Understanding management decision making notes Flashcards
What is The process of decision making
Setting objectives Gathering and interpreting information Selecting the chosen option Implementing decision Reviewing Repeat
Programmed decisions deal with?
Programmed decisions deal with problems that are familiar and where the information required to make them is easy to define and obtain - structures in place
Non-programmed decisions deal with?
Non-programmed decisions deal with situations that are unstructured and unique - unusual decisions such as a major investment or entering a new market may have some risk
Tactical decisions are?
Tactical decisions - short term, few resources involved, easier to reverse, usually taken by junior management
Strategic decisions are?
Strategic decisions - long term, large commitment of resources, difficult to reverse and taken by senior managers
Risk is _______ whereas uncertainty is not
measurable
How can we decrease the risk of decision making?
Collect more information
What will decision making always have?
Decision making will always involve risks, rewards, uncertainty and opportunity cost
What should contribute to a decision being made?
Experience
Hunch
Data
`What are the costs of decision making?
Cost of gathering and analysing the data
Costs > return?
Reliability
When should hunches be used?
There is more uncertainty about a decision - insufficient or unreliable data
Decision making includes an assessment of a potential business partners character or personality
If an advertising campaign will grab the attention of customers
A quick decision is needed - limited research time
What is a decision tree?
A decision tree is a mathematical model which can be used by managers to help them make the right decision
Benefits of decision trees.
Choices are set out in a logical way
Potential options & choices are considered at the same time
Use of probabilities enables the “risk” of the options to be addressed
Likely costs are considered as well as potential benefits
Easy to understand & tangible results
Drawbacks of decision trees.
Probabilities are just estimates – always prone to error
Uses quantitative data only – ignores qualitative aspects of decisions
Assignment of probabilities and expected values prone to bias
Decision-making technique doesn’t necessarily reduce the amount of risk
What will influence decision making
The business’s mission and objectives Ethics The risk involved The external environment Resource constraints
