Management Decision Making

Management Decision Making

1. Scientific Decision Making

   • Set the objectives, collect and analyse the data, review the decision, and then implement it.
     • Based on data - reduces risk of making expensive mistakes
       • Logical approach and can always be adapted and re reviewed.
         • However, costly and time consuming as involves collecting data. Can be less creative than decision based on a hunch.
           • Data can be unreliable

2. Intuitive (Hunch)

   • Sense when a decision is right based on past experience. Can lead to great decisions and keep company ahead of competitors.
     • Made quickly - no wasting time. Useful when decision needs to be made quickly.
       • Risky to rely on a hunch as mistakes are possible.

3. Influences

   • RISK
     • Some decisions are high risk, but if successful bring high rewards. Scientific decisions can help reduce risks
   • REWARD
     • Managers expect a reward for the decision. Can be financial or beneficial in other ways such as higher productivity.
   • UNCERTAINTY
     • No one knows for sure what the outcome will be. Scientific decision help reduce uncertainty, but not everything can be predicted. Managers may want to take lower risk of uncertainty is high.
   • Mission
     • A businesses mission (main purpose) will influence decisions
   • Objectives
     • Long term objectives that help a business achieve its mission. Decisions will be made with aim of achieving the objectives.
   • Ethics
     • e.g. business may not switch to cheaper supplier if they are less environmentally responsible.
   • External Environment
     • Competition, trends, state of economy, environmental concerns. e.g. if a bakery lowers the price of bread, the marketing manager in a rival bakery might decide to do the same to stay competitive.
   • Resource constraints
     • Money, people, time and raw materials. May not plan to grow if shortage of local labour, or may not advertise if they have no money.

4. Consider the Opportunity Cost

   • Benefit that is given up in order to do something else.
     • Limited resources. Managers compare opportunity cost when making decisions. e.g. opportunity cost of an advert for one X factor final may be screenings on five episodes of a TV show