3.2 - Managing - Management Decision Making

Question 1

How are most decisions made in business and how are the most important decisions made?

Answer 1

MOST-based on hard, numerical data, therefore scientific

IMPORTANT-intuitive (combination of experience and feel for future)

Question 2

What are tactical decisions?

Answer 2

Immediate/short term

Help to implement strategy

Made using numerical data/computers

Usually made by middle management

Eg/ managers would want research data on likely customer numbers to help them decide if opening hours should be extended

Question 3

What are operational decisions?

Answer 3

Relate to day to day running of business

Routine decisions made by middle or junior managers)

Eg/ stock and sales data shown when business needs more supplies

Question 4

What are strategic decisions? What would happen if a leader/manager ever got it wrong?

Answer 4

• Long term in their impact, affecting shape and direction of whole business
• Made by senior managers

Eg/ longer term forecasts of business turnover set against likely market conditions will help to determine if it should close the café business

If incorrect=very costly

Question 5

What is scientific decision making?

Answer 5

Idea of measuring business variables so you can predict and control them

Scientific management tries to take art out of business decision making - replacing intuition with facts and quantitative forecasts

Question 6

What are decisions made with consideration of and what are the 5 influences on decision making?

Answer 6

All decisions made with consideration of risk, reward and uncertainty

Influences:

• mission
• objectives
• ethics
• external environment including competition
• resource constraints

Question 7

What does the square, lines and circles in a decision tree represent?

Answer 7

Decision to be made

Possible choices/expected outcomes

Outcomes as a result of choice / chance

Question 8

What must the probability of all outcomes add to in decision trees?

Answer 8

1

Question 9

What does the expected value (EV) show in decision trees? How is it calculated?

Answer 9

The weighted average of a given choice

To get this:
Multiply probability of each outcome and add them together (of the separate choices)

Question 10

How do you calculate the net gain in decision trees?

Answer 10

Expected value - initial cost of given choice/costs of making it

Question 11

When are decision trees used successfully? Why should they be considered when discussing important concepts of business?

Answer 11

Choices, opportunity cost, probability and risk, costs and returns, net gains, expected outcomes and forecasting you could consider:

• gets managers to think through their options, probability of different outcomes and financial consequences
• extent to which financial consequences of an outcome can be accurately estimated and whether outcomes are best measured in financial terms
• issues could be considered in decision making (eg/raising initial finance, impact of ethics and impact on stakeholders)

Question 12

What are the 5 advantages and 4 disadvantages of decision trees?

Answer 12

+ Allow for uncertainty (includes chance of failure)
+ Make managers consider all possible alternative outcomes
+ Set out problems clearly and encourage logical order
+ Encourage quantitative approach
+ Most useful when similar scenarios have occurred before so good estimates of probabilities and predicted actual values exist

• All quantitative methods can be biased, relatively easy for manger seeking to prove a case to manipulate data
• May be difficult to get meaningful data especially for estimates and probabilities
• Don’t take into account variability of business environment
• May divert managers from need to take into account qualitative data as well as quantitative decisions

Question 13

What is opportunity cost?

What are the PERSONAL opportunity costs in developing a business idea?

Answer 13

Cost of missing out on next best alternative when making a decision

Missing out on regular salary/income
Benefits lost from investment spending (putting money into something else or in bank instead)

Question 14

What factors influence decisions (4)?

Answer 14

Estimating potential sales

Is the time right?

Suitable skills

Cash requirements

Question 15

What are the 4 possible trade-offs for a new business?

Answer 15

Help from friend vs lack of potential professionalism

Starting business vs uni / travel / employment

Activities you enjoy vs aspects of business that prove most profitable

Time today vs time tomorrow

Question 16

What are stakeholders? List some internal and external stakeholder groups

Answer 16

Individual or group that has effect on and is affected by activities of an organisation

• have important impact on decision making
• Managers must consider stakeholders when making decisions

INTERNAL
Employees
Managers
Owners

EXTERNAL
Customers 
Government 
Suppliers  
Creditors 
Shareholders

Question 17

What is stakeholder mapping?

Answer 17

Way of analysing key stakeholders for a specific business

Use a matrix to measure stakeholder power against interest

Question 18

Why might some suppliers, for instance a strawberry farm, not have a lot of power?

Answer 18

There’s lots of strawberry farms / other possible suppliers

Instead -usually a company will work their hardest to stay in constant communication with high power, high interest stakeholders

Question 19

What are the 4 advantages and 2 disadvantages of stakeholder mapping?

Answer 19

+ Helps managers set priorities when decision making
+ May make decision more efficient&save time
+ May improve motivation&productivity (feel like they’ve been involved if asked about particular decision)
+ Identifies stakeholders with most power

• not all stakeholders interests can be met at same time
• managed may focus on those with most power rather than considering everyone equally

Question 20

Give an example of a stakeholder with high interest and high power

Answer 20

Major shareholders

Eg/ banks and investors

Question 21

What are the 3 key influences on the relationship with stakeholders?

Answer 21

Personal conviction of owners

Financial pressure

Labour market

Question 22

What does the extent to which stakeholder mapping help managers to manage change more effectively depend on?

Answer 22

How stakeholder mapping is used

• may identify position of different groups but managers still have to manage the change
• may help identify the relative power and interest of groups, therefore how managers may want to respond to them but right actions still have to be chosen and implemented effectively
• most likely to be supported by stake holder with most power or influence
• extent to which stakeholder groups share common interests, conflict may arise

OVERALL can help categorise where groups are and focus thinking on what to do with different groups but this doesn’t ensure change is actually managed effectively

Question 23

Give an example of a business who has had to change/develop marketing objectives because of external pressures

Answer 23

NIKE

Poor factory conditions-American consumers didn’t want to buy products made in abusive conditions

Nike eventually set up extensive and expensive system for monitoring factory conditions in its supply chain and now makes inspection reports public from contract factories

Nike campaign transformed the debate about who’s responsible and how to make improvements for workers in factories

Question 24

What is management?

Answer 24

Means organising and galvanising staff to implement strategies needed to achieve the objectives

Question 25

What is leadership? What is a leadership style? What can they be categorised into?

Answer 25

Means taking initiative to set clear objectives, motivate or guide staff towards their achievement

Way in which managers and leaders deal with employees

Autocratic
Democratic
Paternalistic

Question 26

What’s a manager, how do they make decisions and what 5 things do they do?

Answer 26

A person who has control or direction of an institution, business etc or part or division of it

Decisions based on logical reasoning and data can be analysed using decision making cycle-have to be made for common good of organisation-3 types are strategic, tactical and operational decisions

They:

• set objectives (clear ideas of what to achieve)
• analyse (performance of staff etc)
• lead (inspiring commitment to achieving goals
• effective control and direction)
• make decisions (delegate) and review (decisions and success)