Blended Learning fe Decision-making models Decision-making models 4. Decision-making models 11. Lesson objectives 412. Business decisions 113. Scientific and intuitive decision-making 2. Decision trees 2.1. Lesson objectives 2.2. Introduction 2.3, The nature and purpose of decision tree analysis 24, Drawing adecision tree 25. Worked example 2.6, The benefits and limitations of using decision trees 3, Critical path analysis, 4.1. Lesson objectives 32, The nature and purpose of critical path analysis 3.3. How to construct and interpret critical path diagrams and evaluate the results 34, The benefits and limitations of using critical path analysis 4, Cost benefit analysis 4. Lesson objectives 42. Thenature and purpose of cost benefit analysis, 43. Cost benefit analysis evaluation ‘4A, The benefits and limitations of using cost benefit analysis 5. Past exam question and indicative content 46. The key role played by information technology in business decision-making 47. And finaly edudas1. Decision-making models 1.1. Lesson objectives Bagh 2ttesson you wi arn about 111 _* thetypesot decisions a business makes (including strategic, tactical, and operational) + theimportance of decision-making toa business + scientific and intuitive decision-making.1.2. Business decisions 42a Decisions are made in business organisations all the time. Some decisions willbe simp, straightforward and pose no major issues to ecision makers, However, many decisions will not beso clear-cut and the alternates that exist willresult in a business having to {decide which course of action to take. These decisions can have a positive or negative impact on a business and its stakeholders. Decision-making can solve problems for a business. For example, management looking at possible relocation sites could provide Increased production capabilities or the human resources team finding training programmes that could improve employee skills 3s 2 response toadrop in quality Some decisions will be difficult to make, and they may have negative outcomes for certain stakeholders of the business, such as. redundancy for employees. Whoever is making the decision, its important thatthe decision made is based on the common good for the business to help achieve its aims and objectives. Al decisions will involve risk. Theres no certainty thatthe decision taken by a business will lead to the best outcome. Many factors, some that the business can control internal) and some factors that they have no control over (external) will affect the success. A business can minimise risk using accurate data and decision-making models. There are three main types of decisions a business can make: strategic, tactical and operational Strategic Tactical Operational Strategic decisions are long term and will affect the direction the business takes. These decisions will affect the entire business and willbe made by the ewners or senior management. Strategic decisions are often complex and may result in major organisational change. Changes could be internal to the business, inthe market, or innew markets they operate in. Strategic decisions may also involve a large financial commitment; it may take afew years, and afew million pounds, to see strategic decisions have had the positive affect anticipated by the business. An example ofthis isa business deciding to expand operations overseas, whichis a costly and lengthy process. ‘Tactical decisions are not as far reaching as strategic decisions; they tend to be medium term. Tactical decisions are less complex. than strategic dec'sions and are usually carried out by middle management. Tactical decisions can also be more flexible ifthe decision sailing to meetits objective then it can be changed. For example, a decision taken by a marketing manager to change theay a products promoted, Operational decisions are the day to day decisions made in a business. These are lower level decisions that tend tobe short term and have litle risk, They tend to be made by junior managers, supervisors and employees, Hundreds of operational decisions willbe made by a business ina typical day and they'll be made by a range of employees, as they do not need the careful thought and planning of strategic and tactical decisions. Many decisions a this level are routine and can be taken quickly. For example, the decision by 2 retail supervisor to schedule the break times of staff working ona shift °o ° aa Select the statement you believe tobe true from the choices below. Strategie decisions are short term and will not affect the direction the business takes, Strategic decisions are often nat complex and would not result in major organisational change internal to the business. ‘Strategie decisions do not involve a large financial rent to carry out the decision, Strategic decisions are made by junior managers and employees. Tactical decisions tend to be medium term. Tactical decisions are more complex than strategic decisions and are not usally carried out by middle management. Tactical decisions can be more flexible if the decision is failing, tomect its objective then it can be changed, (Operational decisions are the long-term decisions made