Modeling Decisions Quantitatively - Business Decision Making - ثاني ثانوي

Lesson 2 Chapter 5 www.ien.edu.sa Modeling Decisions Quantitatively When solving complex problems, gather all the data you can related to the problem. Then you can model your decisions quantitatively, which means you represent the decision and its factors using numbers. Modeling decisions can help you see patterns in the data, make objective choices-especially among competing options—and provide substantiation for your decisions. case One of the new corporate clients at the travel company you're working for has head- quarters in Jeddah, Makkah Province, and wants the company to open a branch office on its corporate campus. Some managers at the company want to open an office in the Eastern Province. Omar asks you to help him gather data and model the decision quantitatively. DEFINITION Model: (n.) A collection of information that shows how an organisation is working, or could be working in the future; (v.) to produce such a collection of information. QUICK TIP Be sure to enter numbers carefully-a typo can ruin an otherwise useful model. Essential Elements 1. Assign numeric values to your data Gather data you can measure, which includes numeric variables such as price, weight, temperature, square footage, and sales per week. Make sure you collect accurate information, and then enter the data in a tool designed for numeric analysis, such as a spreadsheet. 2. Compare apples to apples The data you collect is not always available in the same format. For example, to compare salary data, convert an hourly or monthly wage to an annual salary or vice versa. See Figure 5-3. Make similar adjustments for quantities (single units vs. bulk quantities), monetary units (riyals vs. dollars), and other measures that describe the same item, but express it in different ways. 126 5 Chapter رة ا Ministry of Education 2024-1446 95198_book_PP1.indb 126 07/05/2024 10:57

FIGURE 5-3: Comparing data Problem: How much should the company budget for an office manager in the new Jeddah office? Experienced office manager: SAR 40,000/year Entry-level office manager: SAR 2,000/month Convert both to monthly or yearly salary Projected expenses Experienced Entry-level Monthly salary SAR 3,333 SAR 2,000 for office manager QUICK TIP Survey designers recommend five-point scales as the most accurate; fewer points don't offer enough options, and more points create confusion. 3. Rate subjective variables In addition to gathering objective data, you can collect subjective data. For example, you might want to poll the staff at the travel company you're working at to determine their preferences for opening a new office in Jeddah or other sites. To use this information in a quantitative model, you must first convert it to numbers. Ask people to rate or evaluate options and assign numeric values to their responses. You can use a five-point response scale similar to the one shown in Figure 5-4. FIGURE 5-4: Rating subjective data Answer the following questions according to the scale. Do you think the company should open a branch office in Jeddah? Strongly agree Agree Neutral Disagree • 5 4 3 Strongly disagree 2 1 Should the Jeddah branch be on a client's corporate campus? Strongly agree Agree Neutral Disagree Strongly disagree • 5 4 3 2 1 Do you think the company should open a branch office in Khobar? Strongly agree Agree Neutral Disagree Strongly disagree وزارة التعليم Ministry of Education 2024-1446 Business Decision Making S1 S2 S3.indb 127 5 4 3 2 1 Decision Support Tools 127 30/06/2023 14:28

4. Use a decision model To make numeric data useful, organize it in a decision model, which is one or more formulas that includes all of the relevant variables and calculates a result. For example, to choose between a Jeddah and Khobar branch office, you could rate staff preference, proximity to your clients, and building fea- tures and amenities for each location and calculate the sum of the ratings. Also calculate the sum of variables such as monthly office rent, taxes, utility costs, and salary. Determining these totals for each location provides a ranked listing of the options. See Figure 5-5. DEFINITION Decision model: One or more formulas that includes all of the relevant variables and calculates a result. FIGURE 5-5: Decision model 1 2 A B C D Decision Model: Company Branch Office 3 Staff preference 4 Proximity to clients 5 Building features 6 Amenities 7 Total Jeddah Khobar 45 38 Sums for each questionnaire rating 40 40 35 42 30 42 Ratings for Khobar 150 162 branch office are the highest 8 9 Rent per month SAR 2,200.00 SAR 1,800.00 10 Taxes 11 Utilities 12 Salary 13 Total SAR 448.00 SAR 725.00 SAR 500.00 SAR 450.00 SAR 800.00 SAR 650.00 SAR 3,948.00 SAR 3,625.00 14 Expenses for Khobar branch office are the lowest YOU TRY IT Practice modeling decisions quantitatively by selecting a solution. Complete the following steps. 1. Get ready Review the responses to the following questions, which are related to whether the travel company you're working at should open a branch office. 128 5 Chapter رة ا Ministry of Education 2024-1446 Business Decision Making S1 S2 S3.indb 128 30/06/2023 14:28

| وزارة التعليم Ministry of Education 2024-1446 Do you think the company should open a branch office? Rating Number of responses 5- Strongly agree 8 4 - Agree 8 3 - Neutral 2 2 - Disagree 2 1 - Strongly disagree 0 Business Decision Making S1 S2 S3.indb 129 If the company does open a branch office, should it be in Jeddah? Rating Number of responses 5-Strongly agree 6 4- Agree 4 3 - Neutral 4 2- Disagree 1 - Strongly disagree 3 3 If the company does open a branch office in Jeddah, should it be on our cli- ent's corporate campus? Rating Number of responses 5- Strongly agree 4 4 - Agree 4 3 - Neutral 4 2 - Disagree 1 - Strongly disagree 5 3 If the company does open a branch office, should it be in Khobar? Rating Number of responses 5- Strongly agree 6 4- Agree 6 3 - Neutral 5 2- Disagree 3 1- Strongly disagree 0 2. Now you try it Answer the question of whether the company should open a branch office, and if so, where. Decision Support Tools 129 30/06/2023 14:28

REVIEW QUESTIONS 1. When you create a numeric representation of the decision, you are creating a(n): a. presentation b. model c. analytical document d. consensus 2. What should you do before comparing subjective data? a. Plot the data b. Find the mean c. Create a model d. Rate it on a response scale 130 5 Chapter رة ا Ministry of Education 2024-1446 Business Decision Making S1 S2 S3.indb 130 30/06/2023 14:28