3.3 decision making techniques Flashcards Preview

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Flashcards in 3.3 decision making techniques Deck (21)
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1

what does time series analysis help?

- helps a business workout whether there is an upwards trend, downwards trend or a constant trend in sales figures

2

what do businesses invest in?

- non-current assets
- launching new products
- new technology
-expansion
- infrastructure

3

what are financial methods for investment appraisal?

- payback period
- average rate of return (ARR)
- net present value

4

what is payback period?

- calculates the length of time it takes for an investment to recoup its original cost

5

what is average rate of return (ARR)?

- calculates the annual averages return over the life of an investment with other alternatives

6

what is net present value?

- can be used alongside other techniques and considers the future value of an investment

7

ARR=

average annual profit
---------------------------------- X100
assets initial cost

8

Net present value=

net cash flow X discount factor

9

what are financial factors when making investment decisions?

- rate of investment
- ROCE
- cost

10

non financial factors when making investment decisions?

- corporate objectives
- ethics
- industrial relations

11

limitations of payback period?

- cash earned after payback is ignored
- profitability overlooked

12

limitations of ARR?

- effects of time on value of money ignored

13

limitations of NPV?

- calculation is more complex
- if rate of discount is too high, projects will not be profitable

14

what are decision trees?

- method of tracing alternative outcomes from a range of business decisions, options or projects

15

benefits of decision trees?

- clarifies possible courses of actions
- adds financial data to decisions
- make managers account for risk

16

drawbacks of decision trees?

- profitability is often estimated
- doesn't consider qualitative information
- doesn't take into account dynamic nature of a business

17

in a decision tree what do you do to the options your not taking?

- cross through them

18

what is critical path analysis?

- involves using a network diagram to manage the various tasks required to complete a project

19

benefits of critical path analysis?

- identify the activities involved in implementing a strategy
- effectively plan for the implementation of a strategy
- introduce informed deadlines for different activities
- allocate resources efficiently to the different activities

20

limitations of critical path analysis?

- can be difficult as projects involve multiple factors
- doesn't take into account quantitative issues
- relies on estimations

21

how do you identify the critical path?

- by using hatched lines