supplies amongst seven very eager units. Historically, if dollars is not spent during one fiscal year, the following fiscal year we may receive less funds. To avoid fraud, waste and abuse of the government funds. I will need to analyze what each unit will need, why they will need it and when will they utilize it. I would build a financial model, utilize the cost/ benefits analysis, and sensitivity analysis to determine feasibility and profitability for the management and disbursement of millions of dollars worth of equipment.
The two useful decision making tools I picked up from here are capital budgeting tools which are used to make capital budgeting decisions involving large sums of outlay of funds and impacting multiple periods, and sensitivity analysis.
The capital budgeting tools like net present value method, internal rate of return method, payback period method, etc are very useful in taking capital expenditure decisions. They help in assessing whether a project is worth the investment or not. Particularly, the net present value method is very useful as it help assess how much value would be added by a project in absolute terms if accepted. This method can be used in taking not only professional decisions but also personal decisions like retirement plans, etc for choosing the best possible plan.
Secondly, sensitivity analysis helps in assessing impacts of various variables on the decision making process. Also known as the 'What-if' analysis, this tool is very useful in assessing how a change in a particular variable impacts the ultimate outcome. For instance, in CVP analysis, this tool proves very handy in assessing how a particular increase or decrease in say, volume would affect the profit.