in a business, Operational decisions are lower level decisions that tend to be short term and have litle risk. They tend to me made by junior ‘managers and employees. Many operational decisions are not routine and can be taken Quickly, with high risk Strategic decisions are long term and wil affect the direction the business takes. Strategic decisions are often complex and may result in major organisational change internal to the business. Strategic decisions may also involve a large financial ‘commitment to carry out the decision, ‘Strategic decisions are often made by senior managers. ‘Tactical decisions tend tobe day today decisions. ‘Tactical decisions are less complex than strategic decisions ‘and are usualy carried out by middle management. Tactical decisions are not flexible; they cannot be reversed once made, (Operational decisions are the day today decisions made ina business, (Operational decisions are more complex and are more high risk, They tend to me made by senior managers. Many operational decisions are routine and canbe taken Quick, with tle isk,1.3. Scientific and intuitive decision-making Pee sorrmakingcan be broadly categorised nt two dierent approaches: sinc and inti. isi Scientific decision-making Scientific decision-making involves the systematic use of facts and data to arrive ata logical and evidence-based decision, The structured, scientific approach will involve: 4.clearly identifying the objective/objectives or problem to solve 2 collecting all relevant information needed to make the decision - this caninclude primary or secondary data and could take some time togather 3.analysisof the information to identity possible ways forward 4, making and implementing the decision S5.monitoring and reviewing the decision and change, if needed The scientific approach is favoured by most businesses, asitis based on logic and evidence, and should reduce the risk of fllure. The process includes the consideration of alternative decisions, soll possible courses of action are included, and the business will Undertake a full analysis before making any decisions. The process of scientific dec’sion-making can be inked to the use of business ‘models such as SWOT analysis, Porter's Five Forces, Ansoff's matrix, decision trees, cost-benefit analysts and critical path analysis Intuitive decision-making Intuitive decision-making uses experience and intuition (gut feling) to make a decision, Thishas proved successful for many entrepreneurs and managers wn use their experiences and emotions to make decisions. Theres often no data or systematic approach to back up this decision. Intuitive decisions can be made quickly and are often useful for operational decisions, However, at the strategic and tactical levels, there i large risk on relying on Intuitive decision-making alone. Scientific or intuitive decision-making? Although scientine-based decision-making may seem tobe a safer way of making decisions it does not always lead to success, Sometimes, following hunch’ based on a gut feeling, although riskier, can lead to success. Research the examples: + The launch of ‘New Coke, which followed a scientific approach. *+ Dyson's intuitive approach, having spotted the opportunity for cyclone technology tobe used in vacuum cleaners, by observing itbeing used in industrial contexts. Watch the first two videos below as part ofthis research. From your research, make notes on the benefits and drawbacks of scientific and intuitive decision-making @ A voNvouruverwer7éeavtey 133 @ _AvsHeuruverameenarvaa aaa @ _Aoevourwe/EPEM swHvZ2. Decision trees 2.1. Lesson objectives Bagh 2ttesson you wi arn about 211 + thenature and purpose of decision tree analysis + how toconstruct and interpret decision trees and evaluate the results ‘+ the benefits and imitations of using decision trees.2.2. Introduction ph sSntcanroach to decison makings supported by sing model. The three diferent types of models used by businesses are oo1 * decision trees + critical path analysis + cost benefit analysis2.3. The nature and purpose of decision tree analysis 2aa Decision trees are a form of diagrammatic analysis, sed to help businesses with making decisions where there are several diferent options from which to select Decision trees are particulary useful in tuations where chance (or probability plays an important role in likely outcomes. Decision trees build the probability of success and failure int the decision-making process. Ths helps to provide an effective and clear structure for presenting options using ‘expected values: Expected values are the financial returns that can be gained for each option, taking into account both success and failure of each course of action. The different components ofa decision tree are outlined below: Components of adecision tree Square decision nodes Circular chance nodes Lines representing a decision, or probability £36,000 Values of outcomes in £ 03 0r 30% Probability of outcomes in % or as a decimal2.4. Drawing a decision tree 2a ‘Adecision tree begins with a decision that a business wants ta make. For example, which project out ofa choice of three to choose, oF “winether to accept an order