Decision-making: Scientific and Intuitive

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  • Most decisions in business are based on hard, numerical evidence and therefore are scientifically made.
  • However, some of the most important decisions are intuitive - a combination of experience and a feel for the future.
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Putting Scientific Decision-making Into Context...

  • Modern managers like to base decisions on numerical evidence. As a result, more and more tactical decisions are made by computers.
  • For example, a McDonalds store manager is sent details of how many staff should be employed for every hour next Saturday.
  • This decision is made using a 'sales forecast' using data from last year and recent weeks.
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Taylor's View on Scientific Decision-making...

  • Taylor believed in 'time and motion' studies that measured when workers completed simple tasks.
  • Once you start measuring things in the workplace, staff pay more attention and start behaving differently.
  • Therefore, he believed that 'measurement was management'.
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Influences on Decision-making:

  • Mission - good business decisions generally contribute towards the mission of the organisation. Therefore, making decisions that may go against the company objectives, perhaps because of ethics come into play.
  • Objectives - especially for middle managers, decision-making is based upon objectives they have been set. 
  • Ethics - this is key for large organisations as they may receive bad publicity if they sell products that are not ethical. 
  • External Environment - see A Level work (PESTLE).
  • Resource Constraints - before making decisions it is key to consider resource implications. Any attempt to expand without sufficient resources is likely to lead to 'over-trading' (expanding more rapidly then your resource base allows).
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Definition of Opportunity Cost:

The cost of missing out on the next best alternative when making a deicision.

  • For example, the opportunity cost of not going to university may be to risk missing out on £200,000 of extra lifetime earnings.
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Definition of Trade-Offs:

These look at what you have to give up in order to get what you want the most.

  • They may not be expressed as a 'cost'.
  • For example, exchanging cheapness for quality to some degree.
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Introduction to Opportunity Cost...

  • At the heart of every business. E.g. for a start-up business a launch party may reduce the budget for training staff.
  • For a new business the two most important resources are money and time as they both have an opportunity cost. E.g. time spent by an entrepreneur creating a pretty website could mean too little time left for recruiting staff.
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New Business' Opportunity Cost Issues

  • Do not tie up too much capital in stock (inventory) as this cash could be used more productively elsewhere in the business.
  • Do not overstretch yourself: good decisions take time.
  • Take care with every deicision that uses up cash.
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Personal Opportunity Costs

  • The first opportunity cost of an entrepreneur starting up a business is the loss of their previous regular salary they would be earning annually.
  • Starting a business is a very time consuming and absorbing activity - depriving family members of attention may be considered as another personal opportunity cost.
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Deciding between oppotunities (factors)...

Estimating the potential sales that could be achieved by each idea: Sales estimates via the use of market research or expertise of the entrepreneur must be generated.

Considering carefully the cash requirements of each idea: inital costs of start up are always key to consider.

Deciding whether the time is right: changing consumer tastes and trends must be considered along with the changing market conditions.

Deciding whether the skills needed fit your own set of skills.

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