Understanding Management Decision Making Flashcards
What is the decision making process/ cycle ?
->Set objectives -> gather data-> analyse data-> select a plan-> implement plan-> review the effects ->
What are programmed decisions?
Programmed: familiar, routine decisions. Information required is easy to obtain e.g re-ordering stock
What are non- programmed decisions?
Non programmed- requires unique solutions. May be risky eg a major investment.
What are strategic decisions?
Strategic decisions: long term decisions involving major commitment of resources and a high level of uncertainty. Taken by senior management e.g selling abroad to increase sales
What are tactical decisions?
Tactical decisions are short to medium term, involve fewer resources and less uncertainty. They are easier to reverse and are taken by more junior management eg reducing price to reach revenue targets; how many staff to recruit
What is risk?
Risk is the change of incurring a misfortune or loss. Most decisions involve some degree of risk. Gathering data can help to reduce the risk of a decision
What are rewards?
Rewards are the result if managers take good decisions eg extra revenue
What is uncertainty?
Uncertainty is a situation in which there is a lack of knowledge so events/ outcomes are unpredictable
What is opportunity cost?
Opportunity cost is the cost of the next best alternative forgone ie the best option that a manager gives up in making a decision. For example, the opportunity cost of decreasing prices to increase demand is the loss of a large profit margin
What is the equation for net gain?
Net gain= the expected value- initial cost of investment
What is scientific decision making?
-it is based on data and uses a logical, rational approach to decision making
-e.g break even analysis, ratio analysis, investment appraisal, correlation analysis
How can data be gathered?
Data can be gathered through the internet, customer surveys or the business’s records e.g loyalty cards. Technology makes it easier and more cost effective to collect and analyse data.
How is risk affected by scientific decision making?
-Scientific decision making should reduce risk as decisions are based on research not hunches.
-scientific defying making is used if there is a high risk that managers want to reduce
What needs to be considered in scientific decision making?
- usefulness depends on the quality of the data
-external factors
What does PESTEL stand for?
-political
-economic
-social
-technological
-ethical/ environmental
-legal
What is a SWOT made after considering externals?
-strengths
-weaknesses
-opportunities
-threats
What are the advantages of scientific decision making?
-based off fact
-makes easier to defend a decision
-reduces risk
-it might suggest options that hadn’t previously been considered
Advantages of using your hunch/ intuition?
-quicker, cheaper, easier
-first move before competition
What are the problems that occur when making a decision?
-there may be no time for a scientific approach
-insufficient or in-accurate data.( poor research or lack of finance)
-data has become outdated
-poor quality managers
What is an evaluation for scientific approaches?
In reality, gut instinct plays a part even if a scientific approach is used e.g when interviewing people
What is an example of someone who uses intuition?
- Akio Morita was a Japanese entrepreneur and co founder of Sony
-he used hunch decision making - Sony Walkman was a hit as market research said people don’t want it and staff were against it but he went against his staff and used his intuition and it was highly demanded
- he flopped when creating the Beta Max
What is a decision tree?
-A decision tree is a mathematical model used by managers to help they make the right decision.
-it shows the likely outcomes for a business of a number of courses of action. It then shows the financial consequence of each
What are the features of a decision tree?
-decisions shown by squares, they show the options a firm can choose between
-change points( circles) show the outcomes that might arise from a decision
-each outcome has a probability of occurring
What is an expected value?
Expected value if the financial outcomes from a course of action are weighted to allow for the probability of it occurring
What is net gain?
Net gain is the expected values of a course of action minus the costs
What are the pros of a decision tree?
-reduces risk as it thinks about the consequences
-it may make managers think about courses of action not previously considered
-it forces managers to conduct market research
-it results in more logical less rushed process based on evidence rather than feeling
What are the cons of a decision tree?
-only takes into account financial aspects
-do not know if financial aspects are right and it’s just an estimate so always prone to error
-it only uses quantitative data so it ignore qualitative aspects of decisions
-assignment of probabilities and financial outcomes are prone to hand as the person who makes the data wants a certain thing to be chosen
-doesn’t necessarily reduce the amount of risk- only tells you the risk
What are the influences on decisions making?
-success of a particular style of decision making in the past
-proper of different stakeholder groups
-risk involved
-corporate values, missions and objectives
-external environment- PESTEL
-ethics
-resources available
-SWOT - strengths, weaknesses, opportunities, threats
