3.2.2 Understanding management decision making Flashcards
What is the process of scientific decision making?
- Set the objective
- Gather and interpret information (market research)
- Select the chosen option
- Implement the decision
- Review
What are the advantages of a scientific approach?
Provides a clear sense of direction for all involved in the business
Decisions are made and based on business logic
It is flexible – at any stage in making a decision, it can be reviewed and changed if needed
What are disadvantages of scientific decision making?
- Scientific decision making can be time-consuming to collect the data required.
- Relying on data may mean that the experience or expertise of staff may not be considered.
- Using out of date or poor data is unreliable and can affect the quality of the decision made.
Describe non-scientific decision making (intuition)
The ability to understand something without the need for conscious reasoning; similar to a ‘hunch’
Making decisions with a lack of evidence to prove it is the right thing to do
This would be appropriate when a quick decision is necessary as it provides quick results when under a time scale
It is mainly used by smaller businesse
What does the choice between scientific approach and intuition depend on?
- Speed of decisions
- Information available
- Size of business
- Predictability of situation
- Character of the person making the decision and the culture around him
What are characteristics of decision trees?
- They are good at choosing between several courses of action
- Provides a highly effective structure within which you can lay out options and investigate the possible outcomes of choosing these options
- It uses estimates and probabilities to calculate likely outcomes
- It helps to decide whether the net gain from a decision is worthwhile
What do decision trees look like?
What is expected value and how do you calculate it?
the financial value of an outcome.
EV = the estimated financial effect x its probability
What is net gain and how do you calculate it?
the value to be gained from taking a decision.
NG = the expected value of each outcome – the costs associated with the decision.
What are advantages of decision trees?
- Gives you a decision
- Evidence to gain a source of finance
- Set out logically
- Easy to understand and results are tangible
- Likely costs considered as well as benefits
- Assesses risks
- Potential options and choices are considered at the same time – direct comparison
What are disadvantages of decision trees?
- Always prone to error
- Calculating probability can be hard
- Could be inaccurate or unreliable as only estimates
- Doesn’t necessarily reduce the amount of risk
- Prone to bias
- Uses quantitative data only – ignores qualitative aspects such as effects on employee motivation and brand image
What are the influences on decision making?
- Business mission and objectives
- Ethics
- The risk involved
- External environment
- Resource constraints (e.g. information, time, labour, and materials)
- Stakeholders
How is the business’ mission and objectives influence decision making?
Business decisions have to match with the mission statement and current objectives of the firm
How is the business’ ethics influence decision making?
this is the desire to act in a way that it morally correct ( these decisions are often not quantifiable and can attract negative publicity for the business if they don’t act morally correct)
How is the risk involved influencing decision making? Answer by explaining non programmable and programmable decisions.
Non programmable = high risk – needs to be calculated and not taken on a hunch
Programmable = low risk – can often be made using intuition or a hunch
