3.2.2 Understanding management decision making.

Question 1

What does scientific decision making involve?

Answer 1

Involves using a systematic process for making decisions in an objective manner.

Question 2

What does scientific decision making eliminate?

Answer 2

The practice of decisions being made on the basis of intuition and bias, ensuring decisions are based on well researched, factual evidence.

Question 3

What does scientific decision making eliminate?

Answer 3

The risk factor of a decision, as it is based on hard evidence, allowing for actions to be reviewed and the most effective course of action to be decided.

Question 4

What are the criticisms of scientific decision making?

Answer 4

Does not mean that decisions made will always be the right ones.

Slow process that lacks creativity - may fail to lead innovative and different approaches.

Question 5

Outline the process of decision making.

Answer 5

Setting Objectives.
Gathering data.
Analysing data.
Select a strategy,
Implement and review the decision.

Question 6

Outline the benefits of using a scientific approach to decision making.

Answer 6

Provides a clear sense of direction. By emphasising the need to set objectives, it ensures others involvement in the decision making are aiming for the same goal.

Decision based on business logic - comparisons between pros and cons.

Likely that more than one person is involved in the process - less bias.

Ensures decisions are monitored and continually reviewed. Will limit problems impact - as they can be identified quickly.

Flexible - at any stage it can be reviewed and changed if the circumstances require.

All decisions are based on rational thinking - overall success is more probable.

Question 7

Outline what is meant by decision making based on intuition.

Answer 7

Involves individuals making decisions on the basis of a ‘hunch’, feeling or instinct. More likely to be used by small businesses that are owned by a single individual or small group.

Question 8

When is decision making based on intuition appropriate?

Answer 8

If an individual or group has a great deal of experience or expertise. This may lead to more creative and innovative decision making.

Question 9

What is a criticism of decision making based on intuition?

Answer 9

Such decisions are not always informed by evidence and will often involve a level of, mostly unintended, bias and subjectivity, leading to inappropriate or ill-judged outcomes.

Question 10

What is the benefits of decision making based on intuition?

Answer 10

A scientific approach requires a large collection of data and regular gathering of information to control and review decision - expensive and hard to justify if very little risk is involved.

Following a scientific approach - time consuming - constant monitoring means decisions may be delayed.

Data collected in a scientific approach may be flawed - information may be dated or the original sampling may have a bias.

Scientific - based on past information.

Question 11

Outline factors to consider when choosing between scientific and intuition based decision making.

Answer 11

Speed of the decision.

Information available.

Size of the business.

Predictability of the situation.

Character of the person or culture of the company.

Question 12

Outline what is meant by a rewards.

Answer 12

Business decisions are usually taken in the expectation of some form of reward or benefit for the business.

Question 13

Outline what is meant by uncertainty.

Answer 13

Just because a particular project is risky does not mean that a decision to pursue it should not be made. The risks involved may also mean greater potential rewards are available. Careful analysis of the balance of risks and rewards should be carried out and any areas of uncertainty should be fully explored.

Question 14

Outline what is meant by opportunity cost.

Answer 14

The real cost of a decision in terms of the next best alternative. Every decision has an opportunity cost. Basically the ‘real cost’ of taking a particular action or the next best alternative foregone i.e. the next best thing that you could’ve chosen but did not.

Question 15

Define what a decision tree is.

Answer 15

A model or tool to assist businesses in their decision making processes. DT analysis is usually applied to problems where numerical data are available and for which the probability of different consequences and the financial outcomes of decisions can be estimated.

Question 16

When are decision tree’s most effective?

Answer 16

Argued it is when a quantitative approach is taken - the outcome of the decisions are expressed as numbers.

Question 17

What questions must we consider when evaluating a decision tree?

Answer 17

How reliable are the figures used?
What market research has been done and how effective is this?
Are there other non-quantifiable factors that might affect the decision?

Question 18

What do decision trees allow for?

Answer 18

Provides a pictorial approach to decision making - diagram used resembles the branches of a tree. Mapping out the different options available and the outcomes. Can determine the best option for a business to select.

Question 19

What are the advantages of decision tree’s?

Answer 19

Provides an effective structure within which to set out the options available and to investigate the possible outcomes.

Take into account uncertainty and risk - tries to quantify these by estimating the probability of a particular outcome occurring.

By highlighting the issue of uncertainty - emphasise that every decision can result in a range of possible outcomes - encourages managers to make more carefully considered decisions.

Question 20

What are the limitations of decision tree’s?

Answer 20

Caution must be taken when considering the information used e.g. the data could be biased.

Least useful when decisions do not involve clear-cut alternatives, when there are many individuals in the process, hen completely new or one-off situations exist.

In the last two instances, it would be almost impossible to estimate in any realistic or reliable way the probability of a particular outcome occurring.

Because of these disadvantages, they should only be part of the decision making process. Other non quantitative factors should be taken into account before a final decision is made.

Question 21

Outline the influences on decision making.

Answer 21

Mission.

Objectives.

Ethics.

The external environment including competition.

Resource constraints.

Question 22

Outline resource constraints.

Answer 22

Includes financial, human and physical resources.

Financial: If company is unable to generate sufficient resources, this will affect decision making.

Human resources: Whether sufficiently trained employees are available within a company or whether there is a sufficient number of qualified and skilled people interested in the job.

Physical resources: if a business is considering expansion etc, much of the area will depend on the availability of suitable sites at an affordable price.

Question 23

Define centralised decision making.

Answer 23

When most decisions are taken by the senior managers or head office.

Question 24

Outline the advantages of centralised decision making.

Answer 24

Easier to implement common policies and practices for the business as a whole.

Prevents other parts of the business from becoming too independent.

Easier to coordinate and control from the lack of centre.

Economies of scale and overhead savings easier to achieve.

Greater use of specialisation.

Quicker decision making (usually) - easier to show strong leadership.

Question 25

Outline the disadvantages of centralised decision making.

Answer 25

More bureaucratic - often extra layers in the hierarchy.

Lack of authority down the hierarchy may reduce manager motivation.

Customer service does not benefit from flexibility and speed in local decision-making.