from a customer. The drawing of a decision tree starts witha decisions node (square) Decision nodes represent points where a business must make a choice between alternatives From this decision nade we draw out lines towards the right for each possible option and write the description ofthat option along the line. At the end of each line, we consider the likely outcome of adecision. Ifthe result of taking that decisions uncertain, we draw a circle, achance or probability node. CChance nodes represent points at which chance, or probability plays a dominant role and reflect options over which the business has (effectively) little control. For example, if one ofthe options a business has isto launch a new product, the possible outcomes of the launch are excellent sales, ood sales, and poor sales. The chance or probability node allows us to represent Ikelinood ofthese alternative outcomes. Each probability is based on judgement and research evidence. That is, by gathering evidence, t may be estimated that the probability of achieving'good sales’ is 40% (represented as 0.4)-The probabilities from each chance node are added together to total 1,to take into account the full range of possibilities that could occur. ‘The making of one decision can lead to the need to make another decision (ie, decision trees can have more than one decision node throughout). For example, the fst decision might be to launch a new product. The second decision might be to go for national or regional launch. For each decision that needs to be made, another square is drawn, Be careful with the meaning of ‘nodes’ the use of nodes in a decision tree analysis is dfferentto critical path analysis.2.5. Worked example Bg Worked example business is choosing whether to invest in updating a product to extend its produc ie cycle, or whether to let the product go into 25a A 4 E A 6 F E 3 ce c 5 H > 5 F 3 J 1 4 k 4 4 L ce ‘ M JK 4 Step 1: Draw nodes, label activities and write in duration of each activity 137 _ Startwith node 1 (to denote the beginning ofthe project), that begins with activity A. At the end of activity A, we can add node 2, ‘which indicates the start of activity B, Activities B, and E can be carried out together, atthe same time, but only ater activity A has been completed.Activity Cis carried out after activity Bis complete, soC activity will follow node 3 gas Activity His carried out after activity Dis complete so activity H will follow node 4 ‘Activity Fis carried out after activity Eis complete, soF activity will follow node 5, a TD E TD Dp Activity Gis caried out after activity Cis complete, so activity G will fllow node 6, 339 Activity is carried out after activity Fis complete, so activity | will follow node 8. ‘Activity Kis carried out when activity His complete so activity K will follow node 7. Activity Lis carried out when activity Gis complete so activity L wil follow nade 9. 310 Activity Jiscarried out when activity |is complete, so activity J will follow node 10. Activity Mis carried out when activit and wll follow nodes 9, 10.and 11. J, Kand Lare complete, so activity M can only start when all three activities are completedaaa aa ais rpand (ay ea 7 q Ae De “Uo < An’ 5 e 10 = La ‘Step 2: Calculate the earliest start time (EST) for each activity. Caleulat 1e EST for each activity and enter these into the nodes, starting on the left-hand side at node 1. In the top right section, we place azero, 2s we can start the whole project wit il time so far used (the same for any network diagram, ie. nade 1 will always have an EST of zero). Activity M can only begin when all preceding tasks are complete so: 1 Activity Kis 11 days +4 days = 15 days + Activity Jis 14 days +4days = 18 days + Activity Lis 14 days + 6 days = 20 days ‘Always selec te longest amount of time when selecting the EST. The longest time is therefore 20 daysso the EST for node 11s 20 days. COnceall the EST times have been calculated the next stage isto calculate LFT which tellus the latest an activity can finish without delaying the overall project. Step 3: Calculate the latest finish time (LFT) for each activity. To calculate LFTs we start on the far right and count our way back along the network (Le start at node 12 and finish at node 1). The figure we start with the EST in the fnal node, and we put ths in the bottom right section of the final node (the EST and LST of the final node will always be the same number) ‘We now start to count back. Thats, to calculate the LFT of node 11 the duration of activity Mis deducted from the LFT of nade 12 togive 20 i. 24 -4= 20). Thisis straight forward for most nodes, however far node 2there are three paths from nodes 3,4 and 5: + Node 3 fortask Bhas LET of 5 days - 3days=2 days + Node4 for task D has LFT of 11 days~ 4 days = 7 days + Node 5 for task Ehas LFT of 10 days~ 6 days = 4days The lowest amount oftimeis selected as the LFT,s0 for node 2 the LFT is 2 days Always select the lowest amount of time when selecting the LFT. ‘Step 4: Identity the activities and the critical path The completed CPA diagram is shown below. I you need to, revisit steps 1-3 to be clear how each of the figures have been