3.2 - Managing - Management Decision Making Flashcards
How are most decisions made in business and how are the most important decisions made?
MOST-based on hard, numerical data, therefore scientific
IMPORTANT-intuitive (combination of experience and feel for future)
What are tactical decisions?
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
What are operational decisions?
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
What are strategic decisions? What would happen if a leader/manager ever got it wrong?
- 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
What is scientific decision making?
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
What are decisions made with consideration of and what are the 5 influences on decision making?
All decisions made with consideration of risk, reward and uncertainty
Influences:
- mission
- objectives
- ethics
- external environment including competition
- resource constraints
What does the square, lines and circles in a decision tree represent?
Decision to be made
Possible choices/expected outcomes
Outcomes as a result of choice / chance
What must the probability of all outcomes add to in decision trees?
1
What does the expected value (EV) show in decision trees? How is it calculated?
The weighted average of a given choice
To get this:
Multiply probability of each outcome and add them together (of the separate choices)
How do you calculate the net gain in decision trees?
Expected value - initial cost of given choice/costs of making it
When are decision trees used successfully? Why should they be considered when discussing important concepts of business?
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)
What are the 5 advantages and 4 disadvantages of decision trees?
+ 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
What is opportunity cost?
What are the PERSONAL opportunity costs in developing a business idea?
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)
What factors influence decisions (4)?
Estimating potential sales
Is the time right?
Suitable skills
Cash requirements
What are the 4 possible trade-offs for a new business?
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
What are stakeholders? List some internal and external stakeholder groups
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
What is stakeholder mapping?
Way of analysing key stakeholders for a specific business
Use a matrix to measure stakeholder power against interest
Why might some suppliers, for instance a strawberry farm, not have a lot of power?
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
What are the 4 advantages and 2 disadvantages of stakeholder mapping?
+ 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
Give an example of a stakeholder with high interest and high power
Major shareholders
Eg/ banks and investors
What are the 3 key influences on the relationship with stakeholders?
Personal conviction of owners
Financial pressure
Labour market
What does the extent to which stakeholder mapping help managers to manage change more effectively depend on?
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
Give an example of a business who has had to change/develop marketing objectives because of external pressures
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
What is management?
Means organising and galvanising staff to implement strategies needed to achieve the objectives
