1. IB Business & Management
Topic 1 – Business Organisation and Environment
ORGANISATIONAL PLANNING TOOLS

2. Learning Objectives
Apply a formal decision making framework to a business situation
Prepare a SWOT analysis for a business situation
Analyse an organisations position using a SWOT analysis
HL - Apply decision making processes and planning tools
HL - Compare and contrast scientific and intuitive decision making processes
HL - Construct and interpret decision trees and evaluate this technique

3. Decision making approaches and techniques
Fishbone Diagram
Decision Tree
Swot Analysis

4. Fish Bone Diagram
Visual identification of many potential causes of a problem
Also known as the cause and effect diagram or the Ishikawa diagram
6 “bones” on the fishbone diagram
6M’s
Methods
Machines
Manpower
Materials
Measurement
Mother Nature

5. Stages in the fishbone process
As a company, agree on what the problem is
Brainstorm the main categories (6M’s)
Brainstorm all of the detailed reasons why problems might occur under each heading
Analyse the findings
Once the process has been completed the business can put strategies in place to remove the most likely causes of the problem

6. Fishbone Diagram
Stage 2
Stage 1
Stage 3
Manpower

7. Task Complete a fishbone diagram
The effect is that not a lot of people use your company website

8. Decision Tree
Diagram that sets out the options connected with a decision and the outcomes and economic returns that may result
Diagram represents 4 main features of a business decision (benefits)
All options open to a manager
Different possible outcomes resulting from these options
The chances of these outcomes arising
Financial returns
By comparing the likely financial results, manager can minimise risk involved and maximise potential returns

9. Constructing decision trees
Features
Constructed left to right
Each branch represents an option and shows outcomes and chances (chances are represented by a circle – chance node)

10. Outcomes – Points where there are different possible outcomes (Chance / Probability Nodes)
Decision Points / Node – Points where decisions have to be made
Probability or chance – The likelihood of possible outcomes represented by probabilities. Outcome certain then 1 if there is no chance then 0
Rejected options
Expected Values – Financial outcome of a decision, based on the predicted profit or loss of an outcome and the probabilities

11. Profit or loss
Example
A simple decision tree based on a decision whether to retain an existing advertising campaign or begin a new one
Success
$15m
0.2
Launch new campaign B
Failure
-$2m
0.8 A
Success
$7m
0.4 C
Retain old campaign
Failure
-$1m
0.6

12. Calculating expected values
What should the business decide?
It needs to work out the expected values of each decision, taking into account the expected profit or loss and the probabilities
Can you identify them on the following example?

13. Calculating expected values
Expected value of NEW campaign
Success Failure
Expected Value = X $15m x (-$2m)
= $3m - $1.6m (We ONLY minus here because it has provided us with a negative figure )
= $1.4m
= $1.4 minus initial investment of $1 = $0.4
Expected value of OLD campaign
Success Failure
Expected Value = X $7m x (-$1m)
= $2.8m - $0.6m (We ONLY minus here because it has provided us with a negative figure )
= $2.2m
= $2.2 minus initial investment of $0.2 = $2m
With these figures, the business should continue with the existing campaign because the expected value is higher. NOTE: We minus here because there are negative figures

14. You then need to reject the options you will not choose like so…
Profit or loss
Expected Value
Success
$15m
Launch new campaign
0.2 B
($1M)
Failure
-$2m
$1.4 - $1 = $0.4m
0.8 A
Success
$7m
Retain old campaign
0.4 C
($0.2m)
Failure
-$1m
0.6
$2.2 - $0.2 = $2m
You then need to reject the options you will not choose like so…
If the initial investment is also displayed you will need to subtract it from the end
EG New Campaign – initial investment ($1m) so it would be $1.4m – $1m. Expected value = $0.4m

15. Key points when you create a decision tree
Marks are awarded for the following:
Displaying a key with your decision tree
Drawing neatly
Rejecting all the options you don’t chose
Getting it right!

16. What do we do now? Which is the best option?
But what if they are all positive figures? Lets use the same example as before
Try doing this now
What do we do now? Which is the best option?
Profit or loss
Success
$15m
0.2
Launch new campaign B
($1M)
Failure
$2m
-$2m
0.8 A
Success
$7m
0.4 C
Retain old campaign
($0.2m)
Failure
-$1m
$1m
0.6

17. Calculating NEW expected values
Expected value of NEW campaign
Success Failure
Expected Value = X $15m x $2m
= $3m + $1.6m = $4.6m
= $4.6 minus initial investment of $1 = $3.4m
Expected value of OLD campaign
Success Failure
Expected Value = X $7m x $1m
= $2.8m + $0.6m = $3.4m
= $3.4 minus initial investment of $0.2 = $3.2m
With these figures, the business should STILL continue with the existing campaign because the expected value is STILL higher.

18. But what if they are all positive figures?
Then you add up all the successes and minus the initial investment.
That is your answer, then choose the most profitable and reject the others.
Try doing this example.
Work out the expected values and create a decision tree

19. Main advantages of decision trees
Forces management to consider all options
Easy to follow and construct diagram
Encourages logical thinking and discussion amongst managers
But its all based on probability

20. Decision Trees – An Evaluation
Main limitation concerns accuracy
Estimated economic returns may be accurate when they concern projects where experience has been gained from similar decisions
Otherwise they are based on market demand or “guestimates”
Decision trees aid the decision making process but they cannot replace risk
Decision trees allow a quantitative consideration of future risks to be made – they don’t eliminate them

21. Task
Page 92 of Geoff’s textbook – Question 1

22. SWOT Analysis
SWOT – a strategic analysis that identifies and analyses a business and its environment
It is the first stage of planning and helps marketers to focus on key issues

23. So what does SWOT mean? strengths weaknesses opportunities threats
Strengths and weaknesses are internal factors
Opportunities and threats are external factors

24. Easy grid to use…. STRENGTHS (internal) WEAKNESSES OPPORTUNITIES
(external)
THREATS

25. So what could be a company’s Strengths?
For example: A strength could be:
Your specialist marketing expertise
A new, innovative product or service
Location of your business
Quality processes and procedures
Any other aspect of your business that adds value to your product or service

26. So what could be a company’s Weaknesses?
For example: A weakness could be:
Lack of marketing expertise
Undifferentiated products or services (i.e. in relation to your competitors)
Location of your business
Poor quality goods or service.
Damaged reputation

27. So what could be a company’s opportunities?
For example: An opportunity could be:
A developing market such as the Internet
Mergers, joint ventures or strategic alliances
Moving into new market segments that offer improved profits
A new international market
A market vacated by an ineffective competitor

28. So what could be a company’s threats?
For example: A threat could be:
A new competitor in your home market
Price wars with competitors
A competitor has a new, innovative product or service
Competitors have superior access to channels of distribution
Taxation is introduced on your product or service

29. Simple rules for successful SWOT analysis
Be realistic about the strengths and weaknesses of your organisation when conducting SWOT analysis
SWOT analysis should distinguish between where your organisation is today, and where it could be in the future
SWOT should always be specific. Avoid grey areas
Always apply SWOT in relation to your competition i.e. better than or worse than your competition
Keep your SWOT short and simple. Avoid complexity and over analysis
SWOT is subjective

30. Marketing Objectives, Strategies & Tactics
What are they?
Marketing objectives are the goals of the marketing department which must ‘fit’ with the overall company objectives.
Marketing strategies are long term and medium term plans set by management, designed to achieve the marketing objectives.
Marketing tactics are short term marketing measures adopted to meet the needs of a short term threat or opportunity. Ideally they should be in line with the marketing objectives, but this might not always be the case.