decision making models Flashcards
(30 cards)
Why do businesses use decision-making models?
To reduce risk, improve logic and accuracy, evaluate alternatives, and make evidence-based decisions using structured tools and data.
What are the three levels of decision-making in a business?
- Strategic (long-term),
- Tactical (medium-term)
- Operational (short-term)
What is scientific decision-making?
A structured, logical process using data to analyze options and choose the best course of action.
What are the five steps in scientific decision-making?
- Identify objective
- Collect data
- Analyse data
- Make decision
- Review decision
What is intuitive decision-making?
Using instinct, experience, or gut feeling to make decisions without systematic data analysis.
Compare scientific and intuitive decision-making.
- Scientific: data-driven
- logical
- Intuitive: fast, based on experience
What is a decision tree?
A diagram used to analyze options, outcomes, probabilities, and expected financial returns.
What do squares and circles represent in decision trees?
- Squares = decision nodes;
- Circles = chance nodes
How do you calculate expected value in a decision tree?
Expected Value = Probability × Outcome
How is the final decision made using a decision tree?
- Choose the option with the highest net expected value
- Expected value - cost
Give one example of a qualitative factor not included in a decision tree.
- Impact on employee morale
- impact on brand image
What are three advantages of using decision trees?
- Visual structure
- includes probabilities
- supports logical decisions
What are three disadvantages of using decision trees?
- Probabilities are estimates
- may oversimplify
- ignores qualitative factors
What is Critical Path Analysis (CPA)?
A method to plan and control projects by identifying tasks that determine project duration.
What is a critical path?
- The sequence of tasks with zero float time
- delays here delay the whole project.
What is float time in CPA?
Time a non-critical task can be delayed without affecting the project timeline.
How is float time calculated?
Float = LFT - Duration - EST
What is the purpose of nodes in a CPA diagram?
To indicate task start/end and record EST and LFT
How is EST calculated in CPA?
- Work left to right
- choose longest time into the node.
How is LFT calculated in CPA?
- Work right to left
- choose shortest time from following tasks.
Give three benefits of using CPA.
- Efficient resource planning
- Can be used to check on the efficiency of individual
activities - Allows effective management of resources. Allocating factors, such as labour, to where they are needed and can be most effective.
Give three limitations of CPA.
- Relies on accurate estimates
- fail to allow for
external factors - does not ensure quality
What is Cost-Benefit Analysis (CBA)?
A method of comparing private/public costs and benefits of a decision.
What is the formula for cost-benefit analysis?
Social Benefit (private + public) - Social Cost (private + public)