calculatedz NEN ‘When the diagram has been completed itis then possible to identity the critical path. The critical path is marked by those activities ‘that are joined by nodes which have the same igure for EST and LFT in each node. (vg eA a TL LB 5 e “Theres no room for delay on this path, Any delay in nishing an activity or starting an activity on this critical path will mean that the overall project will be delayed The critical path is normally indicated by placing a // on each activity arrow on the critical path. ‘We can see that activities AB C,G, Land M are the critical activities in the building ofthe sailing boat, any delay in these activities vill delay the whole project. Wag "0 onaeted cites path iagram can so bused to calculate te total foatimein the projet These are on-criea actves that can be delayed without causing the project to be delayed. The float time can be calculated by: asia Total float time = LFTof activity ~ duration ~ EST of activity It we apply this to the diagram for building the sailing boat: FTofactiv Minus duration Minus EST of activity Total oat time A 2 2 ° ° BS 3 2 ° c 8 5 ° o 1 4 2 5 — 10 6 2 2 F413 3 8 2 sou 5 9 ° 4H 16 5 6 5 146 a a 2 J 20 4 14 2 kK 2 4 a ‘ L 2 6 14 ° M24 4 20 ° Identifying the total float time allows managers tobe flexible in carrying other activities. They could switch employees once one activity is complete to other activities, or time could be allowed for extra training before the activity is completed, The table also clearly shows the critical path activities, those activities with zero total float time,Itisalso possible to link resource allocation to stocks and the use ofa just-in-time (JIT) method of stock control. For example, if ‘Activity K above involved stock being used and it doesnot need to be started until day 11, the business can preserveits cash flow by ordering the stock closer to when itis needed. @ A hoshvouruvereawesaasut3.4. The benefits and limitations of using critical path analysis lean help managers make decisions on what Bagh itatpat arayisisused by businesses when planning actives and project resources to allocate to activities and help to organise the delivery of supplies aaa The use of quantitative data in calculating the various aspects of critical path analysis gives evidence to different ways of planning. activities. t also allows for Nexiblity with managers able to reallocate resources if they wish to change or shorten the critical path, The below activity covers the benefits andlimitations of using crtieal path analysts, yy _ fillinthe blank spaces by choosing the correct answer from the dropdown ment 342 Benefit: PAisan effective management tool for planning and controlling complex projects. Critical activities can be identified, and it forces managers to think about the process and supports a systematic approach to planning activities. Problems can be highlighted [ after| early late so that whole projects are not delayed, Benefit: allows effective management of resources, such as labour and ratios | marketing | money | operations] that can be moved ‘towhere they are needed and can be most effective. Supports the transferring of resources for different tasks, if required. Benefit: reduces the need for working capital. Parts used in the project can be ordered exactly when they are needed. Allows the use of JIN [JIM [JIF | JIT] production. Benefit: improves cashflow because of reduced need for working capital, as resources can be utilised as and when they are needed. also helps wth cash flow [inflows |statements | forecasts] Benefit:can be used to check on efficiency of individual activities and identify if new resources are needed orf [customers employees | competitors | banks Jneed training. Benefit improves overall management | employees | marketing ] of projects. Managers understand what is involved and what reeds tobe done and when it needs to be done by, Benefit:can be used to givea business a competitive disadvantage | advantage | imitation | benefit] by being more efficient and it supports time-based management.Fillin the blank spaces by choosing the correct answer from the dropdown menu. Limitation: information can be distorted or poor methods of (over optimistic) estimation of activity [nodes lines | durations ]can be used. Lack of experience of those preparing CPA may lead to inaccuracies, Limitation: CPA can give the wrong results or fal tallow for [external | cash | Influences ] factors that will influence the total time taken, Limitation: sub-contractors, who may be completing some of the activities on a project, can be outside the { eommunication | coordination | control Jof the project manager and timings may not remain on track. Limitation: supplies may be delayed. They may be the wrong type or of poor [ employers | information | quality Limitation: critical path analysis only identifies the [serious [critical | emergency | activites; it does not ensure these are done on time. Close supervision may be needed which may reduce employee moral. Limitation: requires ongoing checking of activites, and changes may be required if there isa delay. The construction of eitical path analyses can be [ time | motivation | units ] consuming. Limitation: critical path analysis does not ensure [liabilities | quality | advertising| the focus ison time and meeting deadlines. Limitation: the person who created the network diagram may have made [ money | mistakes | fun] staff] or may not be experienced or highly competent in producing them,4. Cost benefit analysis 4.1. Lesson objectives Bagh tesson you wi arn about 442 * thenatureand purpose of cost beneft analysis + carrying out and interpreting a cost benefit analysis and evaluating the results + thebenefits and imitations of using cost benefit analysis + the key role played by information technology in business decision-making4.2. The nature and purpose of cost benefit analysis 42a Most decision models focus on the internal benefits and casts toa business, and these are often quantified through the potential revenue and cost toa business, Cost benefit analysis (CBA) isa method for measuring, in fnancial terms, the costs and benefits of an investment project. Unlike CPA, itincludes a consideration ofthe external costs and benefits to society, as well as the costs and benefits to just the business. Cost benefit analysis is often used by governments when they are considering a public project, such as the building of anew motorway rail bridge or hospital. Several different options can be ranked in order. Private sector businesses also use CBA for making ecisions, ‘When carrying out a cost benefit analysis there area wide range and variety of costs and benefits to be identified and given a value. These can be divided into two groups: + private costs and benefits + external/social costs and benefits. The purpose of CBA to consider the above co and benefits to establish whether adecision is worthwhile to pursue, in financial4.3. Cost benefit analysis evaluation aaa 432 ‘The calulation for cost benefit analysis: social benefit - social cost \Where social bene ae the sum of private and external benefits, and social costs are the sum of private costs and external costs. Each the elements of CBA are now considered Private costs These are costs that the business making the investment must accept + training and recruitment costs + purchase of new capital equipment Italso refers tothe price that customers pay for the product they are buying. External costs These are costs external tothe business making the investment: + building company will have an environmental impact ast builds houses ~ increased traffic, noise etc + Afarm extracting water from river to rrigate its crops leaves less water further downstream for fishing. + Anew factory may involve the loss of open space, increased traffic congestion ané soon. + Local communities may be affected by increased noise pollution from an airport that may have expanded its runway. Private benefits ‘These are benefits that the business gains from making the investment: + increased productivity + increased sales + brand values + increased profits Italso refers tothe benefits that customers receive, eg, increased choice of products to buy. External benefits These are benefits external tothe business that result from making the investment: + Anobvious external benefit from large-scale investment would be jobs created by the business. + Other public benefits include further jobs created outside the business because of increased business activity and an increase in taxpaid by employees to the government, ‘+ Anexpanded runway will cause more visitors to arrive at an airport who may use the nearby town's restaurants and other businesses, leading to increased revenue for businesses in the local economy. + Inareas where unemployment is high, crime and social problems might be reduced, Valuing costs and benefits The financial valuation of private costs and benefits may be relatively straight forward, But cast benefit analysis requires a value given to public costs and benefits. These positive and negative externalities of business activity can be cifficult to identity and value For example, a business wants to extend its warehouse that will require the demolition ofa park used by residents. The external cost willinclude the loss of play area for children and somewhere for local dag owners to safely walk their dogs. The business will have togivea valueto these costs One ofthe difficulties of cost benefit analysis is giving a monetary value to these intangible issues; external costs and benefits are almast impossible to quantity For example, how do you quantify the impact to wilde with the building of anew runway? However, CBA analysis isthe only decision-making tool that considers the costs and benefits to external third parties by default. This leads tothe impact on stakeholders being considered perhaps more than would be the case with ather decision-making models.Wh (et bevett ona rcess aaa 4. Calculate private benefits and costs. 2.Caleulate external benefits and costs 23, Calculate socialbenefits and costs, 4. Consider qualitative factors. 