Research and Analysis of a Business Decision

This project is about the investigation of the different methodologies of decision-making, process of deliberation of the business decisions and an application of an analyzed decision for a dummy business set-up. The purpose of the research includes identifying an underlying business decision in a business case, exploring the assumptions occurring in the process of decision-making and how they influence the whole process, underpinning the requirements of a business decision-making process, applying a model simulation to a business in an industry of choice, exploring both controllable and non-controllable factors affecting business operations and how they fare in the decision-making process through Monte Carlo simulation, and demonstration of business-decision making technique in the process through regression.

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Running head: BUSINESS RESEARCH
Project: Research and Analysis of a Business Decision
Student Name:
Tutor’s Name:
Unit Title:
Unit No:

Introduction to the Project
Background Information
In 1964 Ronald A. Howard, introduced business analysis as a systematic, quantitative and
interactive method employed by organizations in evaluation of fundamental choices faced by the
firms.
According to the (BABOK® 2016), “performing decision analysis is one of the 16 required
techniques in the fundamental knowledge base of an effective business analyst.” A business
decision is a deliberate choice arrived at, after considering all other possible strategies over a
single or a group of correlating issues. Decision analysis as well involves trade-off decision-
making as in, a decision involves examination, evaluation and valuation of a number of
objectives
In most recent times, businesses have related operational, managerial, and financial success to
the business choices they adopt. Therefore, making it imperative for both established businesses
and startups to evaluate means upon which they ought to base their decisions. Thence, the basis
of business decision analysis.
An article by (Lexicon,2018) argues that, “Decision analysis is interdisciplinary and draws on
theories from the fields of psychology, economics, and management science.” To come up with
techniques aiding groups to come up with competitive and strategic decisions.
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Context
The project is about the investigation of the different methodologies of decision-making, process
of deliberation of the business decisions and an application of an analyzed decision for a dummy
business set-up.
In the first of part of the paper, we will explore a business case and examine the business
problem as well as the process of decision-making employed by the executive. In the second
part, the paper will explore a simulation method that a business uses to come up with adoptable
decisions for the business and investigate the application of the method in other firms in the same
industry as well as related. The paper will at last employ the simulation in part two to
demonstrate how a business executive may come up with decisions.
Generally, we will research the methods used to come up with business decisions by the
executive and report our findings.
Purpose
The purpose of the research includes:
1) Identifying an underlying business decision in a business case
2) Exploring the assumptions occurring in the process of decision-making and how they
influence the whole process
3) Underpinning the requirements of a business decision-making process
4) Applying a model simulation to a business in an industry of choice
5) Exploring both controllable and non-controllable factors affecting business operations
and how they fare in the decision-making process through Monte Carlo simulation
6) Demonstration of business-decision making technique in the process through regression
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Expected outcomes
At the end of our research, we expect to:
1) Be able to establish a relationship between decision-making process and choice of
decisions in a business firm
2) Gain insights offered on data collected for the purpose of business decision-making
3) Be able to apply successfully, the outcomes of data analysis to our decision-making
4) Learn the effects of applying a decision-making model before applying to real business
Literature Review
A Business decision model is “…an intellectual template for perceiving, organizing and
managing the business logic behind a business decision. An informal definition of business logic
is that, it is a set of business rules represented as atomic elements of conditions leading to
conclusions” (Barbara $ Larry, 2011, para 1).
Risk analysis comprises every detail of the decisions we make. This is true in a range of fields.
Be it medicine, sports, governments, and even business organizations. Business management is
in the constant face of unpredictability, equivocality, and volatility despite the free flow access to
information. Nevertheless, the future is not predictable easily, therefore necessitating the process
of investigating a business decision (Hui, 2013).
Management
The process of management involves:
i. Resource coordination
ii. Decision making
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iii. Supervision and monitoring of business operations
iv. Accountability to shareholders (Rouse, 2013)
Therefore the executive often require statistics, through which it will make sound decisions and
make realistic plans, this depends on excellent communication in all the business organs.
