A PPLIED BUSINESS STUDIES TAKING DECISIONS

D ECISIONS, DECISIONS When managers make decisions they have to make a choice between two or more options. Decisions can be particularly difficult for managers to make when:  They do not have enough information on which to base a decision.  They lack experience in the area in which the decision has to be made.  A decision is needed quickly.

R OUTINE AND NON - ROUTINE DECISIONS Routine decisions ; are taken regularly and are not unexpected so managers are prepared to make them as part of their regular duties. They are normally low-level decisions that can be taken by relatively junior staff and can often be delegated to more junior employees. There are some routine decisions that can be major ones that need to be taken by senior managers (regular decisions on the launch of a product in the technology industry). Non-routine decisions; occur irregularly and may be needed because of some unexpected event. They can be taken by managers at all levels within an organisation. It is the nature of the non-routine decision that determines at what level it is made in the organisation (if it will affect the whole enterprise more likely to be made by a senior manager).

T ACTICAL AND STRATEGIC DECISIONS Tactical decisions; are based on short term factors (decision to reduce the price of items for a sale or increase the overtime rate when faced with a large and unexpected order). Are normally taken by middle managers, although they may be taken by senior managers if there is significant cost implications or impacts on a large section of the business. Strategic decisions; are those that have long- term implications, often for the entire business. They are made by senior managers because they have far-ranging implications for the business concerned. Decisions are normally only taken following prolonged discussion and after gathering and analysing relevant data.

P ROACTIVE AND REACTIVE DECISIONS Proactive decisions; taken in advance of the event. Managers of all levels in the organisation can take proactive decisions. Proactive decisions are taken by enterprising and innovative firms that want to be market leaders and to shape market developments. Reactive decisions; taken when businesses respond to events rather than trying to shape them. Apple’s rivals have to decide how to respond when they launch a new iPhone. Reactive decisions are taken at all levels in the organisation and by all types of businesses.

C RITICAL PATH ANALYSIS ( DECISION MAKING MODEL ) A critical path analysis (CPA) is a method of calculating and illustrating how complex projects can be completed as quickly as possible. Refer to Figures and in the text book (page 189). The major benefit of CPA is that it helps managers to make informed decisions about project timings. Can help decide whether a particular process or event can be completed by a certain date. If delays and problems do occur the CPA network assists managers in deciding the best solution. There are disadvantages and challenges ; complex activities may be difficult or impossible to represent on a network. External factors may change such as the lack of availability of crucial resources. The accuracy of the whole CPA network depends on the time durations being allocated to the various activities, if these are inaccurate the whole network will give an incorrect answer.

S TATISTICAL PROCESS CONTROL ( DECISION MAKING MODEL ) Statistical process control (also known as control charts) uses monitoring systems based on statistics to make sure that production is efficient and meets quality standards. Refer to pages 190 and 191 of the text book. Read the two examples given (the airline and a food canning factory) and see Figure for an example of a control chart. It is the combination of technology and statistics that is characteristic of statistical quality control. It is a powerful tool that can be used to alert managers to possible quality problems before they become too serious. Implementing SPC can be expensive and some employees may resent what they perceive as an electronic spy checking up on their work

D ECISION TREE ( DECISION MAKING MODEL ) Decision trees; can help to reduce the amount of uncertainty in any decision. They use a combination of financial data and probability theory to give expected values to each of the choices that a manager faces. Refer to page 192 of the text book. The advantages ; encourages managers to be logical and to consider all the possibilities, discourages managers from relying too heavily on hunches or instinct. Probably most useful when making routine decisions for which financial data and probabilities are likely to be known. The disadvantages; it is very difficult to get accurate data, especially relating to probabilities, when taking a major decision which may involve a step into the dark. Can also be problematic if the business environment is too changeable as it is difficult to assess the various outcomes etc. with any degree of confidence.