Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

business > Theme 3 - Decision Making Techniques > Flashcards

Theme 3 - Decision Making Techniques Flashcards

1
Q

Sales forecasting

A

A method of predicting future sales using statistical methods

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Time-series analysis

A

A method of prediciting future sales using past sales data figures, used to reveal any underlying patterns in time series data
* Can be difficult to interpret if data has flucccuations
* Businesses use moving averages of the data - smooth out fluccuations in the data which makes it eaiser to identify underlying trends

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Time series data

A

Sales figures collected at consistent time intervals and presented in time order

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Trends

A

Long term movement of a variable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Three period moving averages

A

Three period moving averages = calculates the average periods 1,2,3 then periods 2,3,4 etc (adding up 3 periods and diving by 3

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How to calculate 3 period moving averages

A
  • Take an average of the first three moving points where there are fluccuations
  • The moving average is always placed in the same as the middle of the time periods
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Four period moving averages

A

The average based of four time periods (often quarters of a year). It moves with time. Usuually calculate using centering based on 8 period total

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How do u calculate 4 period moving averages

A
  • Finding averages for four consecutive quarters( 3 months), there isnt a clear mid point as youre taking 2 instead of 3
  • The mid point lies between second and third values
  • Add up 4 quarter averages to give 8 total average
  • Divide this by 8 to get four period moving averages
  • Minus the four quarter moving period from sales figure to give the variaration
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Centering

A

Centering = find the average of two four mpving aerages them place against the third quater of the first moving average

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Scatter graphs

A

A graph showing the performance of one variable against another independant vairable on a variety of occasions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Line of best fit

A

A line that goes roughly through the middle of all scatter points on a graph

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Use of these graphs + line of best fit

A
  • shows trends in data
  • scales data overtime can be displayed as a scatter graph
  • line of best fit shows the overall trend in data
  • Used to look at the correlation between two vairables measure of how closley they are related
  • Closer line is to data points stronger teh correlation is
  • Both can be affected by an external factor
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Investment apprasial

A

Attempts to determine the value of capital expenditure projects
It enables the business and its investors to compare projects so that the business can expand and meet their objectives using profit maximisation and effiency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Pay back period

A

The time it takes for a project to make enough money to pay back the initial investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How do u calculate pbp?

A
  • Amount invested / annual net cash flow
  • Identify the net cash flows for each period and keep a running total of the cash flow
  • Add amount until becomes positive that is when investment is fully paid back
  • Divide amount that was still required by negative by the cash inflow of the year add the amount of years which is the pay back period
  • When it is half way thrpuhgh a year take amount still required and times by 12 to get pbp
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q
A
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What are the advantages and disadvantages of pbp?

A

Ads:
* It is easy to calculate and understand
* Straightforward to compare competing projects
* Very good for high tech projects or any projects thaty might not provide long term returns
* focuses on cash flows
* speed of return in a rapidly changing market

Dis:
* Ignores cash flow after payback
* Ignores time value of money
* May encourage short term thinking
* Ignores qualitative aspects of a decision
* Does not actually create a decision for the investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Time value of money

A

Time value of money = the idea that a certain amount of money is worth more today than it will be in the future

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

Average rate of return

A

Compared the net return with the level of investment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Net return

A

The income of the project minus costs including the investment
(remember to subtract investment)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

ARR formula

A

Average net return / investment x100
Average net return =net return/ years
* Make sure to duduct investment when adding ANR
* Calculate average annual return / total cash inflows by number of years
* Divide ANR by investment
* x by 100 to get %

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Advantages and disadvantages of ARR

A

Ads:
* Its easy to calculate and understand
* Very good for high tech projects that might not provide long term returns
* Takes account of all of the projects cash flows

Dis:
* Ignores the timing of the cash flows
* Ignores time value of money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Discounted cash flow

A

An investment apprasial tool that takes into account the time value of money ( value of money decreases)
* It adjusts the values of cash flows in the future to calculate their present value
* It represents the present value of the future cash inflows minus the present value of the future cash outflows

To get the present value, the future value has to be discounted (reduced)

24
Q

Formula for NPV

A

Net cash flow x Discounted factor
* Discounted factor depends on interest rates predictions
* High rates result in big discounts
* Present value reflects the opportunity cosr of not investing money in the bank where it could earn high interest rate

25
Q

NPV formula

A

the sum of present values of cash flow - the costs of initial investment

26
Q

Negative NPV

A

The business will get a better return by putting their money into a savings account rather than going ahead with a project

27
Q

Positive NPV

A

Will make the business money

28
Q

ADS and DIS

A

Ads:
* It considers the opportunity cost of money
* Discount tables are used to calculate forecast future values of net cashflows
* Businesses may choose different discount tables (20%, 10%, 5% etc) to adjust the level of risk involved in a project, allowing a range of scenarios to be considered
Dis:
* Hard to calculate and diffiuclt for the business to work out discount factor ought to be as they dont know what the bamks interest rares are going to be in the future
* Longer project is set to last the harder it is to predict the discount factor
* The NPV method only considers the financial costs and benefits of a project and does not account for non-financial benefits or costs, e.g. environmental damage

29
Q

Decision tree

A

A decision making tool showing the possible outcomes of a decision with the estimated probability and expected monetary value of each of these outcomes

30
Q

How does a decision tree work?