5.Decide if the project goes ahead.4.4. The benefits and limitations of using cost benefit analysis CBA has benefits and limitations just ike the other decision-making tools considered inthis topic. These are considered in the below activity Fillin the blank spaces by choosing the correct answer from the dropdown menu. 442 Benefit: takes into account a wide | limited | narrow | mediocre range of benefits and costs, Benefit:impacts on society, the community and other [accounts | marketing | stakeholders ]are included. Benefit: puts value to external benefits and costs that would normally be [ considered | ignored Jby private sector businesses. Benefit:can be used to rank possiole major [analysis | projects| recruitment Jin order of public cost Limitation: the valuation of intangibles willbe difficult to determine, How do you put [value |JIT | added | on the effect of pollution or the improved trafic flow of anew road? Limitation: valuations will often include value judgements; one person's calculation of an{ tangible | intangible ]beneftis likely to differ from another's calculation, as they may have different views on what isimportant for a business. Limitation: ifthe social costs and benefits are incorrectly calculated then the [ wrong | correct [right choice could be made. Limitation: some stakeholders or some costs an¢ [ advantages | goods | benefits | services ] may not be considered inthe calculation or analysis4.5. Past exam question and indicative content ‘The case study, question and indicative content below were taken from the Educas Summer 2018 Componer (4 marks were awarded each for application, analysis and evaluation) examination paper 45a York East Midlands Hub © Newstation (Phase one) spremenees, © —Newstation (Phase 2b) San ena © MOR SMEG metho 152 1ine Phase One) see H52 line (Phase 2a) sacenanreaionan: ‘=== HS2 line (Phase 2b) = HiS2 services on existing netwrok row en ‘The government is planning 2 new high-speed rail network, from London to Birmingham, Manchester and Leeds, known as HS2. Ministers say ‘tewilimprove the transport network and boost the economy, bu thee has been controversy about the exact route ofthe line andits effect on those living near it The inital plan is fora new railway line between London and the West Midlands carrying 400m long (1200ft trains with as many os 1100 seats per train They would operat at speeds of up to 250mph - faster than any current operating speed in Europe ~ and would un as often os 14 times per hour each direction This would be followed by a shaped second phase taking services from Birmingham to Manchester ond Leeds. The frst phase ofthe £56bn railway is due to open in December 2026, wit trans to travel at high speed between London and Birmingham before continuing onthe existing West Coast Main Line. ‘The Department for Transport says the project will cu Birmingham London journey times from thr 22min to 49min, Once the second phase compete, Manchester London journeys would take Shr &min (down from 2hr Brin), ond Birmingham Leeds 57min (down from 2h). This would effectively reduce journey times between London and Edinburgh and Glasgow by an hour to 3he 30min ‘The government believes its creation wl free up capacity on overcrowded commuter routes Italso estimates the new line could transfer 45 milion journeys a year from the air and nine milion from the roads, reducing the number of lorries on busy routes. The Institute of Economic Affairs believes thatthe inl cost ofthe scheme wl be around €80bn. Source: wwnubbeco.uk 15 November 2016 Evaluate how useful cost benefit analysis would have been when decisions about going ahead with HS2 were being made. [12] Indicative content from mark scheme: Cost benefit analysisis useful because it takes into account al factors, private and social costs and benefits, and attempts to puta monetary value on them so that they can easily be compared. ‘Advantages of cost benefit analysis: + takes into account awide range of benefits and costs + Impacts on society and the community are included + putsa value to external benefits and costs that would normally be ignored by private sector businesses + canbe used torankpossible major projects in order of public costs.Disadvantages of cost benefit analysis: + the valuation of intangibles can be difficult; valuation will often include value judgements which may dfer from person to person + Ifthe social costs and benefits are incorrectly calculated then the wrong choice may be made + hard to include al stakeholders. Inthe case of HS2 this is a massive project and there are huge numbers of factors to consider and a great deal of uncertainty about both the costs and the benefits ofthe scheme. The private costs ae the costs of construction, Itisimportant that these are calculated correctly, although like most major projects its likely that it will gover budget and that the private costs will e underestimated. The IEA estimate is £80bn. ‘The private benefits arise from ticket sales. These are likely to be considerable as travellers are probably happy to pay more for the {aster and better service that HS2 will provide, However, future ticket sales can only be estimated and may be incorrect. ‘The external costs are difficult to assess. There the impact on the environment which is difficult to put a monetary figure on. What Is the cost