Decision making models Flashcards
What are strategic decisions ?
Part of long term plan of action to achieve business aims & objectives
Who makes strategic decisions ?
Senior managers
What are tactical decisions ?
Response to opportunities or threats facing the business in the medium term
Who makes tactical decisions ?
Middle managers
Why are tactical decisions easier to change than strategic decisions ?
Less permanent
What are operational decisions ?
Short term decisions that are simple and routine
Who makes operational decisions ?
Junior managers
What are the 3 reasons making right decisions are important to a business ?
- Difficult to stop decision process once instigated
- Can have far-reaching implications
- Wrong decisions = financial loss
What are the 2 approaches to reduce risks while making decisions ?
- Scientific based (evidence based) decision making
- Intuitive (subjective) decision making
What is scientific based decision making ?
Makes strategic decisions after analysing & evaluating relevant evidence, make full use of qualitative forecasting & automate to react to change
What is intuitive decision making ?
Relies on experience & judgement of owners & managers requiring entrepreneurial & risk taking approach
What are decision trees ?
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
What are the 5 steps to constructing a decision tree ?
- Square on left = represent decision being made
- Lines drawn out for each possible decision written along line
- Circle at end of line = uncertain outcomes
- Probability attached to end of each possible outcome
- Outcome not chosen drawn line through it
What are 3 advantages of decision trees ?
- Choices set out logically
- All potential options & choices considered at same time
- Risks = addressed through probabilities, costs = considered & quantitive results = produced
What are 4 disadvantages of decision trees ?
- Probabilities = estimates, may be incorrect
- Ignores qualitative aspects of decision making
- Probabilities = bias
- Doesn’t reduce risk in taking decisions
What is critical path analysis ?
Technique used to find cheapest or fastest way to complete task
What is a critical path ?
Sequence of activities which if delayed will delay whole operation
What 4 things does a critical path analysis allow a business do ?
- Estimate minimum time for a task
- See how long complete project should take
- Identify earliest date at which later stages can start
- Anticipate tasks that may cause delay
What is an activity ?
Part of a project that requires time & resources
What is a node ?
Circles representing start or finish of task split into 3 sections
What does the numbers in a node represent ?
- Left hand semi circle = node number = 1 being start of process
- Top right quadrant = earliest starting time
- Bottom right quadrant = latest starting time
What is the earliest starting time ?
The earliest time the task can begin
What is the latest starting time ?
Latest time that the previous task can finish without delaying next task
What are the 5 steps to contracting a critical path analysis ?
- Start on left hand side working to right side
- Draw nodes
- Draw arrows from first node = sequence of activities
- Draw another node = represent end of task & more arrows = later activities
- Don’t immediately add another node to end of activity until checked next task
What can a business identify from a critical path analysis ?
Can focus on really important tasks instead of too many resources that are less important
What is the float time ?
Used by business to counter balance the potential extra resources put into critical path analysis
What are 5 advantages of critical path analysis ?
- Encourages careful assessment of activity
- Identifies activities where resources are critical or not
- Provide overview of complex project
- Links well to other aspects of business planning
- Reduces risks & shorten project time
What are 4 disadvantages of critical path analysis ?
- Relies on estimates & assumptions
- Doesn’t guarantee success = project still need to be managed well
- Activities can be less flexible as float time states
- Diagrams = overcomplicated, errors & lacking clarity
What is cost benefit analysis ?
Method of measuring financial feasibility of a project by quantifying costs & benefits
What are private costs ?
Costs the business making investment has to incur
What are private benefits ?
What business expects to gain from investment
What are public costs ?
Costs incurred by people outside the business making investment
What are public benefits ?
People outside the business making investment can gain
Which type of costs & benefits are easy to quantify ?
Private
Which type of costs & benefits are difficult to identify ?
Public
What is a disadvantage of intangibles ?
Difficult to quantify
What 5 stages need to be followed to undertake cost benefit analysis ?
- Identify costs & benefits from investment (external can be ignored if investment is low impact)
- Convert costs & benefits to monetary value
- Apply method of probability analysis
- Take into account timing of costs & benefits
- If benefits greater than costs = viable
What are 3 advantages of cost benefit analysis ?
- Simplifies complex decisions = net financial benefit for each project to compare easily
- Comparing benefits = objective approach
- Goals can be attached to benefits = target to achieve
What are 3 disadvantages of cost benefit analysis ?
- Putting value on intangibles = difficult & subjective
- Public costs cover wide variety of issues = may not be real benefit or cost
- Monetary value of benefits & costs for long term projects difficult = uncertainties like inflation
What are the 5 uses of information technology (IT) in decision making ?
- Gathers huge amounts of business data
- Combine many types of information
- Complex calculations
- Capture data on consumer opinions
- Combine information in real time
What are 2 disadvantages of information technology (IT) in decision making ?
- May lose creativity by sticking too rigidly to computer predictions
- Sheer volume of data gathered
