Essays on Decision Making under Uncertainty Case Study

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  The paper "Decision Making under Uncertainty" is a great example of a Management Case Study. Southern Equity is a medium sized financial services firm based in Australia. The company has two branches in the country and offers financial consultancy, investment, loans and saving facilities. During the global financial crisis of 2007/2010, the company’ s business was severely affected. As a result of the crisis, the company’ s share prices, as well as revenues, dropped drastically as investors liquidated their money and the debtors failed to service their loans. As such, Southern Equity was confronted with the imminent crisis of ensuring that its business does not go under and that it does not lose more investors and customers.

The company’ s executive management had to make decisions on how to resolve this issue without causing further damages to the company’ s business prospects. The decision-making process involved all senior managers including the chief executive officer, finance manager, the HR manager and the head of marketing. One of the decisions reached was to lay off some workers so as to cut down rising operating expenses. This decision was however dropped on the grounds that its implementation could not add any significant value to the company’ s business, which was already making losses.

Two more important decisions were reached. The first decision was to seek a loan from a bank to service outstanding debts that were not being serviced. This could help the company make a steadfast return to its former financial position before the crisis. The second decision was to diversify the company’ s investment portfolio. This decision could entail investing in various securities and economic sectors such as real estate, stocks, and the forex market.

The diversification decision was to be extended to social welfare. Under this consideration, the management agreed to focus on investing in projects that are capable of supporting the community in social, ethical and environmental issues. This decision was motivated by the fact that investing in social sustainability could bring the greatest value to the greatest number of people instead of generating private profits for just a few people. Analysis of the Decision Making Process Using the Bounded Rationality Theory. Uncertainty is a common unavoidable factor in risk management decisions (Kahneman & Tversky, 2000).

Business managers have to make decisions based on both certain and uncertain occurrences. A sound approach to decision making under uncertainty requires the decision maker to be rational in establishing the decision objectives, identifying alternatives and evaluating the alternatives with the set objectives (Postmes, Spears & Cihangir, 2001). More often than not, there are a lot of uncertainties in forecasting the outcome of an alternative more especially when the outcomes of the decision involve complex trade-offs between various variables. Such decisions can be highly risky because their outcomes may involve losses such as sub-optimal outcomes or losses. There are a number of theories and models that can be used to understand the decision making process under uncertainty.

One of these theories is the bounded rationality theory, which provides that during the decision-making process, the rationality of the decision maker is influenced by the amount of time available for decision making; the cognitive capabilities of their minds and the information they have (Blackhart & Kline, 2005). This theory is based on the reasoning that any decision-making process should result in optimal outcomes, at least to the satisfaction of the decision maker.

This theory can be applied to the situation at Southern Equity to understand how the company arrived at the decision is implemented and why it objected to the first decision.

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