Unit 2 - chapter 5 Flashcards
what are the 5 stages of the decision making process
- setting objectives
- gathering information
- selecting the chosen option (weighing up the options)
- implementing the decision
- reviewing
what are the 2 types of decisions
- programmed
- non-programmed
programmed decisions definition
familiar and routine decisions
non-programmed decisions definition
less structured and require unique solutions
example of a programmed decision
reordering resources
- employees know what to reorder, how much to, and whom from
example of non-programmed decision
major investment or entering into a new market
difference between tactical and strategic decisions
tactical - short-term decisions (more regularly)
strategic - long term (involve major commitment)
risk definition
the chance of incurring misfortune or loss
uncertainty definition
a situation in which there is a lack of knowledge of events, outcomes or consequences are unpredictable
opportunity cost definition
the next best alternative forgone
scientific decision making definition
based on data and uses logical, rational approach to decision making
what 3 things can decisions be based off of
- expierence
- hunch/instinct
- data (scientific approach)
decision tree definition
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
what does the square represent in a decision tree
a decision has to be made
what do the lines coming from the square mean on a decision tree
possible choices
what do circles mean on decision trees
existence of chance outcomes
prbability definition
chance of a particular event occuring
expected values definition
the financial outcomes from a specific course of action adjusted to allow for the probability of it occurring
net gains definition
the expected values of a course of action minus the costs associated with it
expected value formula
(probability 1 x outcome 1)
+
(probability 2 x outcome 2)
+
(however many more outcomes)
how to calculate net gains
expected value - total costs
benefits of decision trees
- managers consider all options
- more logical decisions
- quantifies the impact
what are the limitations of decision trees
- only include financial data
- can be biased due to estimates of probabilities
what are the 5 influences on decision making
Mission statement
Objectives
Resources (available? time, staff, finances, supplies)
External environment (Outside a businesses control)
level of Risk
what acronym can be used for influences on decision making
M
O
RE
E
RI
ethics definition
moral principles, which should underpin business decisions and actions
external environment definition
external forces that can influence a business’s activities
e.g changes in competition or consumer incomes
how does the level of risk influence a decision
a non-programmable decision - managers would gather more scientific evidence and data and be more cautious on a decision
