2 - Decision making Flashcards
What are 7 decision making tools
- SWOT
- Qualitative forecasting
- PEST
- Porters 5 forces
- Decision trees
- Quantitative forecasting
- Ansoff matrix
What is the porters 5 forces model/framework
A tool for analysing competition of a business
How does the porters 5 forces model work
By examining 5 forces that determine the competitive intensity of an industry, and therefor its profitability and attractiveness to enter/remain in a market
What are the 5 forces in porters 5 forces framework
- Threat of new entrants
- Threat of substitutes
- Bargaining power of buyers
- Bargaining power of suppliers
- Degree of rivalry
What are some criticisms of porters 5 forces framework
- It assumes a classical perfect market (static and simple)
- Doesn’t take account to external factors
What is meant by an opportunity cost
The benefit lost when an alternative is chosen
What is meant by a contingency plan
A back up plan, devised for an unexpected outcome of original business plan
What may a contingency plan include
- Identifying what may go wrong and how
- Understanding impacts of this
- Devising plans to cope with this
- Putting in place strategies to stop this from happening
What is forecasting
Using existing data to predict future trends
What is meant by qualitative forecasting
Using experience and opinions to predict future trends
What are example of qualitative forecasting
- Delphi technique
- Brainstorming
- Consumer opinion/expectation(market research)
- Leading academic opinions
- Staff opinions
What is meant by the Delphi technique for qualitative forecasting
Gaining an expert opinion
What is meant by brainstorming as a method of qualitative forecasting
Using a team of experts
What is time series analysis
Calculates the average over a period of time
What does raw data do in a time series analysis
Looks at trends over time
What does cyclic variations do in a time series analysis
Looks at economic booms and downturns
What is meant by seasonal variations in a time series analysis
Takes into account seasonal factors (eg hotels)
What is meant by random fluctuations in a time series analysis
Unexpected changes in trends
How to calculate a 3 year period total in a time series analysis
Add year before, current year and next year
What is a 3 year moving average
3 year period total/3
What is the cyclical variation
The difference between that years value and it’s 3 year moving average
Benefits of forecasting
- See trends + patterns
- Secure finance
- Preparation (contingency plan)
Limitations of forecasting
- Only as reliable as data used
- Uses assumptions
- Doesn’t account to external factors
What is a decision tree
A tool used to support/ make decision, showing their possible consequences including chance event outcomes
What does a decision tree use to calculate likely outcomes
Estimates and probabilities
How to work out total expected value in a decision tree
(High sales x probability) + (low sales x probability)
How to calculate net gain in a decision tree
Total expected value - cost
Benefits of decision tree
- Considers different options
- Risk can be assessed
Drawbacks of decision tree
- Use assumptions of probabilities and estimates
- Ignores qualitative information
What does SWOT stand for
Strengths
Weaknesses
Opportunities
Threats
What does SWOT allow you to do
Analyse and evaluate factors
Drawback of SWOT
Ignores qualitative
What is an ansoff matrix
A model that helps a business determine its product and market growth strategy
Advantages of using ansoff matrix
- Can consider both product and market growth
- Shows opportunity costs
Disadvantages of ansoff matrix
- Theoretical
- No qualitative info
Draw an ansoff matrix
Products along the top
Market along the side
Existing, new
What are PEST factors
Political
Economic
Social
Technological
How is PEST used as a decision making tool
Consider these factors before a decision
