2 - Management Decision Making

Question 1

What Can Decisions Be Based On?
(2 Points)

Answer 1

~ Data.

~ Intuition.

Question 2

What Do All Decisions Have?
(2 Points)

Answer 2

~ An opportunity cost.

~ Carry risks and rewards as well as being based on uncertainty.

Question 3

Are Risks Measurable Or Unmeasurable?

Answer 3

Measurable.

Question 4

Are Uncertainties Measurable Or Unmeasurable?

Answer 4

Unmeasurable.

Question 5

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

Answer 5

~ Improved accuracy.

~ Competitive advantage.

~ Better resource allocation.

~ Supported by quantifiable evidence.

Question 6

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

Answer 6

~ May require expensive data.

~ Time consuming.

~ Quality of data provided.

~ Over-reliance on data.

Question 7

What Are The Benefits Of Intuition Decision Making?
(4 Points)

Answer 7

~ Quick decisions.

~ Encourages innovation.

~ Cheaper.

~ Enhances managers confidence.

Question 8

What Are The Drawbacks Of Intuition Decision Making?
(4 Points)

Answer 8

~ Risk of inaccuracy.

~ Can be hard to justify.

~ Relies on experience and expertise.

~ Leads to overconfidence and risky decisions.

Question 9

What Is A Decision Tree?
(2 Points)

Answer 9

~ Mathematical model based on logic and probability.

~ A way of presenting the alternative course of action available when making a decision.

Question 10

What Do Decision Trees Identify?
(5 Points)

Answer 10

~ When a decisions has to be made.

~ Costs associated with each option.

~ Possible outcomes and likelihood related to each choice.

~ Estimated financial result of each outcome.

~ Choices available.

Question 11

What Is A Decision Node?
(3 Points)

Answer 11

~ Square.

~ Used where a decision has to be made.

~ Highest financial outcome is shown in the box.

Question 12

What Is A Chance Node?
(2 Points)

Answer 12

~ Used where there are a number of possible outcomes.

~ Calculation worked out here to work out the expected value.

Question 13

How Do You Calculate A Decision Tree?
(3 Points)

Answer 13

~ Calculate from right to left.

~ Step 1 -> Calculate the expected value.

~ Step 2 -> Calculate the net gain.

Question 14

How Do You Calculate The Expected Value?
(2 Points)

Answer 14

~ Multiply the financial outcomes by the probability for each chance.

~ Add the results together.

Question 15

How Do You Calculate Net Gain?

Answer 15

Subtract the cost from the expected value.

Question 16

Where Do You Show The Expected Value?

Answer 16

In the chance nodes.

Question 17

Where Do You Show The Highest Net Gains?

Answer 17

In the decision nodes.

Question 18

What Are The Benefits Of Decision Trees?
(4 Points)

Answer 18

~ Clarity and simplicity.

~ Takes into account risks.

~ May raise alternative options.

~ Highlights the likelihood of each outcome.

Question 19

What Are The Drawbacks Of Decision Trees?
(4 Points)

Answer 19

~ Does not consider external influences.

~ May be out of date before a decisions is reached.

~ Relies heavily on estimates.

~ Estimates may be bias.

Question 20

What Are The Influences On Decision Making?
(5 Points)

Answer 20

~ Mission.

~ Objectives.

~ Ethics.

~ External environment including competition.

~ Resource contraints.