BUS600 Communications Management - Free Samples to Students

This week we are introduced to making optimal decisions using marginal analysis. Such analysis helps managers in determining the level of output that maximizes profits. Essential to a firm's profit-maximizing decision-making process is estimating the demand for its product and its cost function. From the estimated demand, the manager calculates totals, and the cost of production profits can be determined.

 

Small mistakes are the stepping stones to large failures. How might this saying apply to this lesson, and do you agree?

In your responses, provide an example of a real-life seemingly small mistake with large consequences. By real-life, I mean a situation that actually happened, not a theoretical one.

An optimal decision is one that results to the best anticipated outcome possible after considering all the other available decision options (Sengupta, 2012). The various outcomes of decisions are assigned utility values. Marginal analysis’s basic idea is to project and evaluate the changes per unit of goals of a given firm, finally specifying the most favorable allocation of resource given the business constraints (Baumol., 2009). Therefore, it is important to note that every decision related to allocation of resources can benefit from marginal analysis if only the benefits and costs are identifiable (Hirschey, 2009).

The saying that meagre mistakes can form the treading stones to huge failures can apply in this case. I tend to agree with this particular saying for several reasons as captured in the following real-life apparently slight mistake that resulted to substantial repercussions. In the United States alone, there are thousands of business ventures that have failed owing to the issue of poor resource allocation by those in management. For instance, the Pets.com was perceived to be an incredible idea. However, the firm failed terribly because they attempted to grow way too fast in their business operations. The firm extremely over expanded by establishing networks of warehouses countrywide immediately it began its operations. This shows how failure from the management of Pets.com to slow down the process of launching warehouses before the firm could be on its feet, contributed to the crumbling of its operations.

It ought to have analyzed all the likely outcomes that would have resulted from quick decision to plant the warehouses before the business could peak. To determine the level of output that maximize profits, managers should carry out a cost-benefit analysis (Mishan & Quah, 2007). It also assists in determining the viability of a planned business venture. However, blinded by the desire to make quick and huge profits, the management of Pets.com ended up dumping millions of cash with the aim of getting the warehouses running. Many other millions were put in their sock puppet commercials as part of production cost. The management failed to conduct a market research and analysis to establish and estimate the demand for their goods and services in the market. This exercise would have helped them come up with an informed decision on how to conduct their business in the best interest of their goals and those of their customers. They managed to build a good brand and became so popular but offered something that consumers were really not into hence sales turned awful draining the profits of the company in the long run. This is because the cost of production was much higher than the sales they were making. The Pets.com company failure to thrive its business venture paints a clear picture of poor optional decision due to lack of proper marginal analysis.

References

Baumol. (2009). Microeconomics : principles and policy. South-Western/Cengage Learning.

Hirschey, M. (2009). Fundamentals of managerial economics. Mason, OH: South-Western/Cengage Learning.

Mishan, E., & Quah, E. (2007). Cost-Benefit Analysis. Routledge.

Sengupta, J. K. (2012). Optimal Decisions Under Uncertainty : Methods, Models, and Management. Berlin, Heidelberg : Springer Berlin Heidelberg.