Question

There are two types of decision-making models, one is Compensatory choice models and Non-Compensatory choice model, provide some of the advantages and disadvantages of those various decision-making models. Also, describe a specific example of a situation requiring a decision, and explain which of the models would be best to use to make a decision and why.

Answer 1

While making a decision for choosing a particular project from the available options it is necessary to evaluate all the related and probable cash inflows and outflows related with the options.

There exists two kinds of models for making a particular decision. Also known as the choice models. Namely,

1. Compensatory model

2. Non-Compensatory model

The various advantages, disadvantages and the specific situations related to the models can be listed as under-

Compensatory model refers to the system or the model in which the short comings or the weakness of one project or the brand is covered or compensated by strengths of the other next available option. The attributes are aggregated to discover the favourability of the options towards the project or the brand. This method allows the approach under which the negative attributes of one option are balanced out by the positive attributes of the other option.

The advantage is that two or more options can be analysed and their best features can be used.

The disadvantage is that there is a probability that even the average options have a chance of being selected since their shortcomings get covered by another option.

Best use-

This method is apt in the situation where all the attributes or the parameters have to fulfilled and there exists no flexibility to adjust.

Where as the non-compensatory model on the other hand usually includes only three or four parameters that have to be used to assess the particular project/ brand or a product. If the product or brand or project passes the set criteria on the pre decided scale then it is approved or else otherwise it is rejected. The shortcomings or the weakness of any one scale or parameter is not compensated by a more favorable one.

The advantage is that it is more like a pass or fail situation. If the option does not satisfy the set standard it will be rejected. In such a case the standard of the entity remains set.

The disadvantage is that sometimes it becomes very difficult to assess and select just one particular option as one or more projects may do the work which a single project might not do.

Best use-

This method is apt where the budget is a constraint to be followed.