understanding management decision making

Question 1

risks of decision making for managers

Answer 1

• finances – could loose money or not make as predicted
• reputation – could damage reputation of business/ managers
• people – could loose good staff if not successfully
• future – could influence future decisions
• resources – not used efficiently

Question 2

reward of decision making for managers

Answer 2

• finances – make more money than anticipates
• reputation – could be enhanced
• people – attract good staff and motivates staff
• future – could get future business from potential customers

Question 3

what are the two types of decisions

Answer 3

• strategic (overall plan)
• tactical (day to day)

Question 4

features of a strategic decision

Answer 4

• normally long term
• involve lots of resources
• difficult to reverse
• taken by senior managers and leaders

Question 5

features of a tactical decision

Answer 5

• normally short term
• fewer resources involved
• easier to reverse
• taken by middle and junior management

Question 6

what are 3 assumptions decisions are made on

Answer 6

data
experience
hunch or gut feeling

Question 7

benefits of a scientific approach

Answer 7

• clear direction by emphasising objectives and getting people involved
• based of logical and rational thinking
• more people involved in decision making process
• flexible because at any stage the decision can be reviewed and altered accordingly
• easier to defend a decision based on logic

Question 8

drawbacks to scientific approach

Answer 8

• too much data to be collected
• time consuming
• data could be flawed, unreliable or invalid

Question 9

intuition and experience

Answer 9

• used bu small business owners or small groups
• more experienced = greater intuition
• can lead to creative solutions

Question 10

opportunity cost definiton

Answer 10

• measures the cost in terms of the next best alternative forgone

Question 11

what are the two approaches to decision making

Answer 11

• intuition
• scientific

Question 12

what is the role of data in decision making

Answer 12

• real time data capture of transactions + customer preferences
• responding to real time changes in market conditions
• market research
• capacity management
• inventory control

Question 13

what are key considerations of decision making

Answer 13

• risk
• reward
• uncertainty
• opportunity cost

Question 14

why is opportunity cost important

Answer 14

• limited resources (scarce resources means significant decision about what to spend where, as more risky)
• entrepreneurs and managers take calculated risks + weigh up all possible implications

Question 15

decision tree

Answer 15

• mathematical model
• used to help managers make decisions
• use estimates and probabilities to calculate likely outcomes
• helps decide whether the net gain is worthwhile

Question 16

weakness of decision tree

Answer 16

• Probabilities are just estimates – always prone to error
• Value depends on how accurate estimates are
• force managers to quantify impact of each decision
• Assignment of probabilities and expected values prone to bias
• Decision-making technique doesn’t necessarily reduce the amount of risk

Question 17

benefits of decision trees

Answer 17

• Choices are set out in a logical way
• Potential options & choices are considered at the same time
• scientific decision making
• analyse data - easier decisions
• easy visual nature
• used as a tool but qualitative data should also be considered
• makes managers think about opinions and possible consequences
• help establish a logic order to options

Question 18

possible qualitative information used in a decision tree

Answer 18

• risk adversity of managers/ owners (linked to leadership styles)
• external environment (PESTAL)
• business’s ability to change
• competition