Imperatively, financial statistics play a major role in influencing the path followed by the
business, hence key in management decisions. (Vincent, 2015).
Change is vital for a business, it is through change that a business grows, adopts new technology,
improves service provision, and develops means to increase productivity. It is thus important to
be able to manage the change through the simulation tool. Simulation helps predict the outcome
and the means to achieve the end outcome.
Variability exists universally in almost everything, this range from height, duration, profitability,
worker productivity, rate of accident occurrences, etcetera; this is true in the business world,
medicine fields, sports, and aviation even. (Turner & Marcomber, 2018)
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Project scope and the objective
Scope of the Project
The project covers analysis of the decision-making process in a fuel producing company, (Manna
2014). It investigates the process of conception of an idea through thorough empirical processes
and the adoption as a business decision as a result. The report examines decision sciences and
various researches related to the field of business decision-making. It follows a sound procedure
of investigation and evaluation of a business case, upon which the focus of our study, is to draw
the end structure of a sample decision-making template and investigate the logic of the
company’s choice of it as a decision. Additionally, the report simulates a decision model for a
mining company in order to outline probable decision suggestions to the company executive.
The research draws inferences from various scholarly works and real-life examples of decision-
making. The research gives an application of the simulation model as to be in “…Finance,
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project management, energy, manufacturing, engineering, research, and development, insurance,
oil & gas, transportation, and the environment…” Palisade (2017)
Objective
The main objectives of the report are:
i. To establish that for a business process to be fruitful, it is prudent to define clearly the
decision-making ideas underpinning it
ii. To explore various decision-making techniques, their application and the logic of their
development
iii. To investigate the relationship between variants in a business and the effect of their
variation in making a decision
iv. To outline the process of applying a business decision to the business
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Methodology
The report employs various statistical methods as well as empirical methods to analyze each of
the three parts of the research. The statistical methods used to analyze data for decision-making
are:
i. Simulation
The risk analysis was through Monte Carlo simulation is done through developing statistical and
mathematical models by restituting a range of values. Given any variant, having elements of
unpredictability, a probability distribution is developed.
Simulation efficiently aids in modeling a variety of systems that are key to the executive
monitoring. Ideally, a business simulation is a prototype of a real-world business system. In
enterprise, the executive and business firms are interested in the features of operation in the
given system; therefore, a way of assessing the performance is to follow up close on the actual
operation of the system.
ii. Linear regression
Linear regression was used to test for relationship between variables.Both the response and
predictor variables.
Data
The data used for the business case constitutes six input variable: Gold grade, Ore Tons, Gold
price, Exchange rate, mining cost, process Unit cost Hui (2013). It is important for simulation
exercise
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Platform
Data analysis was done using StatisticsXL in Microsoft excel. The outcomes were graphed and
used for interpretation in coming up with a business decision
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Methodology Analysis
Comparative Report
Risk prediction, assessment, and management are fundamental for any manager and dictate the
business decision process. (Management Study guide, 2017).
CASE STUDY
Uncertainty and Decision-Making: A Strategic decision-making process
Business problem
In the year 1984, oil was discovered in Alba (Scotland). These were large crude oil estimates of
around 760 million barrels in the field, however, there were several structural issues surrounding
exploration and drilling of the precious liquid gold:
 Difficult geological structure with loose sands
 Unsuitable reservoirs
 Too much water lying underneath the oil deposit
Back then, access of the Northern and southern oil fields would only be via construction of an
extensive central terrace albeit facing ambiguity of producing hefty and languid oil from the end-
points of the fields.
Nevertheless, Chevron settled on a decision to bolster the development of the drilling process,
owing the ambiguity of the uncertain risks; in particular, the oil reservoir fruition and the refinery
process of the oil. (Manna 2014)
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First Facet: Northern Terrace and the FSU (Fuel Sending Unit)
This comprised fitting a central terrace along for unified oil production, oil perforation and
residing area for the staff. In the Northern area alongside ANP and the fuel sending unit, the
Alba Northern Platform (ANP), with a 227 million oil barrels projection given 20 oil generation
wells through catheterization using prevalent sanction and horizontal oil shafts.
