The following scenario looks at how escalation occurs when making a decision.
Chip Davis has been running his car dealership business successfully for five years. This year, he started to suffer losses because some of his customers have defaulted on their payments. At the end of the third quarter of the year, the defaulters have increased and the losses have intensified so much that he decides to do something about it.
A consultant suggests that he offer a 5% discount for immediate payment, but Davis is not sure if that will solve the problem. He also wonders how much this discount will cost him in the end.
Davis’ friend suggests to him that the offered discounts would be a bad idea because he knows of another business setup that used the discount policy, which ended in disaster. The company lost 5% of its revenue on those who would have paid promptly anyway, and those who did not intend to pay on time simply did not pay. This friend suggests decreasing the monthly installment but increasing the number of installments.
Davis also consulted his uncle, who has run several successful businesses, on this matter; the uncle suggests offering a 5% discount upfront on advance payments and this would give customers more incentive to pay. In addition, he suggests adding a penalty on defaulters who are behind on their payments by more than 30 days. If the defaulters do not pay within an additional 30 days, they could then be referred to a collection agency.
Based on the above scenario, provide your analysis in the following areas:
- A critical analysis of the advice given by the consultant, Davis’ friend, and Davis’ uncle. Of the three, which one can assist Davis with his decision on how to collect the payments? Why?
- An explanation of the relevant aspects of the advice given by the consultant, Davis’ friend, and Davis’ uncle.
- An evaluation of the judgments, assumptions, pros, and cons for each piece of advice.
- An assessment of the type of bias that applies to this scenario.
- Propose at least two alternatives for Davis, with clear descriptions of their relative advantages as well as disadvantages.
- An explanation of the impact of emotions—in terms of helping or hindering the ability to make rational decisions—while making a decision.
- An analysis of at least two factors each that should be most important to Davis’ for making a decision.