Business Decisions Flashcards
(27 cards)
Define Strategic Decisions
These decisions will affect the entire business and will be made by the owners or senior management.
Are long term and will affect the direction the business
Define Tactical Decisions
Tactical decisions are less complex than strategic decisions and are usually carried out by middle management.
Medium term
Define Operational Decisions
Are the day-to-day decisions made in a business.
These are lower-level decisions that tend to be short term and have little risk.
Why is decision making a critical aspect of business
Decision-making is a critical aspect of business management, influencing the overall success, sustainability, and growth of an organisation.
Define Scientific Decision Making
Scientific decision-making involves the use of facts and data in a systematic way in order to arrive at a logical and evidence-based decision.
Define Intuitive Decision making
Intuitive decision-making uses experience and intuition (gut feeling) to make decisions.
Define Decision Trees
A method of tracing the alternative outcomes of any decision
What are the advantages of Decision Trees
- Clearly lay out the problem so that all options can be considered.
- Allow managers to analyse fully the possible consequences and risks of a decision.
- Help secure investments
What are the disadvantages of Decision Trees
- Can oversimplify a decision and focus too much on the financial outcome and so they forget about the external factors
- Probabilities are difficult to predict and may reflect bias.
- There may be other options that are not included in the decision tree.
What are the parts of a decision Tree
Decision trees have three main parts: a root node, leaf nodes and branches.
Define CPA
Critical path analysis is a method of planning and controlling large projects and is used to make decisions on the management of resources and time.
What is the process of a CPA diagram
- Identify and prioritise the activities
- Identify which activities MUST be done before others
- EST – identify earliest start time
- LFT – identify latest finish time
- Identify the FLOAT – tasks which can be completed outside the critical path
- Identify the critical path – points connecting ESTs and LFTs (where these are the same)
- An activity without spare time is CRITICAL
- Spare time is referred to as the FLOAT
What are the advantages of a CPA diagram
- Can be used to give a business competitive advantage by being more efficient
- Allows effective management of resources. Allocating factors, such as labour, to where they are needed and can be most effective.
- Improves overall management of projects
What are the disadvantages of a CPA diagram
- CPA can give the wrong results or fail to allow for external factors that will influence the total time taken.
- Sub-contractors, who may be completing some of the activities on a project, can be outside the control of the project manager.
- Just estimates may not be accurate
Define CBA
Cost benefit analysis is a method for measuring, in financial terms, the costs and benefits of an investment project.
It considers external costs and benefits to society as well as the costs and benefits to just the business.
What are the two types of costs and benefits
- Private Costs and Benefits
- Public Costs and Benefits.
Define Private costs
These are costs that the business making the investment must accept.
For example, they include training and recruitment costs, the purchase of new capital equipment, marketing costs etc.
Define private Benefits
These are benefits that the business gains from because of making the investment.
For example, benefits will include things such as increased productivity, increased sales, brand values and increased profits.
Define Public Costs
- These are costs external to the business making the investment.
- A building company will have an environmental impact as it builds houses – increased traffic, noise etc.
Define Public Benefits
- These are benefits external to the business that result from making the investment.
- In areas where unemployment is high, crime and social problems might be reduced.
Define Social Costs and Benefits
Social Benefit (private benefit + public benefits)
Social Cost (private costs + public costs)
- If the social benefits are greater than social costs, then go ahead with proposal.
- If the social costs are greater than social benefits, then do not go ahead with proposal.
What are the advantages of CBA
- Considers a wide range of benefits and costs.
- Impacts on society and the community are included.
- Puts a value to external benefits and costs that would normally be ignored by private sector businesses.
What are the disadvantages of CBA
- Hard to measure values of intangable costs and benefits
- Will all stakeholders be included in the calculation of social costs and benefits?
- Can include Bias to monetary values
Define Stock Inventory
- Stock Inventory – Decisions on when to order new stock, how to manage deliveries, or on staffing levels can be calculated and implemented by IT systems
