3.2.2 Flashcards
management and decision making
what is scientific decision making?
a method of making a decision based on evidence and quantitative data
what are the pros of scientific decision making?
- evidence based
- supported decisions so that the final choice could be justified to those higher up in the hierarchy
what are the cons to scientific decision making?
- reduces creativity in a business and slows down the decision making process
- data could be wrong, out of date or biased
how can scientific decision making influence a decision?
reduces the risk of making mistakes as decisions are based on data
what is the value of decision making based on data?
you have evidence from that past that this policy or idea is likely to work
what is intuitive decision making?
carried out using feelings, opinions, thoughts, hunches and qualitative information
what are the pros to intuitive decision making?
- allows for very creative solutions to problems
- helps a business to make quick decisions potentially giving them an advantage
what are the cons of intuitive decision making?
- decision may be just a “bad” or completely wrong
- the decision may be subject to the bias of the decision maker
what is the value of decision making based on intuition?
takes little or no processing time, allowing us to make decisions and judgements quickly
what is a decision making tree?
provides business with probabilities and estimates in a diagram model to help managers make informed decisions
what is the use and value of decision trees in decision making
- gets managers to think through their options
- the probability of different outcomes
- the financial consequences
when making a decision what do business have to consider?
- their mission statement
- ethics
- aims and objectives
- PESTLE factors (political, economical, social, technological, legal, environmental)
- competition
- resource constraints
what are the pros of decision trees?
- aligned to numerical values meaning easily processed and compared
- helps identify risks
- provides a visual means of showing the impact of decisions
what are the cons of decision trees
- time consuming
- heavily reliant on accurate data
- data can be obsolete due to dynamic markets
- risk of bias
- does not consider qualitative factors
how to calculate financial data (decision tree)
the estimated financial effect x probability
what does net gain mean?
the value to be gained from taking a decision
how to calculate net gains
add expected value of each outcome - costs associated with decision
what does expected value mean?
the financial value of an outcome
how to calculate expected value
(probability success x payoff) + (probability failure x payoff)
what is market capitalisation?
total market value of a companies shares and stock
what does entrepreneur mean?
a person who is prepared to take a business risk in return for a reward
what are the risks of decision making?
may risk losing out to competitors
what are some examples of risks?
- weather, natural disasters
- being too slow to respond to changing consumer trends and tastes
- deciding not to maintain equipment in manufacturing leading to break-downs and loss of production
- deciding to pay suppliers later than usual
what are the rewards in decision making?
a benefit gained as a result of good decision making