A
  • A decision tree uses estimates and probabilities to calculate likley outcomes
  • Calculating these estimates helps to decide whether the net gain from a decision is worthwhile
30
Q

Probability

A

The likley hood of an event occuring
Managers make a subjective estimate based on past data
Expressed as a decimal in decison trees
Probabilities have to all add up to 1

31
Q

The expected monetary value (EMV)

A

The probability of an outcome occuring multiplied by the pay off the business can expect to get

32
Q

EMV course of action

A

Add all together the different emvs of the different outcomes

33
Q

What is Net gain

A

Financial gain after intial costs have been subtracted

34
Q

Net gain calculation

A

Net gain = emv - intial costs

35
Q

What are the features of a decison tree?

A
  • Sqaure represents decision node - lines coming from the square are the possible courses of action and costs of each action
  • Circle - chance node - there are alternative outcomes for a course of action - lines coming from circles
  • Decimals = probabilities
  • Values in £ represent the pay off for the business if that outcome happens
36
Q

What are the steps of a decision tree?

A
  • Managers first identify which course of action are open to the business
  • Outlien possible outcomes of each course of action and assign probabilities to them, estimating uncertain probabilities
  • Calculate EMV and Net Gain of each course of action
  • Choose the course of action with highest net gain
37
Q

What are the advantages and disadvantages of decision trees?

A

Ads:
* Make managers work out and think about the probability and potential pay off of each outcome of their chosen action (numerical values)
* Nice visual representation of the potential outcomes of a decision
* Allow managers to compare options quantittavley and objectiviley
* Used in familar situations where business has enough experience to make more accurate estimates

Dis:
* Decision trees are quantitative - businesses should take into account qualititaive data before deciding on a course of action
* Very hard to predict accuratley - lots of uncertanities about the probabilities that are used
* Estimated pay offs assumed to be accurate
* Values can depend on person who makes it different people may believed the probabilities and pay offs should be different values depending on experience and opinions - bias may occur
* Wider range of potential outcomes than the decision tree suggests

38
Q

What is critical path analysis?

A

A project analysis and planning method that allows a project to be completed in the shortes possible time

39
Q

What is required for CPA?

A
  • List of activities to complete the project
  • The duration of each activity
  • Dependencies between the activities (activities have to be completed before the next activity starts)
  • Activities are arranged as a network or graph
  • Shorted time can be identified
  • The shortest time = the critical path is the sequence of tasks which have to be done with no gaps in between to get a project done as fast as possible
40
Q

Critical activities

A

Critical activities = activities on the critical path

41
Q

Nodes

A

Show where one activity stops and another activity begins

42
Q

EST

A

Earliest start time - from begginning of project that the activity cqan start - all activities before have to be completed before starting

43
Q

How do u calculate EST?

A

Est is calculate by adding the duration of the previous activity to its EST (first is always o) add previous EST

44
Q

EFT

A

Earliest finish time - time it will finish if started at est

45
Q

How do u calculate EFT?

A

Worked out by addings its duration (Months) to its EST

46
Q

LFT

A

Latest finish time - latest time activity can be completed by without holding up the completion of the project

47
Q

How do u calculate LFT?

A

Calculated by working backwards from the final node
LFT of final node is = to the EST of the final node
Work out lft of node befoe you subtract durartion of nect activity from its lft

48
Q

LST

A

Latest start time - latest time an activity can be started and still be finished by its lft

49
Q

How do u calculate LST

A

To calculate lst subtract the duration of the activity from its lft

50
Q

Float time

A
51
Q

Float time

A

The length of time you can delay an activity without delaying the completion of the project

52
Q

Total float time

A

LFT(NEXT)-DURATION-EST (PREVIOUS)

53
Q

The four golden rules of CPA

A
  • Est calculate first and always work left to right
  • Est where two or more activities meet, est is always the highest calulated value
  • LFT calculate after est and always work from right to left
  • Lft where two or more acitivties meet lft is always the lowest calulated figure
  • When calculating cpa with multiple activities always add or subtract the highest value
54
Q
A
55
Q

The uses of CPA

A
  • When implementing a stratergy or planning a complicated project
  • Allows businesses to work out when they will need resources to be avaliable
  • Possible to shorten cp by allocating additional resources to an activity
  • Some resources can be switched between activities
  • Helps managers with decison making
56
Q

The ads and Dis of cpa

A

Ads:
* Identifies critical activities, which need to be supervised to meet deadlines
* Resources trasnferred from activities with float time to critical activities
* Helps reduce risks and costs of complex projects
* Provides managers with a useful overview of complex projects
* helps cash flow
* gain competitve advantages
* links well with other aspects of planning, cash flow forecasting and budgeting
* Improves communication

Dis:
* Realiability of cpa based on accurate estimates and assumptions
* doesnt guarntee success of business project
* constructing and amending requires a significant amount of time
* resoucres may nor be flexible to adress float
* tight deadlines
* too many activities - too complicated, doesnt take into account other factors = delays

business (25 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions