AQA AS Business studies chpater 33-Making operational decisions

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Chapter 33: Making operational decisions
Businesses of all sizes have to make many decisions each day some are fairly simple
and routine, whilst others are more complex and require significant management time
and effort. Some examples of decisions that all businesses need to make are:
Where should we locate the business?
What goods should we produce?
What price should we charge?
What should we do if a supplier fails to deliver on time?
Which job agency should we use to provide us with some temporary workers?
Which employee appraisal system should we use?
Decisionmaking is the basic task of all managers in all departments of the business,
and both in the private and the public sectors. These decisions are, effectively,
designed to influence the actions of other people.
A strategic decision is one which is very highrisk and is likely to influence the overall
longterm policy and direction of the business. As such, it is likely to be dealt with by
senior management (e.g. what new products to develop).
A tactical decision is a fairly routine, predictable, shortterm decision, which is
normally handled by middle management (e.g. what price to charge for products). Other
decisions which are repetitive, daytoday and fairly riskfree are handled by lowerlevel
management, and are generally referred to as operational decisions (e.g. how long
should teabreaks be?).
Businesses have to make decisions in order to achieve their objectives.
There are eight key stages involved in the traditional decisionmaking process:
1. Set objectives. The decisionmaking process cannot proceed without an
achievable, realistic and identifiable target to be met.
2. Gather data. Use market research to collect as much information as possible from
inside and outside the business, so to enable the decisionmakers to have the
necessary data with which to make an effective decision.
3. Analyse the data. Look at the different courses of action and decide which ones
look the most achievable and realistic to meet the objective.
4. Make a decision. This stage is vital to the whole process. The decisionmakers
must ensure that they follow the correct course of action and do not reject a better
alternative.
5. Communicate. This to the whole organisation. The relevant people, both inside and
outside the organisation, need to be informed about the decision and how it may
affect them.
6. Implement the decision. The course of action that has been decided upon is
implemented, using the available resources of the business.
7. Look at the results. Obtain as much feedback as possible concerning the recently
implemented decision, from as many sources as possible.

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Evaluate the outcome. Did the decision work ? Was it the best course of action ?
How can it be improved next time? What went wrong?
Businesses can rarely carry out their decisionmaking in a totally open and riskfree
environment, and there are often many constraints which exist, that will limit the possible
options available to a business.…read more

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The tree diagram points in favour of delaying the sale of the land for 12 months, since it
predicts that IF THE DECISION WAS TAKEN MANY TIMES then Mr.Smith would ON
AVERAGE receive £283,000 (£290,000 minus £7,000 costs), instead of the £245,000
(£250,000 minus £5,000 costs) that he would receive by selling the land now. There
are several points to note from the diagram:
1. The tree diagram is laid out from left to right.
2.…read more

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The probabilities are only estimates and are, therefore, subject to change.
2.They can only show quantitative data they do not take account of peoples' feelings,
legal constraints, etc.
3.The results can be biased, in order to show just one side of an argument.
4.There can be significant time delays whilst making the decision, and some of the data
may be outofdate by the time the decision is finally made.
S.W.O.T.…read more

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Effective promotion
Several of our products are reaching the end of their lifecycle
Too many marketing personnel are leaving the business
Restricted product range
Opportunities: Threads:
New markets in Far East
A joint venture with a foreign chocolate manufacturer
Product extensions, such as different sizes of bars
Competitors are threatening a price war
Takeover by domestic rival
New legislation may affect the source of our ingredients
This diagram is simple and easy to follow, and it can provide the basis for discussion of
business strategy…read more

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These potential scenarios are often computersimulated,
and they can predict to a high level of accuracy the likely effects of a crisis on the
finances and resources of a business.
Crisis management is the response of an organisation to a crisis (e.g. a fire, terrorist
activity, natural disaster). Many companies will have some sort of contingency plan to
cater for such situations, but it is rare that the actual crisis will go according to plan.…read more

Comments

Aishah W

Complicated and doesnt cover all topics in this section.

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