Question: 1. Who is making bad decisions?
2. Does the decision maker have enough information to make a good decision?
3. The incentive to do so?
The three step process is used to evaluate and analyze the decision.
The first step is used to identify the decision and the process taken up to reach on a decision. Any decision based upon only gut feeling or marketing myopia without any rational approach will lead to the bad decision.
The second step deals with the necessary information available to the decision makers. It requires an information system that consists of quantitative data as well as qualitative information. It helps in taking a rational and optimum decision of:
1. What to produce
2. How to produce
3. How much to produce
4. Where to produce
5. The most suitable market for sales and pricing strategy
The third step deals with the incentive such as stock option plans, bonus and profit sharing agreement. It prevents any agency conflict also. Therefore, the three step process prevents any moral hazard and encourage managers to take an informed decision of for the benefits of all the parties.
Is it always possible to have the information to make the best decisions? Why? (In 100-150 words)