# 3.3 - Decision making techniques Flashcards

Define Quantitative sales forecasting

Is a statistical technique which uses past data to make predictions about the future, in terms of sales

What does Quantitative sales forecasting allow a business to do

Prepare for potential increases and decreases in demand

Organise production

Organise resources (employees, premises and raw materials)

Organise marketing

Explain what a moving average is and what it consists of

Is a succession of averages derived from successive segments of a series of value. There are three period moving averages (sales average over 3 years) and four quarter moving averages (average sales over 4 quarters of the year)

Explain the use of a line of best fit for QSF

Can be drawn on a QSF graph to see the general trend in sales over the time period to show an overall change in sales

Explain what a scatter graph is

Shows the performance of one variable against another independent variable on a variety of occasions, used to show whether a correlation exists

What are the limitations of quantitative sales forecasts (6)

Past performance is no guarantee of future sales

Businesses also need to take into account SWOT and PESTLE factors which can effect future predictions

Use of moving averages can be outdated

Extrapolating can be inaccurate and unreliable

Is a Time consuming and complex process

In dynamic markets there is rapid change and products have short life cycles , extrapolating may not be appropriate

What is a correlation coefficient

Is used to show the relationship in correlation between two variables.

A +1 means a positive relationship in correlation between the two variables and -1 means a negative relationship

Define a decision tree

Is a technique which shows all possible outcomes of a decision , to analyse the probability of success. Is a quantitative approach

When may a business use a decision tree (3)

A new product launch

A new marketing campaign

Relocation to a new building

Explain a decision point as part of a decision tree

Are points at the start of a decision tree where decisions have to be made, represented by squares

Explain a chance node as part of a decision tree

Are the points where there are different possible outcomes in a decision tree, represented by circles

Explain a probability/chance as part of the decision tree

Is the likelihood of possible outcomes happening , represented by a probability, sourced from backdata

Explain the expected monetary values as part of the decision tree

Give the formula for the expected value

Is the financial outcome of a decision, based on predicted profits or loss

Expected value = success + failure

Give the formula for the net gain in a decision tree

Expected value - cost

Explain the advantages of decision trees for businesses (3)

Constructing the tree diagram may show possible causes of action not previously considered

Involves placing numerical values on decisions, improving results

Force management to take account of the risks involved in decisions