Making decisions

Question 1

Making Decisions

Answer 1

How successful any business will be is ultimately down to what decisions are made and how effectively they are implemented.
Even if an organisation has an appropriate management structure, motivated employees with intelligent leadership………..
IF the decisions made are wrong than the business will ultimately fail !

Question 2

Types of Decisions

Answer 2

Managers may make the wrong decision due to :
They lack the required information to aid the decision making process.
They lack the necessary experience to interpret the information and make the correct decision.
A decision is required quickly.

Question 3

Routine

Answer 3

Routine decisions are decisions that managers expect to make, they are use to making and they probably make them as part of each and every working day. These include:
Deciding on annual leave
Ordering stock
Deciding on special offers and promotions

Question 4

Routine – High level

Answer 4

However, occasionally strategic decisions can also be routine.

For example:
Financial managers setting departmental budgets will need to be sanctioned by senior managers and senior managers will make these decisions as a matter of routine once a year, but they are routine because they expect to have to make these decisions.

Question 5

Non-Routine decisions

Answer 5

Happen unexpectedly where managers do not expect to have to make a decision.
Such as:
Deciding to stop producing a product.
Deciding to relocate production to another country.
Deciding to make workers redundant.
Deciding to launch a takeover of another business.
Most non-routine decisions that will affect the whole business will need to be taken by senior managers.

Question 6

Tactical and strategic decisions

Answer 6

Tactical decisions are based on short term factors and will effect the day to day operations of the business.
Made by lower managers.

Strategic decisions tend to have a long term effect on the whole business.
Made by senior managers.

Question 7

Proactive and reactive decisions

Answer 7

Proactive is to take decisions that will anticipate a possible action.
Taking vitamin C tablets to prevent getting a cold.
Reactive decisions are taken in response to an action .
Taking flu tablets when you have a cold.

Question 8

Decision trees

Answer 8

Quantitative decision technique to aid managers making decisions

Decision trees are diagrams that set out all the options available when making a decision, plus an estimate of their likelihood of occurring

Question 9

Constructing: Decision Trees

Answer 9

Another approach to decision making is to use decision trees. This will be a quantitative approach to decision making.
1 A decision tree is outlines all the options available when making a decision.
2 All the possible outcomes of those options are then added.
3 Attach probabilities for each outcome.
4. Estimate the likely £ returns for each option.
5. Calculate the value for each option.
6. Choose the option with the highest value.

Question 10

Advantages of decision trees

Answer 10

They encourage a careful considerations of the alternatives.
Encourage a logical/methodical approach
Encourage a quantitative consideration of chance
They take risk into account, (unlike investment Appraisal)
They are useful in tactical routine/everyday decisions rather than strategic decisions.
They discourage gut-reaction/guess work as a method for decision making.

Question 11

Disadvantages of decision trees

Answer 11

Hard to get meaningful data for probability.
Less useful in new problems or strategic decisions.
They ignore changes in the environment that will affect decision.
They may lead managers to take less account of qualitative factors (Dangerous)
Depends who provided the figure and who constructed the trees!!!