3.2.2 Flashcards
(19 cards)
What kind of decisions would a manager need to make? (List 4)
- Punish and reward employees
- Set objectives
- Set deadlines
- Allocate resources
- Delegate
- Manage stock
What is scientific decision making?
Using data and information to form a rational and logical decision
What is the 5 step scientific decision making process?
- Set objectives
- Gather data
- Analyse data
- Select a strategy/make a decision
- Implement and review the decision
What is risk?
The chance of incurring loss or misfortune
What sorts of risks are associated with business decisions? (List 3)
- Changing business forms
- Selling shares
- Making new products
- Upsetting shareholders
What kind of rewards might a business expect? (List 3)
- Profit
- Growth
- Better cash flow
What is uncertainty?
A situation in which there is a lack of knowledge so events are unpredictable
How could we reduce risk and uncertainty? (List 4)
- Use a business plan
- Use scientific decision making
- Complete more data analysis
- Complete more market research
- More democratic leadership style
What is an opportunity cost?
The cost of the next best alternative foregone
What is intuition?
Using gut feeling to make decisions rather than relying on data
What are the potential benefits of using gut instinct to make decisions? (List 3)
- Quicker
- Cheaper (free)
- Useful when assessing characters
What are some influences on the method of decision making? (List 6)
- Speed of decision
- Information available
- Size of the business
- Predictability of the situation
- Character of the leader
- Ethics
- Risk involved
- External environment
- Mission and objectives
What is a decision tree?
A mathematical tool that can be used by managers to help them make the right decision
How do we work out the expected value (EV)?
(probability 1 x outcome 1) + (probability 2 x outcome 2)
How do we define EV?
The financial outcomes from a specific course of action adjusted to allow for the probability of it occurring
How do we work out net gain (NG)?
EV - costs
How do we define NG?
The expected values of a course of action minus the associated costs
What are the benefits of decision trees? (List 2)
- Choices set out in a logical way
- Risk is addressed
- Potential choices considered
- Costs/benefits considered
- Easy to understand tangible results
What are the disadvantages of decision trees? (List 2)
- Just estimates (prone to error)
- Uses only quantitative data
- Doesn’t necessarily reduce risk
- Assigment of probabilities and expected values prone to bias
