Scenario: A LPGA coordinator decided to cut off some of her staff because she is convinced that there are no good workers in the field (this will save the business from bankruptcy). Therefore, she decided to do a gamble and have only volunteers and interns to take the job of four assistants.
With game theory as the theoretical standard, the scenario can be viewed in two scenes. If the workers in the field are, by standard, inefficient, then it is necessary for the coordinator to do either of the following: 1) to replace the staff with people who are much efficient, or 2) to delegate the work to the volunteers and interns. Replacing the staff with people who are “assumed” to be efficient is very costly to the business, precisely because labor turnovers necessitates increased expenditures on advertisement and lofty transactions with the labor agencies. However, once the people hired proved to be efficient, then the business might be able to escape from bankruptcy. Altogether this option is clearly costly and has a high level of uncertainty. This option is moderately risky. The first option however has sub-options. The coordinator may hire a lower number of individuals who are proven to be very efficient in their former work (similar or related field). This hiring should be supplemented by a higher incentive (income) which will stimulate increased productivity among the workers.
This first sub-option will in the long-run increase the productivity and efficiency of the workers, and consequently the business. Cost are much lower than the first option since only few individuals are hired, hence less expenditure on advertising and indirect transactions with labor agencies. Short-run benefits are also high. This option is also moderately risky. The second sub-option is: the coordinator may hire a lower number of individuals to do the work of the workers laid-off. This option is not good business decision since this will not stimulate increased productivity. Both in the short and long run, return to investment is in the same level of the given scenario. This option is very risky. The second general option is good in the short-run. It will enable the business to recover partially since the wages of the workers are transformed into fluid capital. However because of lack of incentives to the volunteers and interns, the chance of an increase in productivity is remote. Hence, the probability that the business will stay in two or five years will be about .40, since the amount of labor spent does not equate the amount of benefits. In the long-run, the business will have a slim chance of recruiting volunteers and interns. Thus, this option is very risky for the business.
Clearly, the option chosen by the coordinator in due time will be magnified on the recruitment level of the business. Because the option was very risky, this will financially handicap the business in the future, since the fluid capital of the business is not utilized by an efficient labor. As had been said earlier, there is a slim chance for the volunteers and interns to increase their level of productivity given the absence of any incentive. The risk taking propensity of the coordinator clearly lacked proper evaluation of other options, albeit the unprecedented condition of his business. Thus, her decision to lay-off her staff and replace it with volunteers and interns will not help her business. It will gradually take her business into a financial disaster albeit the lack of qualified laborers. Added to that, her assumption that there were no good workers in her business is a misguided one. An assumption is built on a pyramid of well-organized facts and arguments, with a clear set of standard. Anyone who is in the position of the coordinator, ceteris paribus, will experience the same results if the latter option is chosen (Kamalanabhan and Sunder, 2007). Unless other variables are examined, not just the composition of the staff, such will be the result. Simply put, the coordinator must view all the options available and assess them via a standard.