3.2.2 Management decision making Flashcards
4 what is opportunity cost
the benefit forgone for the next best alternative
4 what is scientific decision making
decision taken on the basis of analysis of data and evidence
4 what is big data
huge, often unstructured data sets that exceed the processing capacities of conventional data base systems
4 what is decision making
a specific commitment to an action
know what you are going to achieve
consider the next best alternative
commit resources to an action
uncertainty about outcome
4 what is a decision tree
a mathematical model to help managers make decisions
use estimates and probabilities to calculate outcomes
net gain is worth it, pictorial approach
4 how are decision trees helpful
quantify decision making
useful when outcomes are uncertain
place a numerical value on unlikely or potential outcomes
allows different courses to be taken
4 what is the expected value
financial outcomes from a specific course of action to allow for the probability of it occurring
4 what is net gains
expected value of a course of action minus cost associated with it
4 what is a square
decision
4 what is a circle
uncertain outcomes
4 how many options are there usually
choice 1 - most certain
choice 2 - alternative
choice 3 - do nothing
4 how do you get financial results
effect x probability
4 how do you get net gain
results - costs
4 what are the advantages of decision trees
useful for operational decision making
enables effective data use
probability allows flexibility
scientific analysis to decision making
encourage clear thinking
4 what are the disadvantages of decision trees
reliant on accuracy of data given
requires qualitative data to give complete picture
probability is only estimates
real time data problems
4 what is qualitative data
data in feedback, opinion format
4 what is quantitative data
numbers and statistics
5 what are the five steps of decision making?
setting objectives
gathering and interpreting information
selecting the chosen option
implementing decision
reviewing it
5 what is scientific decision making
anything based on data
5 advantages for scientific decision making?
remove bias as far as possible
reduce risk-based on well researched data
sets SMART targets
involves several people
doesn’t remove mistakes but limits impact
5 disadvantages for scientific decision making?
slow process
lack creativity
fail to lead innovative approach
data can be unreliable
can be costly
5 what is the marketing model?
example of how principles of scientific decision making can be applied to marketing decisions
applied in general to assist managers in planning and executing strategy
5 what are decisions made on intuition
made on a hunch, or gut feeling
5 what are the main forms of intuition decision
hunch
brain-storming
delphi-oracle technique
5 what is a hunch
a managers gut feeling, intuition can be based on experience or spotting solutions
5 what is brain-storming
a group of people with different specialisms making a team decision
5 what is delphi-oracle technique
asking an expert in a particular field to make a recommendation
5 why are intuition decisions good
used by small firms
experience allows this to be effective
quick decision making
more qualitative than quantitative
can be ill judged sometimes
5 advantages of intuition decisions
cheaper
saves time
data in scientific could be biased or old
managers can use experts
5 disadvantages of intuition decisions
no hard evidence
could be bias
lack of skills from manager
big decisions are risky
5 what other factors influence decision making
risks
rewards
uncertainty
opportunity cost
5 what is risks
all decision involve elements of risk and firms will have different views about how much risk they are willing to take
5 what are rewards
decisions are usually in expectation of increased market share/ revenue/ profit/ efficiency etc. scale of reward should be considered
5 what is uncertainty
not all information is present and there may be external factors that cannot predict the impact on the success
5 what is opportunity cost
the benefit forgone for the next best alternative
have to consider what you have forgone as a result, not always a financial cost
5 why is opportunity cost important
when resources are limited
make crucial decisions about where to spend money
take calculated risks and weigh up implications of it to decide what to do
5 what is a decision tree
mathematical model that help decisions
estimates probabilities
net gain is worthwhile
different outcomes displayed
5 advantages of decision trees
shows problem clearly and logically
full consideration
quantitative approach, computerised
risk and reward accounted for
used when similar scenarios occur
routine decisions, not strategic ones
5 disadvantages of decision trees
ignore change in business nature
difficult to get accurate due to real data
management bias can influence
less useful for new decisions
some subjective elements, not just data
focus too much on financial return
