Topic 9 – Decision making

Higher Business Management

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Learning Intentions / Success

Criteria Learning

Intentions

Decision

making

Success Criteria

Learners should be aware:

• strategic, tactical and operational decisions

• the role of a manager in making decisions

• SWOT analysis and its use as a decision

making tool

• factors which affect quality decisions.

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Strategic decision

What is it?

Long-term decisions concerned with the overall

direction and focus of the organisation.

Who makes it? Senior management

Examples?

To expand into a new country

To diversify the product range

To merge with another company

To introduce a new management information

system

To change organisation structure

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Tactical decision

What is it?

Medium-term decisions that are concerned with

actions to achieve strategic decisions.

Who makes it? Senior and middle management

Examples?

To find cheaper suppliers to cut costs

To expand the range of goods offered - to

grow

To develop a new marketing campaign to

increase the number of customers

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Operational decision

What is it?

Short-term decisions that affect the day-to-day

running of the organisation.

Who makes it?

First line management eg team leaders,

supervisors

Examples?

What hours staff will work next week

To give someone a day off

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The role of a manager in making

decisions Managers have the authority to make decisions on behalf of an

organisation to enable it to meet its objectives, for example:

• delegating tasks

• motivating staff

• work with a range of people

• make decisions.

Managers have a very important role to perform in an

organisation and have been selected based on the skills, qualities

and experience that they have.

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Managers carry out a number of activities and, according to

Henry Fayol, a known management writer, have five functions:

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Managers carry out a number of activities and, according to

Henry Fayol, a known management writer, have five functions:

Managers have

different jobs or

roles they

undertake in order

to be efficient and

effective. The

French miner

turned

management guru,

Henri Fayol was

the first to really

ask what

management

involved.

He broke the role of the manager into:

• Plan - to prepare for the future and create

action points

• Organise - having resources ready and putting

plan into action

• Command - ensuring employees are working

• Co-ordinate - making sure all departments

work together to achieve the end goal or

objective

• Control - checking the effectiveness and

efficiency of the proposed plan

• Implement - the art of putting the plan into

physical action.

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SWOT analysis

• It can be used to identify the different

internal and external factors that may

impact upon the decision-making

process.

• Strengths and weaknesses are about

the organisation and its current

position, whereas opportunities and

threats are concerned with the

external environment.

• An organisation will want to build on

its strengths, improve its weaknesses,

take advantage of opportunities and

minimise the impact of threats

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Strengths

Strengths are things the organisation is good at.

These could be:

• availability of finance

• well-known brands or products

• goods/services that make the most profits

• products that are ‘benchmarks’ in the market

which competitors try to copy

• assets the business owns, such as a large

modern factory, modern technology or a retail

outlet in a prime location

• high quality staff and good staff morale.

Weaknesses

Weaknesses are things the organisation is

ineffective at. These could be:

• lack of finance

• lack of technology

• poor customer service reputation

• faulty products

• products or branches that are making losses

• assets that are in a state of disrepair, such as a

crumbling factory or ageing fleet

• untrained staff or low staff morale.

Opportunities

Opportunities are the possible chances a business

could take that arise due to something happening

outside the organisation’s control. These might be:

• a competitor going bust, so the business could

take on its customers

• a boom period in the economy that the

business could exploit

• customer tastes and fashions falling in line

with an organisation’s specialism

• governments introducing favourable

legislation

• advancements in technology that the business

could exploit, for example, e-commerce.

Threats

Threats are things that might impact on a business

achieving its aims or making positive decisions.

These may be:

• Competitor’s actions, such as cheaper prices or

better-quality products

• a downturn in the economy, such as recession

• customer tastes and fashions changing, away

from those the business specialises in

• governments introducing legislation that

impacts badly on the organisation

• advancements in technology that could leave

the business behind its rival.

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Advantages/Disadvantages of using

SWOT

Advantages

• Identifies strengths and allows a

business to build upon them.

• Identifies weaknesses and allows

them to be addressed.

• Identifies opportunities and

allows them to be exploited.

• Identifies threats and allows them

to be turned into opportunities ,

e.g. embracing advancing

technology not allowing it to

leave the business behind.

• Time is taken to analyse the

business’ current position so no

rash decisions are made.

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Disadvantages

A SWOT analysis:

• is very time consuming, which can slow

down decision-making

• is a very structured process which can

stifle creativity and gut reactions from

managers

• can generate many ideas however, it

doesn’t help pick the correct one

• produces a result that reflects the opinions

of those who carry it out which could lead

to bias

• considers information that is available at a

particular moment and may become

outdated quickly.

POGADSCIE

There is a structured decision making model known by the acronym

POGADSCIE. This is used by businesses to make an effective decision. The

letters in the acronym stand for:

• Identify the Problem

• Identify Objectives of solution

• Gather information

• Analyse information

• Devise possible solutions

• Select best possible solution

• Communicate the decision

• Plan and Implement solution

• Evaluate effectiveness of the solution

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Factors which affect quality

decisions

• Internal Factors

• External factors

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Internal factors

• Availability of finance - might mean that the most effective option cannot be chosen.

• Number of employees - might limit what can or cannot be achieved.

• Skill and training requirements of employees.

• Ability and skill of managers - to make more complex will demand more skills from

managers.

• Policies and procedures of the organisation - might limit what decision can be made and, as

a result, the decision might have to be modified to comply with them.

• Quality of information available - a lack of quality information might mean that a fully

informed decision cannot be made.

• Employees might be resistant to change - which will make implementing the decision more

difficult and time-consuming, especially if they disagree with the option chosen.

• Appropriate technology might not be available - to implement the best decision and

therefore money needs to be spent upgrading technology.

• Decision-making models (e.g. POGADSClE and SWOT analysis) – used in the way that

they are intended. Missing out a key step could make the process flawed.

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External factors

• Changes in the external environment impact on how

the organisation functions both positively and

negatively.

• PESTEC (political, economic, social, technological,

environmental, competition) are examples of external

factors.

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