The company’s inceptive aim was to augment both the southern and Northern terraces in a
period of 5 years. Operations involving the two terraces would curb the well’s angles and
eventually costs. The process was constraint to availability of the then technology. That would
access up to 9,500 feet.
Chevron Decision Making Process
Establishing a correspondence team
Following this, Chevron put together a paltry correspondence team, whose role was to
investigate and identify feasible development options, a move that was in line with the company
policy on the process of project development and the whole execution process. Part of the team’s
responsibility included provision of a visionary and creative approach. (Chevron way 2016)
Shifting nature of facet 2
In coming up with a better option, the correspondence team suggested oil perforation (drilling),
through use of the now newly developed technology, which would allow oil exploration from the
Northern terrace, ensuring feasibility. This is through the extended reach drilling (ERD) option
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developed by the team, an important innovation in the oil industry that facilitates vast oil access
from a given terrace.
The correspondence team came up with twenty-one alternatives, four of which were dropped for
their inadequate feasibility, nine were preferred, another four fell short of economic potential, the
remaining five were considered for extended research.
Following further determination. Either the choice was to be on upgrading the original terrace or
on constructing another, which would be for conjoining to the Northern terrace.
Decision made
After considering the pros and cons of the two-decision scenarios, Chevron settled with addition
of new systems and technology to the original Northern terrace, i.e. retrofitting. Hence upgrading
the Northern terrace instead of building on the southern platform
Value of the choice to the company
Chevron divided facet 2 into 2 stages, through adoption of the proposed ERD technology, this
ensured production sustainability, and mitigation of the degeneration rates through raising the oil
holding capacity.
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Business decision model proposal
Mining Industry
In the mining industry, profitability of gold business is dependent on a number of factors such as:
 Quality of gold ore
 Prevailing exchange rates
 Number of competitors
 Worker productivity
 Gold price
 Process unit cost, etcetera
All this factors are put into consideration when making any decision, even the simplest one as to
when to start the business day to complex ones as to which constraints to vary in order to obtain
optimal returns.
Application Constraints
Business problem
Suppose a gold mining firm, Jewelry mining co, seeks to identify new ways in which to allocate
their resources and other variants taken into consideration in quest to maximize their profits
while lowering the risks involved in operation. Concerns such as scheduling of workers, the
expected work rate, business-operating hours, how many workers to employ, how to distribute
them would also be in question
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These constitute decision variants that are largely under the influential control of the company
executive. However, there is also a range of uncontrollable variants in the situation. These
include, exchange rates, competition from other firms in the industry, operational hazards such as
accidents that hinder operations, and the prevailing market demand for gold.
Following the instability of exchange rates, the company decision makers would want to decide
on which gold grade would ensure optimum profits given the shaky exchange rates over a given
period. Producing more gold would not be the only ideal course of business. Maybe 2,000,000
tons of gold with 1.68 g/t gold would be sufficient for profits compared to 2,500,000 tons of gold
with 1.2 g/t gold. The executive would be drawn to issues such as profits generated, operating
costs, and working hours together with the expected mining volumes per day, which are
influenced by exchange rates, competition, responsibilities to shareholders, and legislations.
Prototype simulation
Analysts may simulate the company being able to mine a given amount of gold with varying
gold concentration, to the extent that given the prevailing conditional variants; the business still
makes optimum profits. I.e. to the point, the prototype is valid. They could come up with the
optimal number to maximize the productivity and the mode of distribution of all the variants to
achieve this. The fact that exchange rates can solely be estimated statistically means there would
be a convincing random composition of the marketing system and the prototype simulation will
be a fundamental measure in identification of the firm’s operating characteristics.
