Title: DECISION MAKING
1DECISION MAKING
- Businesses have long term aims
- short term objectives
- targets to achieve to fulfil these
2Managers 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
3WHAT 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
4TYPES OF DECISION
- There are basically 3 main types of decision
- STRATEGIC
- TACTICAL
- OPERATIONAL
5STRATEGIC 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
6Examples
- 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
7TACTICAL DECISIONS
- used to implement strategic decisions
- short/medium term
- less far reaching than strategic
- made by senior/middle management
- outcome more predictable
8Examples
- 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
9OPERATIONAL 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
10Examples
- Staff Training
- Adjusting staff rotas
- Small incentive scheme
11Question 1
- Describe what is meant by each
- of the following types of decisions
- Strategic
- Tactical
- Operational
- (6 marks)
12Solution
- 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)
13Question 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.
14Solution
- 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)
15Question 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.
16Solution
- 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)
17WHO 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
18Missions 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
19Example 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
20Question
- What is the purpose of an organisation having a
mission statement? - (2 marks)
21Why 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
22Question
- Explain Internal Constraints that Could Affect
Decision Making - (3 marks)
23Solution
- 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?
24HOW 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?
25HOW 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
26THE 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
27Effective 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.
28Question
- 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)
29Solution
- 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.
31A STRUCTURED DECISION-MAKING MODEL
Q1-10
32POGADSCIE 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.
33Solution
- 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
34Decision 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
36Problems 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
37SWOT 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.
38SWOT 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
39SWOT ANALYSIS
PRESENT POSITION
STRENGTHS
WEAKNESSES
INTERNAL
FUTURE POSSIBILITIES
OPPORTUNITIES
THREATS
EXTERNAL
40SWOT 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
41Questions
- 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)
42Solutions
- 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?
43Solution
- 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
44Benefits 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
45Costs 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
46Question
- Explain the disadvantages of preparing a SWOT
analysis. - (3 marks)
47Solutions
- 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)
48DRAWING 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.
49Decision Making - Question
- Describe the costs and benefits of using
decision-making tools such as SWOT analysis and
Structured Models in decision-making. -
- (6 Marks)
50Solution
- 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
51Decision 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?
52Solution - 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?
53Question
- Explain how 5 stakeholders of a local council
could influence decision making. - 2007 CS (5 Marks)
54Solution
- 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.
55QUALITY 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
56Question
- Discuss the factors that might affect the quality
of a decision taken by a manager - (4 marks)
57Solution
- 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
58AIDS TO DECISION MAKING
- BRAINSTORMING
-
- PESTEC ANALYSIS
- political
- economic
- social
- technological
- enviromental
- competitive
- BENCHMARKING
59INFLUENCE 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