Weighing Factors - Business Decision Making - ثاني ثانوي

Lesson 4 Chapter 5 www.ien.edu.sa Weighing Factors Sometimes more than one variable can affect results in a decision model. For these types of decisions, you can assign weights to the variables. For example, deciding which tours to offer to corporate customers involves variables such as amount of travel time, level of activity, meeting facilities, and weather. After sur- veying potential customers, the travel company you're working at determines that the amount of travel time is worth 50% of the decision and meeting facili- ties are worth only 10%. Weigh these factors in your decision model to make more accurate decisions. Table 5-2 lists the do's and don'ts for weighing factors. case Omar wants to return to the decision about which tour to offer first to corporate customers and evaluate it by weighing factors. TABLE 5-2: Weighing factors do's and don'ts Guidelines Do Decision variables • Identify the decision variables that have the most. effect on the decision Weights . Normalization Assign a weight to each important decision variable • Account for differences in variables by normalizing them Don't • Don't include minor decision variables • Don't assign weights to all decision variables • Don't compare values without normalizing them first وزارة التعليم Ministry of Education 2024-1446 95198_book_PP1.indb 135 Essential Elements 1. Identify the most important decision variables The most important factors are the decision variables that are most likely to affect the output variables. If the decision includes many independent vari- ables, it should be limited to those that have the most effect on the decision. In Figure 5-7, for a tour of corporate customers, the four variables might be activity level, meeting facilities, travel time, and weather. Decision Support Tools 135 07/05/2024 10:57

FIGURE 5-7: Assigning weights A B C D E F G 1 Tours to Offer Corporate Customers 2 Ratings (1-5) 3 Jeddah Riyadh Dammam Abha 4 Activity level 4 5 Meeting facilities 1 6 Travel time 7 Weather 5425 2513 3355 32 2 3 8 9 Weighted factors 10 Weight Jeddah Riyadh Dammam Abha 11 Activity level 20 80 Each rating is 12 Meeting facilities 10 10 13 Travel time 50 150 multiplied by 14 Weather 20 40 the weight 15 Total 100 280 16 The total weight is always 100 These calculations need to be completed Four factors are rated for each tour QUICK TIP When normalizing, you usually multiply or divide the data by a variable so you can compare the variables fairly. 2. Determine the appropriate weights Each decision variable is assigned an appropriate weight. This is a number that the variable is multiplied by to reflect the significance in the decision. In Figure 5-7, the most important variable is travel time, which has a weight of 50. Activity level and weather are the next most important, and have a weight of 20 each. The least important variable is meeting facilities, which has a weight of 10. To calculate the weighted ratings, multiply each rating by the weight. Then total the weighted ratings for each alternative to find the best option. 3. Normalize variables The range of values for one decision variable might vary widely. For example, the travel company you're working at is considering five local tour operators to use in Riyadh. The most expensive tour operator charges SAR 50 per per- son and the least expensive charges SAR 10. The range of values for the price variable varies widely. Before adding other factors such as transportation and hotel costs to select a tour operator, you can normalize the price variable. Normalization makes the values consistent so you can compare them accu- rately. A simple way to normalize is to divide each variable by the largest instance of that variable. Then you can use the normalized variables as weighted factors. See Figure 5-8. 136 5 Chapter رة ا Ministry of Education 2024-1446 Business Decision Making S1 S2 S3.indb 136 DEFINITION Normalization: A way to make all of the data consistent with your decision model. 30/06/2023 14:28

FIGURE 5-8: Normalizing variables C5 fx =C4/B4 A B C 1 2 Surcharges per person Riyadh Tour Operators பட F G 3 1 4 Surcharge SAR 50.00 5 Normalized 1 2 SAR 40.00 0.8 3 5 SAR 25.00 SAR 20.00 0.5 0.4 SAR 10.00 0.2 6 Transportation per person The highest charge is SAR 50 7 1 2 3 8 Charge 9 Normalized SAR 75.00 SAR 100.00 SAR 80.00 0.75 1 0.8 SAR 65.00 0.65 5 SAR 50.00 0.5 in cell B4 10 Daily hotel per person 11 1 2 3 12 Charge 13 Normalized SAR 105.00 SAR 85.00 0.84 SAR 90.00 SAR 125.00 5 SAR 80.00 0.68 0.72 1 0.64 14 15 Charge comparison 16 Weight 1 2 3 4 5 17 Surcharge 50 50 40 25 20 10 18 Transportation 15 11.25 15 12 9.75 7.5 19 Hotel 35 29.4 23.8 25.2 35 22.4 20 Total 100 90.65 78.8 62.2 64.75 39.9 21 H To normalize the other charges, divide each by the value in cell B4 YOU TRY IT After normalizing, assign weights to compare factors 4. Consider the runners-up The weights assigned are subjective. When considering the results, the ana- lyst should ask if a small change in the weights would affect the outcome. Look at the runner-up options and see how near they are to the leader. Values close to the top value are often important decision variables. وزارة التعليم Ministry of Education 2024-1446 Business Decision Making S1 S2 S3.indb 137 Practice creating decision trees by completing a diagram. Complete the follow- ing steps. 1. Get ready Consider an important decision that you need to make in your personal life, education, or career development. This could be choosing the right product to buy from a range of options, or which career path to choose as you get older. 2. Now you try it 1. Follow the steps in Lesson 4 in Chapter 5 to help you make the correct decision: identify the most important decision variables and determine the appropriate weights (the normalizing variables step may not be necessary). 2. Has this process helped you to make a decision? Remember to consider the runners-up. Remember that the weights you assign are subjective. In this case, would a small variation affect the outcome? In your note- Decision Support Tools 137 30/06/2023 14:28

REVIEW QUESTIONS book, or using a word processor, list the variables and their associated results, then explain how you arrived at your decision 1. How can you indicate the significance of each variable in a decision? a. Assign an appropriate weight b. Convert the values to the same format c. Use one as a constant in the model d. Normalize the variables 2. How can you account for differences in variables? a. Create a decision tree b. Normalize them c. Find the mean, mode, and median d. Find the standard deviation 138 5 Chapter رة ا Ministry of Education 2024-1446 Business Decision Making S1 S2 S3.indb 138 30/06/2023 14:28