2.2.1
Scientific Decision Making
Decision Making
Decision Making
Decisions can be made using different approaches. Either using scientific data, or based upon past experiences.
Methods to make decisions
Methods to make decisions
- When decisions are made, managers can use different approaches to support them:
- Decisions can be made scientifically using data available to the manager.
- Decisions can be made based upon intuition and the experiences of a manager.
Advantages of scientific decision making
Advantages of scientific decision making
- Scientific decision making reduces the risk of making mistakes as decisions are based on data.
- Another advantage is that using data provides guidance for managers who may have limited intuition through lack of experience.
Disadvantages of scientific decision making
Disadvantages of scientific decision making
- Scientific decision making can be time-consuming to collect the data required.
- Relying on data may mean that the experience or expertise of staff may not be considered.
- Using out of date or poor data is unreliable and can affect the quality of the decision made.
Factors influencing decision making
Factors influencing decision making
- The availability and reliability of data are essential if a manager chooses to use scientific decision making. If data is not available, the scientific decision-making approach cannot be used.
- The manager’s experience is vital, as inexperienced managers are more likely to use scientific decision making because they have no experience or expertise.
- The risk that a business is willing to accept is crucial. Scientific decision making typically carries less risk so suits businesses that are less willing to accept risk.
Decision trees
Decision trees
- If managers choose to adopt a scientific decision making approach, they can use a decision tree to help them. A decision tree allows a business to compare outcomes of two or more options or decisions.
- A decision tree will examine the probability of each outcome for each decision made.
- A decision tree will multiply the probability with each outcome to calculate an estimated value (EV) for each option or decision being considered.
Example of Decision Making
Example of Decision Making
Imagine a restaurant is deciding whether to expand (option 1) or open a new location (option 2). Here, a decision tree can be used to examine the range of possible outcomes.
Option 1
Option 1
- In option 1, there may be a 70% chance of receiving a £10,000 pay-off or a 30% chance of a £20,000 pay-off.
- To calculate the EV for option 1:
- Multiply 0.70 (probability expressed as a decimal) by £10,000 to get £7,000.
- Multiply 0.30 (probability expressed as a decimal) by £20,000 to get £6,000.
- Using these probabilities and outcomes, the estimated value (EV) of option 1 is £13,000.
Option 2
Option 2
- In option 2, there may be a 20% chance of receiving a £7,000 pay-off or an 80% chance of a £15,000 pay-off.
- To calculate the EV for option 2:
- Multiply 0.20 (probability expressed as a decimal) by £7,000 to get £1,400
- Multiply 0.80 (probability expressed as a decimal) by £15,000 to get £12,000
- Using these probabilities and outcomes, the estimated value (EV) of option 2 is £13,400
Conclusion
Conclusion
- Comparing estimated values for option one and two, scientifically it can be seen that option 2 is probably the best course of action for the manager to take based on the data available.
1What is Business?
1.1Understanding the Nature of Business
1.2Understanding Different Business Forms
1.3External Environments
2Managers, Leadership & Decision Making
2.1Understanding Management
2.2Understanding Management Decision Making
2.3Understanding Stakeholders
3Decision Making to Improve Marketing Performance
3.1Decision Making to Improve Marketing Performance
3.2Understanding Markets & Customers
3.3Market Segmentation, Targeting & Positioning
3.4Marketing Mix
3.4.1Marketing Mix
3.4.2Product Decisions
3.4.3Pricing Decisions & Price Skimming
3.4.4Pricing Decisions & Price Penetration
3.4.5A-A* (AO3/4) - Pricing & Competition
3.4.6Promotional Decisions
3.4.7Promotional Decisions 2
3.4.8Promotional Decisions 3
3.4.9Distribution Decisions
3.4.10Distribution Decisions 2
3.4.11Digital Marketing
3.4.12Evaluating Digital Marketing
3.4.13A-A* (AO3/4) - The Marketing Mix & Promotion
4Decision Making to Improve Operational Performance
4.1Setting Operational Objectives
4.2Analysing Operational Performance
4.3Increasing Efficiency & Productivity
4.4Improving Quality
4.5Managing Inventory & Supply Chains
5Decision Making to Improve Financial Performance
5.1Financial Objectives
5.2Analysing Financial Performance
5.3Sources of Finance
5.4Improving Cash Flow & Profit
6Improving Human Resource Performance
6.1Human Resource Objectives
6.2Analysing Human Resource Performance
6.3Improving Organisational Design
6.4Improving Motivation & Engagement
6.5Improving Employer-Employee Relations
7Analysing the Strategic Position of a Business
7.1Mission, Corporate Objectives, Strategy
7.2Financial Ratio Analysis
7.3Overall Performance
7.4Political & Legal Change
7.5Economic Change
7.6Social & Technological Environment
7.7Competitive Environment
7.8Investment Appraisal
8Choosing Strategic Direction
8.1Choosing Areas of Competition
8.2Choosing How to Compete
9How to Pursue Strategies
9.1Change in Scale
9.2Assessing Innovation
9.3Assessing Internationalisation
9.4Digital Technology
10Managing Strategic Change
10.1Managing Change
10.2Managing Organisational Culture
10.3Managing Strategic Implementation
10.4Problems with Strategy
Jump to other topics
1What is Business?
1.1Understanding the Nature of Business
1.2Understanding Different Business Forms
1.3External Environments
2Managers, Leadership & Decision Making
2.1Understanding Management
2.2Understanding Management Decision Making
2.3Understanding Stakeholders
3Decision Making to Improve Marketing Performance
3.1Decision Making to Improve Marketing Performance
3.2Understanding Markets & Customers
3.3Market Segmentation, Targeting & Positioning
3.4Marketing Mix
3.4.1Marketing Mix
3.4.2Product Decisions
3.4.3Pricing Decisions & Price Skimming
3.4.4Pricing Decisions & Price Penetration
3.4.5A-A* (AO3/4) - Pricing & Competition
3.4.6Promotional Decisions
3.4.7Promotional Decisions 2
3.4.8Promotional Decisions 3
3.4.9Distribution Decisions
3.4.10Distribution Decisions 2
3.4.11Digital Marketing
3.4.12Evaluating Digital Marketing
3.4.13A-A* (AO3/4) - The Marketing Mix & Promotion
4Decision Making to Improve Operational Performance
4.1Setting Operational Objectives
4.2Analysing Operational Performance
4.3Increasing Efficiency & Productivity
4.4Improving Quality
4.5Managing Inventory & Supply Chains
5Decision Making to Improve Financial Performance
5.1Financial Objectives
5.2Analysing Financial Performance
5.3Sources of Finance
5.4Improving Cash Flow & Profit
6Improving Human Resource Performance
6.1Human Resource Objectives
6.2Analysing Human Resource Performance
6.3Improving Organisational Design
6.4Improving Motivation & Engagement
6.5Improving Employer-Employee Relations
7Analysing the Strategic Position of a Business
7.1Mission, Corporate Objectives, Strategy
7.2Financial Ratio Analysis
7.3Overall Performance
7.4Political & Legal Change
7.5Economic Change
7.6Social & Technological Environment
7.7Competitive Environment
7.8Investment Appraisal
8Choosing Strategic Direction
8.1Choosing Areas of Competition
8.2Choosing How to Compete
9How to Pursue Strategies
9.1Change in Scale
9.2Assessing Innovation
9.3Assessing Internationalisation
9.4Digital Technology
10Managing Strategic Change
10.1Managing Change
10.2Managing Organisational Culture
10.3Managing Strategic Implementation
10.4Problems with Strategy
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