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Prototype development
The prototype heavily relies on empirical evidence when possible. Such a prototype involves
mathematical abstraction aiding in approximation of the situations realness. Problems arise when
placing weight on the desire to achieve profits and consideration of the solution’s rational
amenability
Unfortunately, achieving ideal simulations are not entirely possible, except maximizing the
workability of the given prototype in relation to the business problem.
Given the unpredictability of exchange rates, difference in gold ore concentration, and expected
operational hazards such as accidents as the key factors affecting the profitability, the analysts
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Stating of the business
problem:
Determing variants to consider
in order to maximize profits
Initialize
Prototype description and
development for Jewellery
mining co
Intermediary
Performance analysis and
deductions:
Increasing gold ore mining
containing higher gold
concentrations? Employing
more workers? More use of
product Differentiation
Analysis
Outcomes and findings

develop a program for simulation of the system operations over a given period such as a two-
month period. Then again, simulate the program for more many more periods for the business
activities. All the while gathering via suitable computer software, observations for:
i. Exchange rate patterns
ii. Performance of revenue collection for different gold ore concentration given standard ore
volumes
iii. Effect of a given number of workers given different skills on production
iv. Competition performance with other firms in the industry
v. Profits generated from varying some of the variants
Moreover, including other variants of interest, after which distributions of the variables would be
obtained. For instance, the effect of ore concentration, variation of exchange rates on the profits
and revenue generated, that enables configuration.
STRATEGIES FOR A RELIABLE MODEL
There are a number of simulations present for coming up with suitable working prototypes. The
most used simulations are:
 Monte Carlo
 Event-scheduling approach
Monte Carlo Modeling
Suitable when time variable is not fused in the simulation prototype. I.e. the measured variables
are not dependent on time exclusively.
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Event-Scheduling Approach
Takes account of the time constraint explicitly.
The Jewelry mining company model
The simulation used by the company is a Monte-Carlo approach. Where a mining process of a
random given amount of ore is done under the mining conditions, accidents probability
considered and processed into the final product, sales are then made given the prevalent
exchange rates and the competition rates from other firms. The simulated process would take
some time before the whole process ends. Meanwhile, another mining process takes place but by
the time the process is over, the exchange rates may have changed and accidents occurred, and
other variable that affect the volume produced or otherwise. The interval between concluding the
first business process under its own variants and the second that also has its own variants would
develop a queue (Laguna & Marklund, 2005). Using a suitable computer software that imitates
the whole process, a wide period of supposedly business activities can be simulated and the
operating characteristics gathered and analyzed using means and statistical distributions. The
whole process can be done involving effective decision-variant combinations that the decision-
makers want to put into consideration.
After collection of all relevant, enough simulated data on all the possible effecting combinations.
Most probably, some combinations emerge as more prevalent that than some, the designs are
filtered until the best rise to the top and if not one, the ones having enough potential are chosen
for further study and consideration.
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Assumptions
i. Exchange rates are highly unstable
ii. Occurrence of accidents during day operations is out of the executive’s control but have
effect on profits
iii. Factors that influence profits are both internal and external
iv. Internal factors can be varied and controlled
Application to mining industry
The model used by Jewelry mining co is applicable to businesses in mining industry and other
related industries such as tourism, horticultural products production, in that the management will
be able to predict and monitor the performance of business sectors in terms of profits given
varying variables in production and marketing. In addition, risk assessment would be possible
considering inclusion of various risk considerations in the simulation prototype such as
competition effect, uncertainty of market influence and operating risks such as accidents.
In conclusion, simulation aids the executive to mitigate risks associated with conducting business
without having to feel the bluntness of trial and error. Through model simulation, profits can be
estimated, resources allocated, production projected and key decisions made by the business
management.