ofthe loss of woodland andits fauna? Some costs, such as the need to compensate homeowners whose houses will have to be knocked down, can be accurately gauged, The external benefits are alse difficult to assess, or example, there willbe fewer vehicles on the road ane less pollution, but itis ditficutt to put an exact figure on these benefits Overall, cost benefit analysis is better than no cost benefit analysis, ut there are many uncertainties that could in practice negate the conclusions ofthe study. Any ther valid point.4.6. The key role played by information technology in business decision-making Bagh formation technology in decision-making 461 Computer technology can be used by businesses to make many day-to-day decisions. Decisions on when to order new stock, how to ‘manage deliveries, or on staffinglevels can be calculated and implemented by T systems. Information systems can collect inputs from several sources, organise the data and then distribute the data to make the most efficient decisions. For example, IT systems in an ice-cream factory can monitor sales in supermarkets, through Electronic Point of Sale (EPOS) systems, forecast future sales and weather data, and from this determine levels of production, organise staff shifts and arrange delivery schedules. Management information systems (MIS) provide managers with information to make tactical and strategic decisions. MIS continuously collects and processes data and makes it available for managers to use in thelr decision-making. Bah S721 Tovstenstooktoimprove decision making using Internal and external data. Decision-making models suchas decison tres and critica path analysis can be carried out by computer models which save time and help accuracy, 462 Data processing technology helps businesses deal with huge quantities of information in aquick and efficient way and speed up decision-making. Expert systems and artificial intelligence allow computers to imitate human thinking, which considers reasoning, to sive evidence-based conclusions y_ Fillinthe blank paces by choosing the correct answer from the dropdown men 483 The{ world |ofice| internet ]is almost entirely staffed by computers. Analysis of browsing and purchasing habits is used to determine earch results and what s seen on screen, Search for aholiday in Greece, and for the next few weeks your screen will have adverts for Greek holidays cropping up everywhere, {Crisps | Cookies | Sweets | Biscuits allow retail websites to present choices that are most likely to meet browsers! needs Database marketing isbased on data [excavation | mining | lumbering [fishing] searching through patterns in gathered customer information and using these buying behaviours to create directed advertising, allin an automatic way. Financial information systems allow the analysis of financial and accounting data, These systems can produce reports on cash flow and| income profit | expense | cash statements and will support the financial management of the business, Features of financial information systems include collecting and storing all payments and receivables, monitoring income and expenditure and balance sheets, keeping all records up to date, highlighting any deviation from [ operations | marketing] people | budgets ] and reducing paperwork. ‘Technology is continuously improving and adapting to aid businesses in decision-making. Although the cost ofthese systems are an cheap | affordable | ongoing | expensive J outlay, many businesses are prepared to pay the cost inthe short term. Cost is outweighed by the long-term benefits of having efficient information and management systems which improve the control and processing of data inorder to make effective decisions4.7. And finally.. 2 Now download the WJEC 2019 and 2018 Unit 3 past paper questions, answer in your book and share with your teacher. 47 Download fle[ Mtpsiresource downloadwjeccouk/ste/2020-21/120-21,¢-19/townload/test-yourselt-en pat)Answers Decision-making models 1.24. + Strategic decisions are long term and will affect the direction the business takes. + Strategic decisions are often complex and may resultin major organisational change interna tothe business. + Strategie decisions may also involve. large financial commitment to carry out the decision. + Strategic decisions are often made by senior managers. + Tactical decisions tend to be medium term, + Tactical decisions are less complex than strategic decisions and are usually carried out by middle management. + Tactical decisions can be more flexible; ifthe decision i faling to meet its objective then it can be changed, + Operational decisions are the day today decisions made ina business. + Operational decisions are lower level decisions that tend to be short term and have little risk. They tend to me made by junior managers and employees. + Many operational decisions are routine and can be taken quickly, with ttle risk, 2.6.2. Benefit:clearly lays out the problem so that all options can be considered, Benefit: allows managers to fully analyse the possible consequences and risks ofa decision Benefit: provides a framework to quantity the values of outcomes and the probabilities