Optimistic Decision Making

The decision process is complex and requires the evaluation of the possible outcomes. Often, there is an uncertainty of the outcomes. Therefore, the owner of the business should be careful in the evaluation so that the business can realize maximum profits. Risk and ambiguity are the main reasons why there is uncertainty in the outcomes of business decisions. A risk is the probability of a given outcome while ambiguity is unclear information that can be used to estimate probabilities. Whereas administrative decisions involve the day-to-day activities of the organization, operational decisions are occasional and strategic decisions are long-term. Strategic decisions have many financial benefits due to the profitability and success of the organization. The forward-looking planning of strategic decisions enables the evaluation of priorities and enables control of the future.

With the fast changing business landscape, it is important for business executives to come up with strategic decisions to enable the business to fit into the competitive and changing business environments. Non-financially, the business benefits by being aware of the threats and opportunities that the business has. Given the three alternatives, Ken can construct a decision tree to come up with the best decision. The first step of creating a decision tree is to lay out the alternatives. In this case, there are three alternatives. These are purchasing the Sub 100, the Oiler J, or the Texan. The alternatives can be represented using branches drawn from the left to the right. Despite the warning that an unfavorable market would lead to a loss of $200,000, Ken would still take the risk of choosing that alternative due to the good returns it would reap in a favorable market.