Evaluation of alternatives

Once appropriate alternatives have been found, the next step in planning is to evaluate them and select the one that will best contribute to the goal. This is the point of ultimate decision making, although decisions must also be made in the other steps of planning — in selecting goals, in choosing critical premises, and even in selecting alternatives.

Quantitative and Qualitative factors

In comparing alternative plans for achieving an objective, people are likely to think exclusively of quantitative factors. These are factors that can be measured in numerical terms, such as time or various fixed and operating costs. No one would question the importance of this type of analysis, but the success of the venture would be endangered if intangible, or qualitative, factors were ignored. Qualitative, or intangible, factors are those that are difficult to measure numerically, such as the quality of labor relations, the risk of technological change, or the international political climate.

There are all too many instances in which an excellent quantitative plan was destroyed by an unforeseen war, a fine marketing plan was made inoperable by a long transportation strike, or a rational borrowing plan was hampered by an economic recession. These illustrations point out the importance of giving attention to both quantitative and qualitative factors when comparing alternatives.

To evaluate and compare the intangible factors in a planning problem and make decisions, a manager must first recognize these factors and then determine whether a reasonable quantitative measurement can be given them. If not, he or she should find as much as possible about the factors, perhaps rate them in terms of their importance, compare their probable influence on the out come with that of the quantitative factors, and then come to a decision. This decision may give predominant weight to single intangible.

Such a procedure allows the manager to make decisions on the basis of the weight of the total evidence. It does involve fallible personal judgment; however, few managerial decisions can be so accurately quantified that judgment is unnecessary.

Decision making is seldom simple. It is not without justification that the successful executive has been cynically described as a person who guesses right.

Marginal Analysis

Evaluating alternatives may involve utilizing the techniques of marginal analysis to compare additional revenues arising from additional costs. Where the objective is to maximize profits, this goal will be reached, as elementary economics teaches, when the additional revenues and additional costs are equal. In other words, if the additional revenues of a larger quantity are greater than its additional costs, more profits can be made by producing more. However, if the additional revenues of the larger quantity are less than its additional costs, a larger profit can be made by producing less.

Marginal analysis can be used in comparing factors other than costs and revenues. Foe example, to find the best output of a machine, inputs could be varied against outputs until the additional input equals the additional output. This would then be the point of maximum efficiency of the machine. Or the number of subordinates reporting to a manager might conceivably be increased to the point at which additional savings in costs, better communication and morale, and other factors equal additional losses in effectiveness of control, leadership, and similar factors.

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However, as with most strategic decisions, the issue is more complex than it first appears.