2 - Management Decision Making

Question 1

Describe Scientific Decision Making
(3 Points)

Answer 1

~ Using data to aid decision making.

~ Supported by quantifiable evidence.

~ Involves a logical series of steps ->

Question 2

What Are The Benefits Of Scientific Decision Making?
(3 Points)

Answer 2

~ Encourages a logical thought process -> sensible way to tackle a decision.

~ Based on data -> reducing the risk of failure and wastage.

~ Review check -> constantly reviewing set objectives -> keeping aligned with scheme of the business.

Question 3

What Are The Drawbacks Of Scientific Decision Making?
(3 Points)

Answer 3

~ Slower -> vs intuition.

~ Expensive -> involves more time and labour.

~ Assumes the source of the data correct.

Question 4

Describe Intuitive Decision Making

Answer 4

Using a gut feeling to make a decision.

Question 5

What Are The Benefits Of Intuitive Decision Making?
(3 Points)

Answer 5

~ Quicker process -> E.g. Business is crisis.

~ Involves an experienced manager -> make effective decisions.

~ Encourages innovation and creativity.

Question 6

What Are The Drawbacks Of Intuitive Decision Making?
(2 Points)

Answer 6

~ Increased risk -> not based on any data or logical thought process -> harder to justify.

~ Reliant on expertise and experience.

Question 7

What Does Every Decision Have?
(3 Points)

Answer 7

~ Risks and rewards attached.

~ Uncertainty.

~ Opportunity cost.

Question 8

What Is Risk?
(2 Points)

Answer 8

~ When you can predict the chance of an outcome in the future.

~ Is measurable and can be managed.

Question 9

What Is Uncertainty?
(2 Points)

Answer 9

~ When you cannot predict the chance of an outcome in the future.

~ Unpredictable, unmanageable and unmeasurable.

Question 10

What Are Decision Trees?
(3 Points)

Answer 10

~ Tool to help a business make a decisions.

~ A mathematical model based on logic and probability.

~ Inputs Are -> Cost of decision, probability of success and monetary outcome.

Question 11

What Are Features Of A Decision Tree & What Do They Represent?
(2 Points)

Answer 11

~ Decision Node (Square) -> Represents the decision.

~ Chance Node (Circle) -> Represents the course of action.

Question 12

How To You Calculate Decision Trees?

Answer 12

~ Step 1 -> Calculate the expected value (EV).

~ Step 2 -> Calculate the next gain (NG).

Question 13

How Do You Calculate The EV Of A Decision Tree?
(2 Points)

Answer 13

~ Financial Outcome x Probability.

~ Add the results together.

Question 14

How Do You Calculate The NG Of A Decision Tree?

Answer 14

Expected Value - Costs.

Question 15

What Are The Benefits Of Using Decision Trees?
(3 Points)

Answer 15

~ Logical approach -> using quantitative data.

~ Justifiable to stakeholders.

~ Includes the risks and costs of each action.

Question 16

What Are The Drawbacks Of Using Decision Trees?
(3 Points)

Answer 16

~ Doesn’t account for qualitative data -> the impact on stakeholders and trade offs.

~ Does not consider external influences.

~ Relies heavily on estimates -> whole thing can be wrong if these are wrong.

Question 17

What Are The Influences On Decisions?

Answer 17

~ Mission.

~ Objectives and ethics.

~ Resources constraints.

~ External environment. E.g. Competition.