2.2 Management Decision-Making (AQA A Level Business): Flashcards
Exam code: 7132
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Why is effective decision-making important for a business?
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Cards in this collection (58)
Why is effective decision-making important for a business?
Clear, timely decisions keep firms competitive, allocate resources well, and help employees adapt to change.
Name the four broad types of decision.
Strategic, tactical, programmed, and non-programmed decisions.
What is a strategic decision?
A big, long-term decision that sets the business's overall direction (e.g. entering a new market), usually made by senior executives / the board.
What is a tactical decision?
A medium-term decision that turns strategy into reality (e.g. pricing, promotions), usually made by middle managers.
What is a programmed decision?
A routine, repeated decision handled by rules or software (e.g. reordering stock), often automated or delegated.
What is a non-programmed decision?
A one-off, unfamiliar, high-risk decision (e.g. responding to a data breach), needing judgement from senior managers.
Define opportunity cost.
Opportunity cost is the value of the next best alternative given up when making a choice.
Why does every business decision have an opportunity cost?
Because of scarcity — choosing one option means giving up the resources for another.
What is the difference between risk and uncertainty?
Risk is measurable using data and probability; uncertainty cannot be measured and needs judgement.
Uncertainty cannot be , so managers need good judgement and flexibility.
Uncertainty cannot be measured, so managers need good judgement and flexibility.
Define risk (in decision-making).
Risk is the measurable chance that something will go wrong, assessed using data and probability.
Spending £2m updating machinery has an opportunity cost — the project it now cannot , such as a new product line.
Spending £2m updating machinery has an opportunity cost — the project it now cannot fund, such as a new product line.
True or False?
Strategic decisions are easy to reverse and made by junior staff.
False.
Strategic decisions are hard to reverse and made by senior executives / the board.
True or False?
Programmed decisions are routine and can often be automated.
True.
Programmed decisions are routine, repeated decisions handled by rules or software.
Give an example of a decision managers make.
Pricing, product changes, recruitment, investment in machinery, choosing suppliers, or entering new markets (any one).
How does considering opportunity cost help managers?
It sharpens priorities (ranking projects by value) and makes trade-offs clear to stakeholders.
Define scientific decision-making.
Scientific decision-making uses data to make rational, logic-based decisions, which lowers risk.
Name the five stages of the scientific decision-making process.
Set objectives, gather information, choose an option, implement the decision, and review.
Give one benefit of scientific decision-making.
It reduces risk (evidence not guesswork), justifies investment, and supports continuous improvement.
Give one limitation of scientific decision-making.
It is costly and time-consuming, vulnerable to poor data quality, and can give an incomplete picture.
Scientific decision-making bases choices on evidence, not .
Scientific decision-making bases choices on evidence, not guesswork.
Define intuitive decision-making.
Intuitive decision-making relies on gut feel, experience and pattern-spotting rather than detailed data analysis.
When does intuitive decision-making work best?
When there's little time for data, no clear precedent, or the decision rests on human taste.
Give one benefit of intuitive decision-making.
Speed (seizing opportunities), creativity (bold ideas), and it uses deep expertise.
Give one limitation of intuitive decision-making.
Bias/overconfidence, it's hard to justify to investors, and it's riskier on big bets.
Experienced managers build quick mental shortcuts from years of .
Experienced managers build quick mental shortcuts from years of experience.
True or False?
Scientific decision-making guarantees the right decision every time.
False.
It lowers risk but isn't perfect — good data costs money and numbers never tell the whole story.
True or False?
Intuitive decision-making can be difficult to justify to lenders or investors.
True.
Without data to back it up, convincing investors or lenders is difficult.
Give an example of internal data a business might gather.
Sales/loyalty-card records, production logs, finance systems, or website analytics (any one).
Why might over-relying on data cause problems?
Managers may ignore gut feel or ethics and miss opportunities the data doesn't recognise.
Define a decision tree.
A decision tree is a quantitative method of tracing the outcomes of a decision, using probabilities, to identify the most profitable choice.
Give one benefit of using a decision tree.
It can reveal new options, forces managers to consider risks, and requires deep research.
Give one limitation of decision trees.
They rely on estimates, ignore qualitative factors, take time to gather data, and can be affected by bias.
What are the four key elements of a decision tree diagram?
Decision points, outcomes, probabilities, and expected (monetary) values.
What shape represents a decision point on a decision tree?
A square.
What shape represents an outcome node (a chance point) on a decision tree?
A circle.
What is the formula for expected monetary value?
Expected monetary value = (value of success × probability) + (value of failure × probability).
On a decision tree, a certain outcome has a probability of one and an impossible outcome has a probability of .
On a decision tree, a certain outcome has a probability of one and an impossible outcome has a probability of zero.
If a decision tree shows revenues and costs (not profit), how do you find the expected value?
Calculate the expected value from the outcomes, then subtract the cost.
Redevelop: £840,000 success (0.5) or −£84,000 failure (0.5). What is the expected value?
(£840,000 × 0.5) + (−£84,000 × 0.5) = £420,000 − £42,000 = £378,000.
Advertising: £660,000 success (0.6) or −£76,000 failure (0.4). What is the expected value?
(£660,000 × 0.6) + (−£76,000 × 0.4) = £396,000 − £30,400 = £365,600.
With redevelop at £378,000 and advertising at £365,600, which should be chosen on financial grounds?
Redevelop the product — its expected value is higher.
When a decision tree gives revenues rather than profit, you must the costs from expected revenues.
When a decision tree gives revenues rather than profit, you must subtract the costs from expected revenues.
True or False?
A decision tree can fully account for all external factors and qualitative issues.
False.
Decision trees use estimates and ignore qualitative factors (e.g. HR impacts), so they can't include everything.
True or False?
At a node on a decision tree, the probabilities of the outcomes should add up to 1.
True.
The likelihoods of the outcomes at a node total 1 (e.g. 0.7 success + 0.3 failure).
Why should managers not rely on a decision tree alone?
It uses estimates, ignores qualitative factors, and a time lag can make expected values unreliable — other factors matter too.
Name two internal influences on decision-making.
Mission, objectives, ethics, and resource constraints (any two).
How can a business's mission influence its decisions?
Decisions must support its guiding purpose — e.g. John Lewis involving staff in decisions to fit its partnership mission.
How can ethics influence decision-making?
Ethical principles (e.g. sustainability) can rule options in or out — e.g. Lush avoiding single-use plastic.
Decisions must fit the money, time, skills and capacity available — these are resource .
Decisions must fit the money, time, skills and capacity available — these are resource constraints.
Name two external influences on decision-making.
Competition, economic conditions, social change, and technological change (any two).
How can competition act as an external influence?
Rivals' actions can force defensive or matching decisions — e.g. Tesco extending price-matching against Lidl.
How can economic conditions influence decisions?
Interest rates, inflation and GDP affect costs and demand — e.g. firms cutting investment when rates rise.
How can social change influence decisions?
Shifts in tastes and values change demand — e.g. McDonald's launching the McPlant as vegan diets grew.
Growing vegan and flexitarian diets are an example of change influencing decisions.
Growing vegan and flexitarian diets are an example of social change influencing decisions.
True or False?
A business's objectives are an external influence on decision-making.
False.
Objectives are an internal influence; competition and the economy are external.
True or False?
New technology can create opportunities but also make some roles obsolete.
True.
E.g. self-service machines create efficiencies but have reduced traditional cashier roles.
How can resource constraints affect a decision?
Decisions must fit the money, time, skills and capacity available — e.g. Arrival pausing a project when cash was tight.
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