Unit 2 - chapter 5

Question 1

what are the 5 stages of the decision making process

Answer 1

• setting objectives
• gathering information
• selecting the chosen option (weighing up the options)
• implementing the decision
• reviewing

Question 2

what are the 2 types of decisions

Answer 2

• programmed
• non-programmed

Question 3

programmed decisions definition

Answer 3

familiar and routine decisions

Question 4

non-programmed decisions definition

Answer 4

less structured and require unique solutions

Question 5

example of a programmed decision

Answer 5

reordering resources
- employees know what to reorder, how much to, and whom from

Question 6

example of non-programmed decision

Answer 6

major investment or entering into a new market

Question 7

difference between tactical and strategic decisions

Answer 7

tactical - short-term decisions (more regularly)
strategic - long term (involve major commitment)

Question 8

risk definition

Answer 8

the chance of incurring misfortune or loss

Question 9

uncertainty definition

Answer 9

a situation in which there is a lack of knowledge of events, outcomes or consequences are unpredictable

Question 10

opportunity cost definition

Answer 10

the next best alternative forgone

Question 11

scientific decision making definition

Answer 11

based on data and uses logical, rational approach to decision making

Question 12

what 3 things can decisions be based off of

Answer 12

• expierence
• hunch/instinct
• data (scientific approach)

Question 13

decision tree definition

Answer 13

a model that represents the likely outcomes for a business of a number of courses of action on a diagram showing the financial consequences of each

Question 14

what does the square represent in a decision tree

Answer 14

a decision has to be made

Question 15

what do the lines coming from the square mean on a decision tree

Answer 15

possible choices

Question 16

what do circles mean on decision trees

Answer 16

existence of chance outcomes

Question 17

prbability definition

Answer 17

chance of a particular event occuring

Question 18

expected values definition

Answer 18

the financial outcomes from a specific course of action adjusted to allow for the probability of it occurring

Question 19

net gains definition

Answer 19

the expected values of a course of action minus the costs associated with it

Question 20

expected value formula

Answer 20

(probability 1 x outcome 1)
+
(probability 2 x outcome 2)
+
(however many more outcomes)

Question 21

how to calculate net gains

Answer 21

expected value - total costs

Question 22

benefits of decision trees

Answer 22

• managers consider all options
• more logical decisions
• quantifies the impact

Question 23

what are the limitations of decision trees

Answer 23

• only include financial data
• can be biased due to estimates of probabilities

Question 24

what are the 5 influences on decision making

Answer 24

Mission statement
Objectives
Resources (available? time, staff, finances, supplies)
External environment (Outside a businesses control)
level of Risk

Question 25

what acronym can be used for influences on decision making

Answer 25

M
O
RE
E
RI

Question 26

ethics definition

Answer 26

moral principles, which should underpin business decisions and actions

Question 27

external environment definition

Answer 27

external forces that can influence a business’s activities

e.g changes in competition or consumer incomes

Question 28

how does the level of risk influence a decision

Answer 28

a non-programmable decision - managers would gather more scientific evidence and data and be more cautious on a decision