3.2.2 - Understanding management decision making Flashcards
What is scientific decision making?
Logical decisions made on the basis of data that is analysed and tested.
What is intuition (hunch) decision making?
Decision making based on experience and past knowledge of business. This strategy can be very risky.
What is the main benefit of hunch decision making?
It is much quicker than scientific decision making.
What are the influences upon decision making in a business?
- Mission
- Objectives
- Ethics
- External environment
- Resource constraints.
What is risk?
The chance of incurring misfortune or loss.
What is uncertainty?
A situation in which there is a lack of knowledge and events, outcomes or consequences are unpredictable.
What is the opportunity cost?
The cost of the next best alternative foregone.
What is a decision tree?
A model that represents the likely outcomes for a business of a number of courses of action.
What are the benefits of decision trees?
-Choices are set out in a logical way
-Potential options & choices are considered at the same time
-Use of probabilities enables the “risk” of the options to be addressed
-Likely costs are considered as well as potential benefits
-Easy to understand & tangible results
What are the disadvantages of decision trees?
-Probabilities are just estimates – always prone to error
-Uses quantitative data only – ignores qualitative aspects of decisions
-Assignment of probabilities and expected values prone to bias
-Decision-making technique doesn’t necessarily reduce the amount of risk
Give some examples of possible opportunity costs.
- Marketing
- Production
- Human resources
- Finance
What is a mission?
An aim a business hopes to achieve
What is an objective?
An measurable target which can be used.
What is ethics?
The moral beliefs and attitudes from both within and outside a business that influences its behaviour
What is the external environment?
A number of factors that are beyond the control of the individual business
