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DECISION MAKING

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Title: DECISION MAKING


1
DECISION MAKING
  • Businesses have long term aims
  • short term objectives
  • targets to achieve to fulfil these

2
Managers must take decisions
  • to fulfil their roles and functions within an
    organisation
  • to ensure effective and efficient use of limited
    resources
  • to achieve business goals

Some decisions are routine and do not involve a
lot of thought. Decisions about the future may
carry more risk and therefore merit more time
given to them
3
WHAT IS DECISION MAKING?
  • Decision making involves choice
  • Making the right choice allows a business to
    achieve its objectives
  • Decision making is necessary to solve problems
  • Decision making involves risk

4
TYPES OF DECISION
  • There are basically 3 main types of decision
  • STRATEGIC
  • TACTICAL
  • OPERATIONAL

5
STRATEGIC DECISIONS
  • long term (5years)
  • far reaching
  • made by chief executive, board of directors,
    owners of small businesses
  • deal with general direction or objectives of a
    business
  • Outcome may be uncertain

6
Examples
  • Whether to produce a low priced product and gain
    market share or produce a high priced product for
    a niche market would be a strategic decision.
  • Expansion into a foreign country
  • Diversify into different products

7
TACTICAL DECISIONS
  • used to implement strategic decisions
  • short/medium term
  • less far reaching than strategic
  • made by senior/middle management
  • outcome more predictable

8
Examples
  • If your company decided to produce a low priced
    product, a tactical decision might be to build a
    new factory to produce them at a low
    manufacturing cost.
  • Find cheaper suppliers
  • Develop a new marketing campaign to raise
    awareness of the organisations products
  • Widen product range

9
OPERATIONAL DECISIONS
  • short term
  • lower level decisions
  • little risk
  • shop floor, day to day decisions
  • quickly taken
  • made by all levels of managers but mostly made by
    supervisors, and junior managers

Q1-13
10
Examples
  • Staff Training
  • Adjusting staff rotas
  • Small incentive scheme

11
Question 1
  • Describe what is meant by each
  • of the following types of decisions
  • Strategic
  • Tactical
  • Operational
  • (6 marks)

12
Solution
  • Strategic decisions are long-term decisions (1)
    made by senior management regarding the overall
    direction of the organisation (1). They do not
    contain a lot of detail.
  • Tactical decisions are medium-term decisions (1)
    made by senior middle management. These
    decisions are about how to achieve the
    organisations strategic objectives. (1)
  • Operational decisions are short-term, day to day
    decisions (1) made by departmental
    managers/supervisors as changes occur. (1)

13
Question 2
  • News Headline
  • POLICE TO MAKE SOCIETY SAFER
  • This is an example of a strategic decision.
  • Describe the tactical and operational decisions
    the police force could make in relation to the
    above statement.

14
Solution
  • Tactical medium term decisions made by middle
    management regarding how to achieve the strategic
    decision i.e. hire additional police officers,
    mount a specific campaign (knife amnesty)
  • Operational day to day decisions made by junior
    managers normally in response to changes occuring
    i.e. send police officers to a particular
    incident, change work rotas if a large number of
    staff are involved in an event (football match)

15
Question 3
  • Marks and Spencer have the long term
  • objective of growth.
  • Describe tactical and operational decisions that
    would help them achieve this objective.
  • (4 marks)
  • Note answer must include 2 linked tactical and
    operational decisions.

16
Solution
  • Tactical
  • Open new branches in another area of the country.
    (1)
  • Develop and launch new products or update
    existing products (1)
  • Develop a new marketing campaign (1)
  • Operational
  • Advertise for staff in new stores (1)
  • Train staff in new products (1)
  • Book advertising space on TV/magazines/radio (1)

17
WHO NEEDS TO KNOW ABOUT DECISIONS?
  • All stakeholders need to be informed if the
    decision impacts on them.
  • Employees should know where the business is
    heading (legislation could enforce this)
  • Investors rely on their investment for a source
    of income. If they feel the organisation lacks
    direction then may withdraw their finance

18
Missions Statements
  • A Mission Statement is a written summary of the
    aims and objectives of an organisation.
  • It is often displayed in a prominent place and
    will be issued to shareholders and other
    interested stakeholders.
  • PLCs are required by law to produce a Mission
    Statement

19
Example Mission Statements
  • Standard Life
  • http//www.standardlife.com/about/mission_vision.h
    tml
  • Easyjet
  • http//www.easyjet.com/EN/About/index.html
  • BBC
  • http//www.bbc.co.uk/info/purpose/
  • Starbucks
  • http//starbucks.co.uk/en-GB/_AboutStarbucks/Miss
    ionStatement.htm
  • University of London
  • http//www.lon.ac.uk/5.html

