Decision Making Techniques Flashcards
Seasonal variation
Change in the value of a variable that is related to the seasons
Trend
The general path a series of values follows over time, disregarding variations or random fluctuations
Criterion
A yardstick set by directors to enable managers to judge whether investment ideas are worth pursuing
Cumulative cash
The build up of cash over several time periods
Discounting
Applying a discount factor to take into account the opportunity cost of money over time
Present values
The discounting of future cash flows to make them comparable with todays cash. This takes into account the opportunity cost of waiting for cash to arrive
Short termism
Making decisions on the basis of the immediate future and therefore ignoring the long term future of a business
Tactical decisions
Those that are day to day events and therefore do not require a lengthy decision making process
Actual values
Forecasts of the net cash flow which result from following a sequence of decisions and chance events through a decision tree. They should always be shown at the end of the branches.
Expected values
Forecast actual values adjusted by the probability of their occurrence. Expected equals actual times probability
Net gains
Subtracting the initial outlay from the expected value to find out whether or not a decision is likely to produce a surplus
Node
A point in a decision tree where chance takes over. It is denoted by a circle, and at that point it should be possible to calculate the expected value of this pathway
Probability
The likelihood of something occurring
Critical path
The activities that must be completed on time for the project to finish on time. In other words, they have no float time at all
Float time
Any spare time that arises between the completion of an activity and the starting time for the next
Management by exception
The principle that because managers cannot supervise every activity within the organization, they should focus their energies on the most important issues
Network
A diagram showing all the activities needed to complete a project, the order in which they must be completed and the critical path
Network analysis
Breaking a project down into its component parts, to identify the sequence of activities involved
Sales forecast
A method of predicting future sales using statistical methods