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Walkthrough report
Regression (Forecasting)
In their paper on decision making (New generation 2017), debate that, “regression analysis can
analyze the impact of varied factors on business sales and profits” and therefore, the role of
forecasting is fundamental in outlyng the examined relationships so as to equip the analyst with
sufficient insight to draw inference from. As such, the role of regression is:
 Optimizing operation efficiency
 Offering new insights on business operations
 Enabling predictive analytics
 Providing ground to support decisions
 Facilitating correction of errors
Forecasting investigates whether there is a relationship between profits (dependent variable) and
gold ore concentration, gold ore size and currency exchange rates- independent variables
The response variable is fitted against the predictor variables.
Linear Regression Results for:
Jewelry mining co.
Independent variable entry method: Enter All
Summary
R2 R Adj. R2
S.E. of
Estimate
0.985 0.993 0.985 1516.070
ANOVA
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Source Sum Sq. D.F. Mean Sq. F Prob.
Regression ######## 4 ######## ######## 0.000
Residual ######## 996 ########
Total ######## 1000
Regression Coefficients
Source
Coefficien
t Std Error Std Beta -95% C.I. +95% C.I. t Prob.
Part
Corr.
Partial
Corr.
Intercept ######## 2361.159 ########
#######
# -7.884 0.000
Column G ######## 2377.640 -0.037 ########
#######
# -9.663 0.000 -0.037 -0.29
Column H 16.383 0.498 0.128 15.406 17.360 32.909 0.000 0.127 0.72
Column I ######## 493.857 0.159 ########
#######
# 41.086 0.000 0.159 0.79
Column J 41.479 0.166 0.966 41.154 41.805 249.888 0.000 0.965 0.99
-4 -3 -2 -1 0 1 2 3 4 5
-4
-2
0
2
4
Normal Probability Plot for profit against predictor
variables
predictor variables
profits
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Effect of external factors on profits
-10000 0 10000 20000 30000 40000 50000
-4
-2
0
2
4
6
Residual vs Profits
profits
Standardised Residual
Deductions and possible suggestions
From the graphs and tables:
i. Profits increase with increase in ore concentration
ii. The more volumes the company is able to mine, the higher the chances of making more
profits
iii. Currency rates have relatively low impact on the profit generated
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Conclusion
The main purpose of a decision-making process is to ensure mitigation of risks in the business
ventures of any given firm, interestingly; risk assessment plays a fundamental role in emphatic
decision-making endeavored by business organizations.
The risks may include:
i. Financial risks
ii. Schedule risks
iii. Technical/ structural risks
iv. Operational risks
v. Health risks
Therefore, to ensure adoption of top decisions and those with the most promising results,
organizations employ different mechanisms, this include: setting up decision drafting teams to
suppose the best available options that can be explored by the business, using decision analysis
technology and even to consolidate the two.
In the Chevron business scenario, the choice of setting up a business decision correspondence
team top draft the best available decisions ensures top choice in the decision to be adopted by the
business organization. This should be the starting point of decision-making.
Consequently, it is the collective decisions made and adopted by the business, which end up
defining the line of business operations and also its growth or demise. Therefore, the decision
making process should be undertaken seriously since its through it the management can posit the
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business direction and improve productivity in the process while ensuring the output is more than
the input, thereby advancing the business profitability.
Recommendations
Given the results of simulation:
i. The executive should identify areas with higher ore concentration and more mining
operations carried out on such areas, this will ensure more ore with high gold
concentration
ii. Measures should be put in place for readiness against factors such as accidents and other
external factors that are uncontrollable by the executive
iii. Gold prices should be varied relative to market demand and not exchange rates which are
highly volatile
iv. Further research should be conducted to determine the costs of mining high quality ore
compared to mining lower quality ore but in larger quantity and their relative returns.
This will aid to determine which decision will be more profitable.
v. Employ mechanisms to ensure more ore production, such mechanisms as increasing
worker count, encouraging overtime working
vi. Alternatively, the company can also concentrate its processes on areas with high ore
concentrations and lower the volume of ore produced. It can nevertheless also employ
both variants simultaneous.
vii. The cost of gold products should be stabilized at an optimum to ensure fluctuations in
exchange rates do not affect the profits severely.
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