2.2.3
Influences on Decision Making
Factors Affecting Decision Making
Factors Affecting Decision Making
There are several factors which affect decision making. These include:
Levels of risk and uncertainty
Levels of risk and uncertainty
- All decisions carry an element of risk; however the risk associated with some decisions is much higher than for other decisions, so the business must decide how much risk it is willing to accept.
Reward for managers
Reward for managers
- Hopefully, a decision will result in a reward for the manager and business. However, managers must consider the level of reward likely to be achieved, and decide whether this level of reward is worth any risk associated with the decision.
Opportunity costs
Opportunity costs
- When managers commit to a decision, they must consider the impact of this decision on the alternative projects they could have chosen instead.
- For example, if a manager has £100,000 to invest in a project, and is currently choosing between option A and option B, which both cost £90,000 each, the opportunity cost of choosing one option is that the manager will no longer be able to afford the alternative option.
Considering Business Objectives When Making Decisions
Considering Business Objectives When Making Decisions
When making decisions, managers must also consider a range of factors including the business’ mission, its objectives, its ethical stance, the external environment (PESTLE) and the availability of resources:
Business missions
Business missions
- A business’ mission must be considered when decisions are being made as the decision must support the overall mission of the business. For example, a decision to lower prices does not support a mission to be seen as a premium and high-quality retailer, such as Rolls Royce.
Business objectives
Business objectives
- When decisions are made, they must support the business’ objectives, otherwise, the decision will not be in the business’ best interest. For example, a decision to attract new customers may be a poor decision if a department objective is to focus on retaining existing customers.
Ethical positions
Ethical positions
- The business’ ethical position influences decisions made as all decisions must comply with the ethical position of the business, especially if this position is used as a unique selling point (USP) for customers. For example, The Body Shop uses its ethical stance as a USP, and so if a decision was made to abandon this commitment, there would be serious consequences for their reputation.
External environments
External environments
- The external environment, including political, environmental, social, technological, legal and ethical factors, as well as competition, must be considered when decisions are being made. For example, when the law changed to ban cigarette adverts, a manager would have to abandon any projects they may have been working on which involved publishing adverts for these products. Another example is that as technology advances, supermarket managers must consider the decisions they are making if they do not currently operate self-serve checkouts, as this may reduce competitiveness.
Resources
Resources
- When making a decision, a business must also consider the availability of its resources. For example, if a manager decides to launch a promotional campaign but does not have the funds or staffing to support this campaign, because resources are limited, the overall campaign will be unsuccessful.
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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