of achieving them. Limitation: uses probabilities which only gives an estimate - these may be inaccurate Limitation: can oversimplify a decision and focus too much on the financial outcome. Limitation: does not include other Factors such a labour considerations, managers’ opinions and marketing issues. Limitation: can be time consuming to construct and may be interpreted with bias. 3.4.2. Benefit: CPAis an effective management tool for planning and controlling complex projects. Critical activities canbe Identified, andit forces ‘managers to think about the process and supports a systematic approach to planning activities. Problems can be highlighted early so that whole projects arenot delayed. Benefit: allows effective management of resources, such as labour and money, that can be moved to where they are needed and can be most effective. Supports the transferring of resources for diferent tasks, iFrequired. Benefit:reduces the need for working capital Parts used in the project can be ordered exactly when they are needed, Allows the use of JIT production. Benefit: improves cashflow because of reduced need for working capita, as resources can be utilised as and when they are needed, It also helps with cash flow forecasts. Benefit: an be used to check on efficiency of individual activities and identify if new resources are needed or if employees need training Benefit: improves overall management of projects. Managers understand what is involved and what needs to be done and when itneeds to be done by. Beneft:can be used to give a business a competitive advantage by being more efficient and itsupports time-based management,3.4.3. Limitation: information can be distorted or poor methods of (over optimistic) estimation of activity durations can be used. Lack of experience of those preparing CPA may lead to inaccuracies, Limitation: CPA can give the wrong results or fal to allow for external factors that wil influence the total time taken, Limitation: sub-contractors, who may be completing some of the activities on a project, can be outside the central ofthe project manager and timings may not remain ontrack. Limitation: supplies may be delayed. They may be the wrong type or of poor quality Limitation: ritcal path analysis only identifies the erit which may reduce employee moral. 3 activities; it does not ensure these are done on time. Close supervision may be needed Limitation: requires ongoing checking of activities, and changes may be required f there isa delay. The construction of critical path analyses can be Heonsuming. Limitation: critical path analysis does not ensure quality; the focus is on time and meeting deadlines Limitation: the person who created the network diagram may have made mistakes or may not be experienced or highly competent in producing them, 44.2. Benelit: takes into account a wide range of benefits and costs Benefit impacts on society, the community and other stakeholders are Included. Benefit: puts a value to external benefits and costs that would normally be ignored by private sector businesses. Beneft:can be used to rank possible major projects in order of public cost. Limitation: the valuation of intangibles willbe cifficut to determine, How do you put a value on the effect of pollution or the improved traffic flow of anew road? Limitation: valuations will often include value judgements; one person's calculation of an Intangible benefits likely to differ from another's caleulation, as they may have different views on what isimportant for a business, Limitation: if the social costs and benefits are incorrectly calculated then the wrong choice could be made. Limitation: some stakeholders or some costs an¢ benefits may not be considered inthe calculation or analysis 4.6.3. ‘The internets almost entirely staffed by computers. Analysis of browsing and purchasing habits is used to determine search results and whet is ‘Search for a holiday in Greece, and forthe next few weeks your screen wil have adverts for Greek holidays cropping up everywere, Cookies allow retail websites to present choices that are most likely to meet browsers’ needs. Database marketing isbased on data mining. searching through patterns in gathered customer information and using these buying behaviours to create directed advertsingallin an automatic way. Financial information systems allow the analysis of fnrancial and accounting data. These systems can produce reports on cash flow and income statements and will support the financial management ofthe business Features of financial information systems include collecting and storing all payments and receivables, monitoring income and expenditure and balance sheets, keeping allrecords up to date, highlighting any deviation from budgets and reducing paperwork ‘Technology is continuously improving and adapting to aid businesses in decision-making. Although the cost ofthese systems are an expensive outlay, many businesses are prepared to pay the cost n the short term, Cost outweighed by the long-term benefits of having efficient information and management systems which improve the contral and processing of data in order to make effective decisions,