Decision making in the evaluation of projects of network services

1.  Introduction

The executives and professional staff of all telecommunication operators, and that of all other types of companies, are constantly faced with situations in which they must take different types of decisions, such as whether to incorporate new services to offer their customers, which investment alternatives to select, how to price services, etc. In taking such decisions, they must first gain a full understanding of the environment in which the decision is to be taken so that the most appropriate course is chosen, with the aim of ensuring the success of the company.

Decision-making is one of the most important aspects of managing and administering companies of all types. Decisions taken by executives at the different organizational levels may determine company success or failure. Examples abound of bad managerial decisions from which company failure or loss of market leadership ensued.

Decisions taken within companies each day may involve a wide array of business-related topics. However, those that nearly always have a highly important part to play are those involving all aspects of the provision of services, existing or new, and the investments required to provide them. Services are significant as they are what customers contract for and receive, and are the source of company revenue. On the other hand, investments are usually a major element of company expenditure and funds must be available in the amount and at the time required.

2.  Information needed in decision-making

Some of the types of information needed in deciding the services to be provided and investments to be made are:

• All aspects related to the market in which the company participates, such as its needs, services offered, competitors’ market positions, prices and quality of services offered, etc.
   

• The available network technologies and structures that make it possible to support the provision of services needed, and trends and advances anticipated in the coming years.
   

• All such investments as may be required to ensure proper delivery of the services provided or to be provided by the company on the preestablished terms and conditions, in their different alternatives, and all costs such services will involve.
   

• The anticipated level of revenue for each service considered.

Suppose that a telecommunication operator must decide whether to add a new service to those now offered: a new messaging service for its cell phone customers. To take this decision, it would need, inter alia, the following information:

• Estimated demand for the new service as a function of its characteristics and price. For such estimates, a customer survey could be made. Based on the projected demand for and price of the service, the revenue flow may be estimated for a given period, generally five to 10 years. In estimating such demand, account must also be taken of the situation of the competition.
   

• Characteristics of pieces of equipment that may potentially be provided by the required messaging service, identifying the advantages and disadvantages of each. In addition to this, the operator needs to know the investment required for each alternative, as well as its associated operating costs when the investment has been made and the service is being provided. Such information will yield the amount of investment required in each case, as well as some of the costs to be incurred in subsequent years.
   

• The estimated total expenditure flow in the period under study for each alternative. Some of the information to be utilized in making this estimate may be derived from the information in the paragraph above, and the rest from analyzing which administrative, marketing, etc. resources must be included to market the service.
   

• Using the flows of investment, expenditure and revenue, the flow of funds of each alternative may be estimated and certain economic indicators may be calculated in order to evaluate each alternative.

Available information may generally be divided into what is quantifiable, such as the direct costs of service provision (remuneration of employees who operate equipment, required investment, etc.) and what is very difficult to quantify, such as the potential impact of a reduction in quality of a service offered. The pertinence of the different types of information will vary with the type of decision to be taken.

The information that can be obtained is usually far from complete and partially inaccurate, thereby complicating the choice of course to be pursued. In general, company-related decisions will have to be taken in a context of some uncertainty.

However, all information, particularly that mentioned above, may always be improved to some extent, and the person or persons who will take the decisions are those who will have to decide whether the information they have to determine the actions to be taken is sufficient or whether they must request better or further information. Suppose they would like additional information regarding the potential demand for a particular service. To obtain this, a market study would have to be contracted, which would of course include a survey regarding the service to be implemented. Improving the available information will normally involve additional cost, which must also be taken into account.

As mentioned above, decisions must be taken each day and at different junctures within the company. Such junctures may include the time when the strategy the company is to pursue is decided, when services to be offered on the market are planned and designed, during the ongoing process of improving the efficiency of existing service delivery, or during any other task performed within the company.

We must never forget that both the quantity and quality of information that may be required in decision-making will always be directly related to its cost and the time required to obtain it.

Aldo Castaña
Engineering and technology University
Catholic University of Uruguay