20
Question
  • What is the purpose of an organisation having a
    mission statement?
  • (2 marks)

21
Why Is Effective Decision Making
Difficult? Constraints On Decision Making
  • internal constraints
  • availability of finance
  • company policy
  • Employees abilities and attitudes
  • external constraints
  • government and EU legislation
  • competitors behaviour
  • lack of new technology
  • economic environment

22
Question
  • Explain Internal Constraints that Could Affect
    Decision Making
  • (3 marks)

23
Solution
  • Internal constraints that could affect the
    success of decisions are
  • availability of finance a decision may not be
    possible if the organisation are unable to
    finance it.
  • company policy if current policy states that
    all production must take place in the UK, this
    will greatly constrain a decision to grow.
  • Employees abilities and attitudes how
    employees react to a decision and how able they
    are to achieve the objectives will have a great
    influence on whether or not the decision will be
    successful
  • Are they motivated for the changes?
  • Are they capable of the tasks expected of them?

24
HOW DO BUSINESSES KNOW IF THEY HAVE MADE THE
RIGHT DECISION?
  • Along with making the decision managers have the
    responsibility for monitoring and investigating
    the outcome of decisions.
  • They must constantly
  • Review what was actually achieved?
  • Evaluate was this what was expected?
  • Alter are changes required?

25
HOW DO BUSINESSES KNOW IF THEY HAVE MADE THE
RIGHT DECISION?
  • Compare the outcome to the objectives of the
    decision
  • Research customers opinions before and after
  • Ask staff to comment of the effectiveness of the
    changes
  • Find out if sales/efficiency has improved

26
THE ROLE OF MANAGERS
  • Henry Fayol spent time researching what managers
    do
  • PLAN decide on the direction they wish to go
    and what is required
  • ORGANISE - Give the workers the resources they
    need to do it
  • COMMUNICATE - Make sure that everyone that needs
    to know about the decision is told
  • CO-ORDINATE - Bring all necessary resources
    together and make sure that everyone knows and
    understands what they have to do
  • CONTROL AND MONITOR - Make sure they do it, and
    that they do it properly

27
Effective managers also have to be able to
  • DELEGATE give subordinates the authority to
    carry out tasks. This motivates workers and
    reduces the managers workload.
  • MOTIVATE getting workers to work harder. This
    can be done by telling them, encouraging
    team-working, participation in decision making,
    and by giving them some authority.

28
Question
  • The manager of a chocolate manufacturer decides
    to introduce a new chocolate bar.
  • Describe the role of a manager in achieving this
    objective.
  • (7 marks)

29
Solution
  • Plan the launch, set date aim to sell 1
    million bars in first six months, objective to
    make 300,000 profit
  • Organise the production of the chocolate bars
    and delivery of supplies to each shop, organise
    the advertising of the new chocolate bar
  • Communicate tell the factory how many to
    produce and tell each shop when delivery will be
    made, where to place the product on the shelves,
    the price
  • Co-ordinate ensure the factory can meet the
    deadline and transportation is arranged to each
    shop
  • Control check each week that production is on
    target in the factory, have a meeting with the
    sales reps to ensure orders are coming in and
    advertising is taking place, make adjustments if
    original plans not working
  • Delegate give subordinates (factory, finance,
    marketing) authority and tasks to complete,
    managers would not do everything themselves
  • Motivate have regular meetings to see if anyone
    needs help, encourage

30
Why do managers make decisions?
  • Management decisions are made in order to achieve
    the long-term aims of the owners of the
    organisation
  • Managers must make decisions in order to carry
    out their roles and functions within the
    organisation.
  • Managers also make comparisons between the actual
    performance over a period of time and the aims
    and objectives the organisation has set.

31
A STRUCTURED DECISION-MAKING MODEL
  • POGADSCIE.ppt

Q1-10
32
POGADSCIE ACTIVITY
  • Using the structured decision-making model
    POGADSCIE, show the process that could be taken
    to solve the problem of customers queuing at
    checkouts in the local supermarket.

