Chapter 8- Decision Making Models Flashcards
How can a business minimise risk?
Through the use of accurate data and the use of decision-making models
3 types of decisions a business makes
1) Strategic- by senior management
2) Tactical- by middle management
3) Operational- by junior management
What is a strategic decision?
These are long term and will affect the direction the business takes.
Can take a few years and a few million pounds to see if it has positively impacted the business
How does a strategic decision impact the business?
It will impact the entire business and will be made by owners and senior management
Can be complex and may result in major internal change, or new markets to operate in. May also involves large financial commitment
What is a tactical decision?
These are not as far reaching and they tend to be medium term. They should aim to implement strategic decisions
How does a tactical decision impact the business?
They are less complex and are usually carried out by middle management.
They can be more flexible, if it is failing to meet its objectives it can be changed
What is an operational decision?
The day to day decisions made in a business. These are lower level decisions that tend to be short term and have little risk
How does an organisational decision impact the business?
Hundreds are made in a typical day by a range of employees, they have very little impact and do need to be carefully thought through
Many decisions at this level are routine and can be taken fairly quickly
How can decision-making be categorised?
1) Scientific
2) Intuitive
What is scientific decision-making
Decision making involves the use of facts and data in a systematic way in order to arrive at a logical and evidence base decision
When may a scientific approach be used?
Favoured by most businesses as it is based on logic and evidence and should therefore reduce the risk of failure. The business will undertake a full analysis before making any decisions
What is intuitive decision-making?
Decision-making using experience and intuition (gut feeling) to make a decision
For successful and experienced entrepreneurs and managers who use their experiences and emotions
When may an intuitive approach be used?
Often used when there is no data or systematic approach to back up this decision. They can be made quickly and are often useful for operational decisions
Types of decision making models?
1) Decision trees
2) Critical path analysis
3) Cost benefit analysis
What is a decision tree?
It is used to help the business with making decisions where there is a number of different options from which to select.
Useful when chance plays an important role in the likely outcome
How does a decision tree work?
It builds probability of success and failure into the decision-making process; this helps to provide an effective and clear structure for presenting options through the ‘expected values’ which are the financial returns that can be gaine
