business chapter 8 com 2

why is it important that good decisions are made within a business?
in order to help the business meet its aims and objectives
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what are the two types of factors that can affect a businesses decisions?
internal (ones that the business can control) and external (ones that the business can't control)
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what are the 3 types of decisions a business can make and who would they be made by?
Strategic - by senior management, Tactical - by middle management, Operational - by junior management
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what is a strategic decision?
a long term decision, affecting the direction the business takes. often complex decisions which may involve large financial commitment
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what is a tactical decision?
a medium term decision, should aim to implement strategic decisions, often more flexible that strategic decisions
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what is an operational decision?
a short term decision, made day to day, usually decisions made fairly quickly due to little risk
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who makes strategic,tactical and operational decisions?
Strategic - senior management, tactical - middle management, operational - junior management
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What is 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
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what is the structure of the scientific approach?
1. identify the objective to solve 2. collect relevant data; can include primary or secondary 3. analyse information to identify possible ways forward 4. make and implement the decision 5. review decision and change if needed
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What decisions is the scientific approach most likely used for and why?
Strategic and tactical decisions - as based on logic and evidence it should reduce risk
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What is the intuitive approach of decision making?
uses gut feeling to make a decision with often no systematic approach or data to back this up
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What decisions is the intuitive approach most likely used for and why?
operational decisions - as they are low risk and can be made quickly
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what are the name of the 3 models that support the scientific approach?
decision trees, critical path analysis and cost benefit analysis
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what are decision trees?
a form of diagrammatic analysis used with making decisions when there are a number of different options to select. They are particularly useful where probability plays and important role in likely outcomes. build probability of success and failure
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what are the components of a decision tree?
square decision nodes, circular chance nodes, lines representing chance or probability, value of outcomes in pounds and probability of outcomes in percentage or decimal point
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what are the 3 benefits of a decision tree?
1. lay out problem so all options can be considered 2. allow managers to analyse fully the possible consequences and risks of decision 3. provide a framework to quantify the values of outcomes and probability of achieving them
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what are the 4 limitations of a decision tree?
1. probability only an estimate 2. can over simplify decision and focus too much on financial outcome 3. dont include other factors 4. time consuming to construct and may be interpreted with bias
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Other cards in this set

Card 2

Front

what are the two types of factors that can affect a businesses decisions?

Back

internal (ones that the business can control) and external (ones that the business can't control)

Card 3

Front

what are the 3 types of decisions a business can make and who would they be made by?

Back

Preview of the front of card 3

Card 4

Front

what is a strategic decision?

Back

Preview of the front of card 4

Card 5

Front

what is a tactical decision?

Back

Preview of the front of card 5
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