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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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• 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.

WHAT IS DECISION MAKING?

What about price?

What to produce?

Where to locate?

Is this tie okay with this shirt?

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TYPES OF DECISION

• There are basically 3 main types of decision

STRATEGICTACTICAL

OPERATIONAL

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STRATEGIC DECISIONS• long term• far reaching• made by chief executive,

board of directors, owners of small businesses

• deal with general direction or objectives of a business

• involve risk

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• used to implement strategic decisions

• short/medium term• less far reaching than strategic• made by senior/middle

management• outcome more predictable

TACTICAL DECISIONS

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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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Question 1Describe what is meant by eachof 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 2News Headline

“POLICE TO MAKE SOCIETY SAFER”

This is an example of one type of decision a manage will make.

Describe two other types of decisions an organisation could make. Give examples of each in relation to the police force.

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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 3Marks and Spencer have the long termobjective 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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SolutionTactical • 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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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• 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 ANALYSIS

STRENGTHS WEAKNESSES

OPPORTUNITIES THREATSEXTERNAL

INTERNALPRESENTPOSITION

FUTURE POSSIBILITIES

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SWOT ANALYSISSTRENGTHSWhat advantages do you have?What do you do well?What resources do you have?What do other people regard as your strengths?

OPPORTUNITIESWhat opportunities are presenting themselves?•New technology available•Changes in Government policy•Changes in social patterns – population, lifestyle, tastes

WEAKNESSESSWhat could you improve?What do you do badly?What should you avoid?

THREATSWhat obstacles do you faceWhat is the competition doing Do you have debt or cashflow problemsIs 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,

taxationEconomical• Unemployment, inflation, exchange rate, recession, interest

ratesSocial• Demographic changes (age, birth rates, deaths), tastes,

trends, fashions, women in the workplaceTechnological• Advances in technology, e-commerce, ICT, satellite technologyEnvironmental• 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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A STRUCTURED DECISION-MAKING MODEL

• POGADSCIE.ppt

Q1-10

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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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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 - Inform staff at staff meeting; Send email to all staff; Inform customers via posters, announcements

• Implement the decision- Order/install new checkouts; Recruit/train more staff

• Evaluate the decision - Monitor queue levels; Feedback from customers and staff

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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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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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Decision Making - Question

1. 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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SolutionCosts• 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 manager’s

perceived threat may be another manager’s opportunity• Difficult to choose from many solutionsBenefits• 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

1. Tesco have decided to launch a new range of children’s 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• 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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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

Why Is Effective Decision Making Difficult?

Constraints On Decision Making

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Question• Explain Internal Constraints that Could

Affect Decision Making

(3 marks)

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SolutionInternal 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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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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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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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 StatementsStandard Life• http://www.standardlife.com/about/mission_vision.html

Easyjet• http://www.easyjet.com/EN/About/index.html

BBC• http://www.bbc.co.uk/info/purpose/

Starbucks• http://starbucks.co.uk/en-GB/_About+Starbucks/Mission+Statement.ht

m

University of London• http://www.lon.ac.uk/5.html

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ActivityWhat is the purpose of an organisation

having a mission statement?

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THE ROLE OF MANAGERS

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 - 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

Henry Fayol spent time researching what managers do:

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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.

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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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QUALITY OF DECISIONS

• Manager’s 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

The quality of the decisions depends on a number of factors:

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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 PEST ANALYSIS • political• economic• social• technological

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