Question

How uncertainty will affect decision making? How might decisions be different for a large corporation versus a small family-owned startup business?

Answer 1

Uncertainty has a huge effect on decision making. Some decisions may prove to be wrong due to the unforeseen future negative incidents.Examples can be :

• War.An economy experiencing a robust growth may be adversely affected by war and all the forecasts about growth and decisions taken may prove wrong.
• Natural Disasters. Natural disasters like earthquake, hurricanes, tsunami may adversely affect the economy. The demand and supply equation, savings and investment equation and all future outcomes predicted and decisions taken may prove to be fatal
• Shocks. Shocks also adversely affect economy and business.Oil shocks have increased the price of oil in the past and have adversely affected economies of many countries.
• Economic sanctions, Tariffs and Quotas. These also affect the international trade. The trade war between US and China, Embargo putting sanctions on Cuba by US have adversely affected the decision making process and economies of both countries involved by raising prices of important inputs.
• Political Relations. The relations between two countries also affect certain decisions. India and Pakistan have hostile relations. As a result export and import between these two countries have been adversely affected thus raising prices of important articles for bot these countries.
• Government Decisions. Some business are adversely affected by government decisions. Like recently ban was imposed on use of plastics. This will adversely affect plastic manufacturing firms.

A central bank of a country may devise monetary policy or government may devise fiscal policy by expecting normal conditions but due to above uncertainties all decisions may prove wrong.

The decision making process in family start ups is different from decisions taken in big organizations because of following reasons:

• Size of business. Size of business affect decisions a lot. A small family start up will have less employees, less sales and accordingly their costs and profits will also be low as compared to big businesses who have to take decisions on larger scale as they have to recover huge costs of production and other operational expenses.
• Legal structure of business. This also affects decision making process.A business's legal structure determines how the business is managed, taxed and whether owners are liable for business debts.Small companies have more control over the company, owners may pay taxes as personal income tax and are also liable for business debts.Large companies are often organized as corporations that pay taxes separately from the owners. Large corporations have reporting responsibilities, such as SEC filings, that most small businesses do not.Their are certain shareholders in the large companies who have voting rights which affect decision making process.
• Financing Needs.Small companies raise funds by their personal investments,small business loans from banks,gifts or loans from close friends or family members. Big companies raise funds through venture capital financing,big loans from banks, launching IPO, selling stocks, corporate bonds etc.
• Niche Market. A small company may concentrate only on small niche market as they have limited products to offer to limited set of customers.A large companies have wide variety of products to offer to large set of customers and capture a huge market share.They may open new branches in different cities or countries thus expanding their operations.