DECISION MAKING

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DECISION MAKING

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

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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
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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

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TYPES OF DECISION

• There are basically 3 main types of decision
• STRATEGIC
• TACTICAL
• OPERATIONAL

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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

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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

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TACTICAL DECISIONS

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

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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

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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
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Examples

• Staff Training
• Adjusting staff rotas
• Small incentive scheme

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Question 1

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

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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)

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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.

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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)

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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.

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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)

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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

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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

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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

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Question

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

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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

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Question

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

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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?

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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?

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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

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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

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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.

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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)

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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

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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.

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A STRUCTURED DECISION-MAKING MODEL

• POGADSCIE.ppt

Q1-10
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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.

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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

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Decision Making Model Activity

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

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• 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

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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

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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.

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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

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SWOT ANALYSIS
PRESENT POSITION
STRENGTHS
WEAKNESSES
INTERNAL
FUTURE POSSIBILITIES
OPPORTUNITIES
THREATS
EXTERNAL
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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
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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)

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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?

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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

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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

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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

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Question

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

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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)

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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.

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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)

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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

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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?

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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?

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Question

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

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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.

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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

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Question

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

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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

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AIDS TO DECISION MAKING

• BRAINSTORMING
• PESTEC ANALYSIS
• political
• economic
• social
• technological
• enviromental
• competitive
• BENCHMARKING

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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