Decision making models

Question 1

What are strategic decisions ?

Answer 1

Part of long term plan of action to achieve business aims & objectives

Question 2

Who makes strategic decisions ?

Answer 2

Senior managers

Question 3

What are tactical decisions ?

Answer 3

Response to opportunities or threats facing the business in the medium term

Question 4

Who makes tactical decisions ?

Answer 4

Middle managers

Question 5

Why are tactical decisions easier to change than strategic decisions ?

Answer 5

Less permanent

Question 6

What are operational decisions ?

Answer 6

Short term decisions that are simple and routine

Question 7

Who makes operational decisions ?

Answer 7

Junior managers

Question 8

What are the 3 reasons making right decisions are important to a business ?

Answer 8

1. Difficult to stop decision process once instigated
2. Can have far-reaching implications
3. Wrong decisions = financial loss

Question 9

What are the 2 approaches to reduce risks while making decisions ?

Answer 9

1. Scientific based (evidence based) decision making
2. Intuitive (subjective) decision making

Question 10

What is scientific based decision making ?

Answer 10

Makes strategic decisions after analysing & evaluating relevant evidence, make full use of qualitative forecasting & automate to react to change

Question 11

What is intuitive decision making ?

Answer 11

Relies on experience & judgement of owners & managers requiring entrepreneurial & risk taking approach

Question 12

What are decision trees ?

Answer 12

Mathematical model that uses estimates & probabilities to calculate likely outcomes in order to help a business decide whether a net gain from a decision is worthwhile

Question 13

What are the 5 steps to constructing a decision tree ?

Answer 13

1. Square on left = represent decision being made
2. Lines drawn out for each possible decision written along line
3. Circle at end of line = uncertain outcomes
4. Probability attached to end of each possible outcome
5. Outcome not chosen drawn line through it

Question 14

What are 3 advantages of decision trees ?

Answer 14

1. Choices set out logically
2. All potential options & choices considered at same time
3. Risks = addressed through probabilities, costs = considered & quantitive results = produced

Question 15

What are 4 disadvantages of decision trees ?

Answer 15

1. Probabilities = estimates, may be incorrect
2. Ignores qualitative aspects of decision making
3. Probabilities = bias
4. Doesn’t reduce risk in taking decisions

Question 16

What is critical path analysis ?

Answer 16

Technique used to find cheapest or fastest way to complete task

Question 17

What is a critical path ?

Answer 17

Sequence of activities which if delayed will delay whole operation

Question 18

What 4 things does a critical path analysis allow a business do ?

Answer 18

1. Estimate minimum time for a task
2. See how long complete project should take
3. Identify earliest date at which later stages can start
4. Anticipate tasks that may cause delay

Question 19

What is an activity ?

Answer 19

Part of a project that requires time & resources

Question 20

What is a node ?

Answer 20

Circles representing start or finish of task split into 3 sections

Question 21

What does the numbers in a node represent ?

Answer 21

1. Left hand semi circle = node number = 1 being start of process
2. Top right quadrant = earliest starting time
3. Bottom right quadrant = latest starting time

Question 22

What is the earliest starting time ?

Answer 22

The earliest time the task can begin

Question 23

What is the latest starting time ?

Answer 23

Latest time that the previous task can finish without delaying next task

Question 24

What are the 5 steps to contracting a critical path analysis ?

Answer 24

1. Start on left hand side working to right side
2. Draw nodes
3. Draw arrows from first node = sequence of activities
4. Draw another node = represent end of task & more arrows = later activities
5. Don’t immediately add another node to end of activity until checked next task

Question 25

What can a business identify from a critical path analysis ?

Answer 25

Can focus on really important tasks instead of too many resources that are less important

Question 26

What is the float time ?

Answer 26

Used by business to counter balance the potential extra resources put into critical path analysis

Question 27

What are 5 advantages of critical path analysis ?

Answer 27

1. Encourages careful assessment of activity 2. Identifies activities where resources are critical or not 3. Provide overview of complex project 4. Links well to other aspects of business planning 5. Reduces risks & shorten project time

Question 28

What are 4 disadvantages of critical path analysis ?

Answer 28

1. Relies on estimates & assumptions 2. Doesn't guarantee success = project still need to be managed well 3. Activities can be less flexible as float time states 4. Diagrams = overcomplicated, errors & lacking clarity

Question 29

What is cost benefit analysis ?

Answer 29

Method of measuring financial feasibility of a project by quantifying costs & benefits

Question 30

What are private costs ?

Answer 30

Costs the business making investment has to incur

Question 31

What are private benefits ?

Answer 31

What business expects to gain from investment

Question 32

What are public costs ?

Answer 32

Costs incurred by people outside the business making investment

Question 33

What are public benefits ?

Answer 33

People outside the business making investment can gain

Question 34

Which type of costs & benefits are easy to quantify ?

Answer 34

Private

Question 35

Which type of costs & benefits are difficult to identify ?

Answer 35

Public

Question 36

What is a disadvantage of intangibles ?

Answer 36

Difficult to quantify

Question 37

What 5 stages need to be followed to undertake cost benefit analysis ?

Answer 37

1. Identify costs & benefits from investment (external can be ignored if investment is low impact) 2. Convert costs & benefits to monetary value 3. Apply method of probability analysis 4. Take into account timing of costs & benefits 5. If benefits greater than costs = viable

Question 38

What are 3 advantages of cost benefit analysis ?

Answer 38

1. Simplifies complex decisions = net financial benefit for each project to compare easily 2. Comparing benefits = objective approach 3. Goals can be attached to benefits = target to achieve

Question 39

What are 3 disadvantages of cost benefit analysis ?

Answer 39

1. Putting value on intangibles = difficult & subjective 2. Public costs cover wide variety of issues = may not be real benefit or cost 3. Monetary value of benefits & costs for long term projects difficult = uncertainties like inflation

Question 40

What are the 5 uses of information technology (IT) in decision making ?

Answer 40

1. Gathers huge amounts of business data 2. Combine many types of information 3. Complex calculations 4. Capture data on consumer opinions 5. Combine information in real time

Question 41

What are 2 disadvantages of information technology (IT) in decision making ?

Answer 41

1. May lose creativity by sticking too rigidly to computer predictions 2. Sheer volume of data gathered