208-Decision making models Flashcards
(23 cards)
What are strategic decisions?
long-term and will affect the direction the business takes. These decisions will affect the entire business and will be made by the owners or senior management
What are operational decisions?
The day-to-day decisions made in a business. Lower level decisions and tend to be short-term and have little risk. Do not need to be as careful thought and planning that strategic and tactical decisions. Many decisions on this level are routine and can be taken fairly quickly.
What are tactical decisions?
usually carried out by middle management. tend to be short to medium term. Also tend to be more flexible - if it is failing to meet its objectives then it can be changed.
Explain the importance of decision-making to a business
-Can solve problems for a business
-No certainty it will lead to the best outcome
-some external factors that cannot be controlled will affect the success
What is cost benefit analysis?
Private costs and benefits as well as public costs and benefits
What does the upper right section of the node mean for CPA?
Earliest start time
what does the bottoms left part of the node mean for CPA?
Latest finish time
Science vs intuition
Decision making cab be broadly categorised into two different approaches - scientific and intuitive. Scientific decision making involves the use of facts and data in a systematic way in order to arrive at a logical and evidence based decision
Benefits of using decision trees
(+) Clearly lay out the problem so that all options can be considered
(+) Allow managers to analyse fully the possible consequences and risks of a decision
(+) Provide a framework to quantify the values of outcomes and the probabilities of achieving them.
Drawbacks of using decision trees
(-) Use probabilities which only gives an estimate, these may be inaccurate
(-) Can oversimplify a decision and focus too much on the financial outcome
(-) Don’t include other factors such as manpower considerations, managers’ opinions and marketing issues
(-) Can be time consuming to construct and may be interpreted with bias.
What does the usefulness of decision trees depend on? (three things)
The predicted outcomes and estimates need to be based on valid data and research if they are to have any real quantitative value.
As with all decision-making methods, decision tree analysis should be used in conjunction with other types of decision-making, decision trees are just one important part of a business decision-making tool kit.
Qualitative factors will also have an influence on the decision made. In the example above, qualitative factors such as the effects of decisions on stakeholders e.g. workforce, management, suppliers and customers as well as training costs, recruitment, capacity management, marketing impact and so on, all need to be considered before a final decision is made.
What is CPA?
A method of planning and controlling large projects and is used to make decisions on the management of resources and time. Businesses carry out many tasks, some small and some large. These tasks or activities are inter-related (i.e. one task is dependent upon another previous task being completed). These tasks have to be carried in out in a certain order within a network, CPA enables a business to plan the activities involved in completing projects, so that the overall project is completed in the most efficient manner possible.
CPA is used to allocate resources within a project, judge how long a project should take to complete, and also to recognise those tasks or activities that take place within a project, that are critical to the project being completed on time.
What is a ‘critical task’?
A ‘critical task’ or activity is one that must be started and completed on time if the project is to be finished on time.
Advantages of using CPA (4)
(+)CPA is an effective management tool for planning and controlling complex projects. Critical activities can be identified. Forces managers to think about the process and supports a systematic approach to planning activities. Problems can be highlighted early so that whole projects are not delayed.
(+)Allows effective management of resources, allocating factors, such as labour, to where they are needed and can be most effective. Supports the transferring of resources for different tasks, if required.
(+)Can be used to give a business a competitive advantage by being more efficient and supports time-based management.
(+)Reduces the need for working capital, parts used in the project can be ordered exactly when they are needed. Allows the use of just-in-time production. ->Improves cash flow – as a result of reduced need for working capital. Also helps with cash flow forecasts.
Drawbacks of using CPA (5)
(-)Information can be distorted or poor methods of (over optimistic) estimation of activity times can be used. Lack of experience of those preparing CPA leads to inaccuracies.
(-)CPA can give the wrong results, or fail to allow for external factors that will influence the total time taken.
(-)Sub-contractors, who may be completing some of the activities on a project, can be outside the control of the project manager.
(-)Critical path analysis only identifies the critical activities; it does not ensure these are done on time. Close supervision may be needed which may reduce employee morale.
(-)Critical path analysis does not ensure quality – the focus is on time and meeting deadlines.
Advantages of CBA
(+) Takes into account a wide range of benefits and costs
(+) Impacts on society and the community are included
(+)Puts a value to external benefits and costs that would normally be ignored by private sector businesses
(+)Can be used to rank possible major projects in order of public cost.
4 Drawbacks/HIDO for CBA
(-)The valuation of intangibles will be difficult – how do you put a value on the effect of pollution or the improve traffic flow of a new road?
(-)Valuations will often include value judgements – one person’s or manager’s calculation of an intangible benefit is likely to differ from another person’s calculation, who has a different set of views on what is important for a business
(-) If the social costs and benefits are incorrectly calculated then the wrong choice may be made
(-) Will all stakeholders be included in the calculation of social costs and benefits?
Explain the role played by information technology in business decision making
Computer technology can be used by businesses to make many day-to-day decisions. Decisions on when to order new stock, how to manage deliveries, or on staffing levels can be calculated and implemented by IT systems. Information systems can collect inputs from a number of sources, organise the data then distribute the data to make the most efficient decisions.
For example IT systems in an ice-cream factory can monitor sales in supermarkets through Electronic Point of Sale (EPOS) systems, take in forecast future sales and weather data, and from this determine levels of production, rota staff shifts and arrange delivery schedules.
Explain the role played by information technology in business decision making
-Management information systems
Management information systems (MIS) provide managers with information to make tactical and strategic decisions. MIS continuously collects and processes data and makes it available for managers to use in their decision-making.
Explain the role played by information technology in business decision making
-Smart IT systems
Smart IT systems look to improve decision-making through the use of internal and external data. Decision-making models such as decision trees and critical path analysis can be carried out by computer models which save time and help accuracy.
Explain the role played by information technology in business decision making
-Data processing technology
helps businesses deal with huge quantities of information in a quick and efficient way and speed up decision-making. Expert systems and artificial intelligence allow computers to imitate human thinking
which considers reasoning to give evidence based conclusions.
Explain the role played by information technology in business decision making
-Financial information systems
Financial information systems allow the analysis of financial and accounting data. These systems can produce reports on cash flow and income statements and will support the financial management of the business. Features of financial information systems include collecting and storing all payments and receivables, monitoring income and expenditure and balance sheets, keeping all records up to date, highlighting any deviation from budgets and reducing paperwork.
Explain the role played by information technology in business decision making
-Technology
Technology is continuously improving and adapting to aid businesses in decision-making. Although the cost of these systems are an expensive outlay many businesses are prepared to pay the cost in the short term due to the long term benefits of having efficient information and management systems that improves the control and processing of data in order to make effective decisions.