3.2.2 Decison Makinh

Question 1

Define intuition

Answer 1

Judgement made on qualitative criteria- like guess work

Question 2

What is short-termism

Answer 2

A tendency with a business to focus on short-term results- at the cost of long-term success

Question 3

What is a strategic decision

Answer 3

One that is made in circumstances of uncertainty and where the outcome will have a major impact on the medium- to long term future of the organisation

Question 4

What is a tactical decision

Answer 4

Deciding what to do in circumstances that are immediate (short-term) and where a mistake is unlikely to have a major impact on the business

Question 5

What are the approaches to decision making

Answer 5

Hunch
Scientific
Programmed
Non programmed

Question 6

What is the process of decision making (5)

Answer 6

Setting objectives, gathering and interpreting information, selecting the chosen option, Implementing a decision, reviewing

Question 7

What are the two approaches to decision making

Answer 7

Hunch and scientific

Question 8

What is a hunch decision

Answer 8

Based on intuition, gut feel and experience
• Quick!
• Risky!

Question 9

What is a scientific decision

Answer 9

SCIENTIFIC
• Based on data
• Time-consuming & costly
• Supported by Big Data

Question 10

What is a programmed decision

Answer 10

Familiar and routine decisions

Question 11

What is a non programmed decision

Answer 11

Less structured and require unique solutions

Question 12

What are 5 key influences on business decisions

Answer 12

-Business Objectives / Budgets
-Organisational Structure - Who Makes the Decisions?
-Attitude to Risk
-Availability & Reliability of Data
-The External Environment

Question 13

What is an opportunity cost

Answer 13

The cost of missing out on the next best alternative
The benefits that could have been gained by taking a different decision

Question 14

Why opportunity cost is important

Answer 14

resources are limited (particularly startups)
• When resources are scarce, significant decisions about what to spend and where to focus become more risky

Question 15

What is a node

Answer 15

Node: a point in a decision tree where chance takes over. It is denoted by a circle, and at that point it should be possible to calculate the expected value of this pathway.

Question 16

What is expected values

Answer 16

Expected values: these are the forecast actual values adjusted by the probability of their occurrence.

Question 17

What is a net gain

Answer 17

Net gains: subtracting the initial outlay from the expected value to find out whether or not a decision is likely to produce a surplus.

Question 18

What is probability

Answer 18

Probability: the likelihood of something occurring, usually expressed as a decimal

Question 19

What is a decision tree

Answer 19

Decision Trees: A mathematical model, used to help managers make decisions and uses estimates and probabilities to calculate likely outcomes

Question 20

What are the advantages of using decision trees

Answer 20

Choices are set out in a logical way
• Potential options are considered at the
same time
• Use of probabilities enables the “risk” to be considered
• Likely costs and financial benefits considered
• Easy to understand
• Tangible results

Question 21

What are the disadvantages of using probability trees

Answer 21

Probabilities are just estimates (chance of error?)
• Uses quantitative data only – ignores qualitative/ feelings/ opinions
• Probabilities and values prone to bias
• Doesn’t necessarily reduce the amount of risk