33
Solution
  • Identify the problem
  • Build up of customers queuing at checkouts
  • Identify the objectives
  • Customers to pass through checkouts quickly, no
    more than one in a queue
  • Gather information
  • Collection information from employees and
    customers e.g. questionnaires, interviews
  • Analyse information
  • Study information collected are there any
    common issues/solutions?
  • Devise alternative solutions
  • Add more checkouts Employ more staff (at peak
    times) to ensure all checkouts are operational
    Always ask customers if they would like a bag
    packer Checkouts for basket shoppers
    Self-service checkouts
  • Select from alternative solutions
  • Add more checkouts Add self-service checkouts
  • Communicate the decision

34
Decision Making Model Activity
  • A small clothes shop has seen sales fall for the
    past 6 months.
  • Use POGADSCIE to solve the above problem.

35
  • Benefits of structured decision making models
  • Systematic logical approach
  • the time scale is required no rash decision is
    made
  • the quality/quantity of the information you have
  • the availability of alternative solutions
  • enhances innovation and responsiveness

36
Problems with structured decision making models
  • time scale required to gather all the information
    can slow down the decision making process
  • the availability of the information
  • Choosing a range of possible solutions can be
    difficult to do in practice
  • a structured process can stifle creativity and
    gut reactions to problems
  • Not useful if a quick solutions is required

37
SWOT Analysis
  • A tool that management can use to help with
    decision-making.
  • It is used to evaluate where the organisation is
    now and where it should be in the future.
  • Identifies internal factors (strengths and
    weaknesses) and external factors (threats and
    opportunities).
  • SWOT analysis can be used to look at
  • the organisation as a whole
  • at a department within the organisation
  • at a single product or
  • at a product range.

38
SWOT ANALYIS
  • Doing a SWOT analysis can be used to cover the
    first 4 steps in the DM process (Identify
    Problem, Set Objective, Gather Information,
    Analyse Information)
  • It is not a one-off exercise part of a
    continuous process
  • A number of people should work on it although
    they might not all agree
  • Position can change very quickly threats could
    become opportunities, a strength can become a
    weaknesses

39
SWOT ANALYSIS
PRESENT POSITION
STRENGTHS
WEAKNESSES
INTERNAL
FUTURE POSSIBILITIES
OPPORTUNITIES
THREATS
EXTERNAL
40
SWOT ANALYSIS
STRENGTHS What advantages do you have? What do you do well? What resources do you have? What do other people regard as your strengths? OPPORTUNITIES What opportunities are presenting themselves? New technology available Changes in Government policy Changes in social patterns population, lifestyle, tastes
WEAKNESSESS What could you improve? What do you do badly? What should you avoid? THREATS What obstacles do you face What is the competition doing Do you have debt or cashflow problems Is changing technology threatening your position
41
Questions
  • Describe the main internal influences (strengths
    and weaknesses) on an organisation.
  • (4 marks)
  • Describe the main external influences
    (opportunities and threats) on an organisation
  • (4 marks)

42
Solutions
  • Describe the main internal influences (strengths
    and weaknesses) on an organisation.
  • Finance available
  • Is finance available or will a lack of finance
    constrain activities?
  • Staff quality skills
  • Are staff knowledgeable and appropriately skilled
    or is training and development required?
  • Technology available
  • Does the organisation have the most up-to-date
    technology or are competitors better placed?
  • Management capabilities
  • Are managers experienced and knowlegeable about
    the firm, do they have leadership skills and are
    they capable of using decision making models such
    as SWOT analysis?
  • Product range
  • Are the organisations products competitive, do
    they achieve sales targets, are they in need of
    updating/developing?

43
Solution
  • Describe the main external influences
    (opportunities and threats) on an organisation
  • Political
  • Impact of new legislation e.g. Minimum Wage,
    HASAWA, taxation
  • Economical
  • Unemployment, inflation, exchange rate,
    recession, interest rates
  • Social
  • Demographic changes (age, birth rates, deaths),
    tastes, trends, fashions, women in the workplace
  • Technological
  • Advances in technology, e-commerce, ICT,
    satellite technology
  • Environmental
  • Weather, pressure groups e.g. Greenpeace, Friends
    of the Earth, pollution, recycling
  • Competitive
  • New competitors in the marketplace, competitors
    pricing policies, behaviour of competitors,
    advertising, promotion and product range

44
Benefits of a SWOT analysis
  • No rash decisions are made as time is taken to
    gather information and analyse the situation
    carefully
  • Decisions are made using relevant knowledge of
    facts and information that have been gathered
  • Time has been taken to develop alternative
    solutions rather than jumping to the first
    possible solution
  • By following a logical process, ideas are
    enhanced because a range of alternative solutions
    will have been analysed

45
Costs of a SWOT analysis
  • Can be time-consuming to gather information and
    conduct analysis and could therefore slow down
    decision-making.
  • Choosing from a range of possible solutions can
    often be very difficult to do in practice.
  • A structured process can stifle creativity and
    gut reactions to problems.
  • Not suitable for all decisions e.g. quick
    decision

