3.2.2

Question 1

the decision making process

Answer 1

set objectives
gathering info
choosing the course of action
implementation
review

Question 2

gathering information

Answer 2

In order to make the most appropriate decision factors such as risk, reward and uncertainty will be taken into account.

Question 3

choosing the course of action

Answer 3

The process is key if decisions are to be made scientifically.
However, managers are just as likely to use their own experience and intuition.
A decision might be strategic or tactical.

Question 4

implementation

Answer 4

how leaders manage others to implement business decisions.

Question 5

review

Answer 5

A range of techniques might be used to evaluate
the success of a decision
or project. For example, financial ratios or the
Triple Bottom Line

Question 6

risk

Answer 6

the chance of an occurring misfortune or loss.
In business risk generally refers to financial loss.

Question 7

reward

Answer 7

generally translates into greater revenue and profit. Sometimes a risk might be worth taking if the reward is substantial. For example, the first to enter a new market or secure a patent on a new product.

Question 8

uncertainty

Answer 8

• very little is certain in
  business. Managers have to question the reliability of the information (scientific or hunches) that a decision is based upon.

Question 9

opportunity cost

Answer 9

the next best opportunity forfeited and
all things remaining equal. Managers must always make decisions to gain the best returns from the resources they have available.

Question 10

what is scientific decision making

Answer 10

Decisions based on data such as financial forecasts or using business tools such as break-even analysis or investment appraisal.

Question 11

what is intuition or ‘hunch’

Answer 11

Decisions based on experience and gut feeling’ without having supporting data.

Question 12

advantages of scientific decision making

Answer 12

Data can help reduce the risk in decision making and help identify the likely outcome.
Data can help compare alternative options.

Question 13

disadvantages of scientific decision making

Answer 13

Sometimes data can be hard to collect or very expensive to collect, especially for small businesses. Sometimes data is not available, out of date or unreliable.

Question 14

advantages of intuition

Answer 14

Intuition might come from the experience of the manager and this is useful when making qualitative decisions, such as the character of a new employee or the potential success of a new marketing campaign or brand name.

Question 15

disadvantages of intuition

Answer 15

Without evidence in the form of data decisions based on intuition can be high risk.

Question 16

what are decision trees

Answer 16

This is a model that represents the likely outcomes for a business of a number of courses of action showing the financial consequences of each

Question 17

benefits of decision trees

Answer 17

clarifies possible courses of action
adds financial data to decisions
makes managers account for risk.

Question 18

drawbacks of decision trees

Answer 18

probabilities are often estimated
does not consider qualitative information
does not take into account dynamic nature of business.

Question 19

influences on decision making

Answer 19

• the objectives and mission of the business
• ethics - using a ‘moral compass’ to guide decisions
• the level of risk involved - some managers and businesses are more risk adverse than others
• the external environment including competition
• most decision-making models do not take into account these factors that are constantly changing
• resource constraints - a business can only make decisions if they have the resources available (labour, capital, knowledge) and this is where opportunity cost comes in.