Management and Decision-Making (AQA A Level Business) : Revision Note

The decision-making process

• Managers spend much of their working day making decisions, such as choosing how to use money, people and time to meet business goals

• Clear, timely decisions keep firms competitive, allocate resources well and help employees adapt to change

• Decisions may relate to any aspect of business operations, such as

  • Pricing tactics

  • Product changes

  • Recruitment and training plans

  • Investment in new machinery

  • Choosing suppliers

  • Entering new markets

Types of decisions

• Managers make four broad kinds of decisions

• They differ in how often they come up, how risky they are and who normally makes them

Strategic decisions

• These are big, long‑term decisions that set the overall direction of the business, such as whether to enter the Asian market or build a new factory

• They use lots of resources and involve high uncertainty

• Who makes them: Usually senior executives or the board

• Why they matter: They shape everything else the firm does and can’t easily be reversed

  • Example: Tesla chose to build its first European “Gigafactory” near Berlin to serve EU customers and cut shipping costs

Tactical decisions

• These are medium‑term decisions that turn strategy into reality, such as setting the price for a new product line, launching a six‑month promotional campaign or adjusting staff rotas

• Who makes them: Middle managers or team leaders

• Why they matter: Done well, they improve performance and keep strategy on track; done badly, they waste money or time

  • Example: Ford cut the price of its F‑150 Lightning pickup truck by up to £8,000 in July 2023 to boost demand and stay competitive

Programmed decisions

• These are routine, repeat decisions handled by rules or, increasingly, software, such as re‑ordering stock when it falls below a set level and approving staff expenses

• Who makes them: Often automated or delegated to junior staff

• Why they matter: They save time, ensure consistency and free managers to focus on more complex issues

  • Example: Toyota’s Kanban system automatically re‑orders parts the moment an item of stock runs out, without a manager having to think about it

Non‑programmed decisions

• These are one‑off, unfamiliar and high‑risk decisions, such as responding to a data breach, deciding on a merger or making key changes during a pandemic

• Who makes them: Senior managers or crisis teams using judgement and creative thinking

• Why they matter: They can rescue or transform the business but carry big uncertainty, so managers need good information and clear criteria

  • Example: General Motors decided to recall every Chevrolet Bolt EV after rare battery fires, an urgent, unplanned - but necessary - decision costing over $1 billion

Risks, rewards and uncertainty

• Managers never know the future for certain

• Every choice – e.g. launching a new car model, cutting prices, building a factory – involves risk (a chance that something will go wrong), uncertainty (unknown or unpredictable events) and a potential reward (e.g. profit, growth or an improved reputation)

  • Risk is measurable using data and probability for risk

  • Uncertainty cannot be measured so good judgement and flexibility may be needed

• Bigger rewards usually require bigger risks

  • Effective managers identify and quantify risk, then decide whether the reward is worth this risk, given the uncertainties

Risks, uncertainty, rewards and costs in real business life

Opportunity cost

• Opportunity cost refers to the value of the next best alternative that you give up when making a choice

  • Due to the problem of scarcity, choices have to be made about how to best allocate limited resources amongst competing wants and needs

  • In simple terms, when you decide to do one thing, you lose the chance to do something else.

• Every decision forces a choice and an opportunity cost

  • The NHS must allocate a fixed budget: spending £1 billion on new cancer drugs leaves less for mental‑health nurses, so health leaders weigh which benefits patients more

  • A farmer near Norwich can lease land for a solar farm or keep growing wheat; high energy prices push many toward panels, cutting local grain supply

  • A student with £50 can buy a gig ticket or new textbooks; whichever they skip is their opportunity cost

Opportunity cost and decision-making

• For managers making decisions, every choice uses scarce resources

  • E.g. when a manager spends £2 million updating machinery, the opportunity cost is the project they now can’t fund, such as launching a new product line

• Comparing options sharpens managers' priorities

  • Listing what must be given up helps managers rank projects by the value they add to the business

• Makes trade‑offs of decisions clear to stakeholders

  • E.g. showing that hiring more staff may mean delaying a marketing campaign helps teams understand why one option wins and may commit them to the final decision