Short Term Decision Making

Question 1

What is Throughput?

Answer 1

• Assumes all labour costs are ‘fixed’ (e.g staff salary), but overtime it introduces a variable element

Question 2

What is the use of Expected Values (EV)?

Answer 2

To give indication of decisions or possible outcomes (Highest usually best option)

Question 3

What is expected value?

Answer 3

The average outcome, if the same event was repeated over and over again.

Question 4

What is Risk Seeking?

Answer 4

-Decision maker is happy to take High and finds option attractive as potential for higher returns is greater

Question 5

What is Risk Neutral?

Answer 5

-decision maker not concerned by risk , only the expected return

Question 6

What is Risk Averse?

Answer 6

One who seeks to get the best trade off between risk and return, only accepting higher risk if return is sufficient to compensate

Question 7

What other methods can we use to incorporate risk?

Answer 7

-best & worst scenario
-Breakeven
-sensitivity analysis (considers customer/competitor response to packages)

Question 8

What are decision trees?

Answer 8

Its a way of visually showing stages of decisions making and outcomes of decisions taken

Question 9

What do the squares and branches on decision trees show?

Answer 9

• tree SQUARES indicate where a decision needs to be made and CIRCULAR points indicate an outcome

-BRANCHES usually show a lead to an outcome point or future decision

Question 10

What are the limitations of decision trees?

Answer 10

-they assume the decision maker is neutral

-They are bad for when you want a one off decision. Only work if you want to repeatedly use this decision

-They are inaccurate (based on past data and averages)

Question 11

What are non financial factors in decision making?

Answer 11

-Reputation
-Service Quality/ experience