Understanding management decision making Flashcards
What are potential risks that good management must weigh up?
Lack of sales
Higher costs than expected
Projects not being completed on time
More competition
How to work out expected value
Multiply probalility of each outcome by its expected value and add them together
How to work out net gain
Expected value - Initial cost of a given choice
What is opportunity cost?
The value of one decision against what could have been gained by taking the next best decision
What are influences on decision making?
Needs to fit into:
Mission - does it follow the way the business operates as a whole?
Objectives -will it help meet its short-term and long-term objectives, and will it impact negatively on other objectives in other areas of the business?
Ethics - will the decision be morally wrong in the eyes of the stakeholders, for example, sourcing materials from countries with a poor record on human rights or working conditions?
External factors - PESTLE
Resource constraints:
Employees, present and future - and their qualities
Suppliers
Transport
Finance - does the business have access to the cash it needs to implement the initial plan?
Define opportunity cost
The benefit foregone of the next best alternative