46
Question
  • Explain the disadvantages of preparing a SWOT
    analysis.
  • (3 marks)

47
Solutions
  • Can be time-consuming to gather information. As a
    result, this will slow down decision-making. (1)
  • A SWOT analysis may produce a range of possible
    solutions. This can make it difficult to select
    the appropriate solution. (1)
  • Can be an overly structured process. This can
    lead to a stifling of creativity, inhibiting of
    initiative and a lack of gut reaction.(1)
  • Not suitable for all decisions. May prevent the
    organisation making quick decisions which may be
    vital to their success.(1)

48
DRAWING CONCLUSIONS FROM SWOT
  • SWOT helps the organisation to make decisions
    about what needs to be done now and in the
    future.
  • The conclusions are the basis for the direction
    the organisation takes.

49
Decision Making - Question
  • Describe the costs and benefits of using
    decision-making tools such as SWOT analysis and
    Structured Models in decision-making.
  • (6 Marks)

50
Solution
  • Costs
  • Time consuming to gather information and analyse
    it
  • Needs to be carried out regularly again time
    consuming
  • The structured process may stifle creativity
  • Some managers may have conflicting views, i.e.
    one managers perceived threat may be another
    managers opportunity
  • Difficult to choose from many solutions
  • Benefits
  • Helps to decide if decisions made were successful
  • No rash decisions made as time is taken to gather
    information and analyse it
  • Identifies both internal and external factors
  • Decisions are based on gathered facts
  • Time has been taken to think of alternative
    solutions
  • Proactive, not reactive
  • Logical, structured process

51
Decision Making - Question
  • Tesco have decided to launch a new range of
    childrens clothing.
  • Suggest ways that Tesco might find out whether
    the decision taken to launch the new clothing
    range was the right one?

52
Solution - Tesco
  • Increased Sales
  • Increased profits
  • Ask customers about their opinion on the new
    range
  • Ask staff about their opinion on the new range
  • Carry out a SWOT analysis, Is the new range now a
    strength?

53
Question
  • Explain how 5 stakeholders of a local council
    could influence decision making.
  • 2007 CS (5 Marks)

54
Solution
  • Local Business Owners - could raise concerns
    regarding investment in the area and suggest
    areas for improvement/development.
  • Community/Council Tax Payers - petition local
    council over matters they are unhappy with to
    prevent similar problems in the future. Meet with
    their councillors to bring up topics that they
    are unhappy with.
  • Council Employees - provide a good service
    through working efficiently, no absences, put
    forward good suggestions for improvement of
    services, go on strike.
  • Council Managers - at regular meetings can
    discuss staffing levels, suggest areas of
    investment, areas needing improved to provide a
    better service, ensure objectives are met.
  • National Government - take action if council
    overspends, legislation, eg, recent recycling
    laws could force local council to take action in
    certain areas.
  • Elected Councillors - decide on policy and
    strategic objectives of the council, make
    decisions whether to accept or reject
    suggestions, set level of council tax, decide on
    areas for improvement/investment.
  • Suppliers - offer better discounts, quality
    materials at good prices.

55
QUALITY OF DECISIONS
  • The quality of the decisions depends on a
    number of factors
  • Managers ability/experience to make good
    decisions
  • quantity and quality of information available
  • ability to use decision making techniques
  • The level of risk the decision maker is willing
    to take
  • The personal interests of the decision maker

56
Question
  • Discuss the factors that might affect the quality
    of a decision taken by a manager
  • (4 marks)

57
Solution
  • Availability of good quality information
  • Ability to take risks
  • Experience and quality of manager
  • Ability to use decision making techniques
  • Personal interest of the decision maker

58
AIDS TO DECISION MAKING
  • BRAINSTORMING
  • PESTEC ANALYSIS
  • political
  • economic
  • social
  • technological
  • enviromental
  • competitive
  • BENCHMARKING

59
INFLUENCE OF IT ON DECISION MAKING
  • Developments in hardware and software have
    allowed the decision making process to be
    completed more quickly and efficiently as
    information can now be analysed more easily.
  • Records held on database can be accessed, sorted,
    and searched and processed into a structure that
    aids decision making.
  • Spreadsheets can run what if analyses to
    compare the outcomes of different courses of
    action.
  • Management decision making software can help
    identify the best solution from a number of
    alternatives
  • The internet can provide huge amounts of
    up-to-date information on any number of topics
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