BM Unit 1 - LO31 Higher Business Management Unit 1 Learning Outcome 3 Decision-making in Business

BM Unit 1 - LO32 The Nature of Decisions n What to produce? n Where to locate? n Methods of production? n How many employees? n What price to charge?

BM Unit 1 - LO33 Types of Decisions n Strategic n Tactical n Operational

BM Unit 1 - LO34 Types of Decisions Features of strategic decisions: - the long-term aims of the business - made mainly by senior managers - lack detail – general terms only - define aims or objectives of an organisation - these influence direction of the organisation - Example: Achieve zero percentage wastage in production

BM Unit 1 - LO35 Mission Statements n A written summary of the strategic aims of an organisation. Well publicised and available to all stakeholders. n Often used in marketing the company’s products or services, eg Body Shop. Types of Decisions

BM Unit 1 - LO36 To plan a long-term strategy for the organisation, the following must be considered: n Where are we now? n Where do we want the business to be in 5, 10, 20 years? n What resources will be needed to achieve this? n What changes need to be made to achieve these new goals? n How can we do better than the competition? Types of Decisions

BM Unit 1 - LO37 Types of Decisions Features of tactical decisions: - setting out how the strategic decisions are going to be achieved - Based on achieving goals or aims of the organisation - made by middle managers in finance, operations, HR and marketing - more detail than strategic - Subject to change as PEST changes - Example: Introduce TQM to operations; reduce costs; increase staff levels

BM Unit 1 - LO38 Types of Decisions Features of operational decisions:  day-to-day routine and repetitive decisions  decisions based on how to achieve objectives made by all managers, but mostly by lower levels of management made in response to comparatively minor, but sometimes important problems Examples: arranging work rotas, dealing with customer complaints

BM Unit 1 - LO39 Types of Decisions However ………. It could be argued that for most organisation, the only real strategic decision is to SURVIVE. All other decisions are made simply to achieve this objective, and are therefore tactical.

BM Unit 1 - LO310 Who needs to know about the decisions? EMPLOYEES Unless informed of decisions employees could be resistance to change. INVESTORS Strategic decisions are relayed to investors at the AGM. If they are not happy, they can vote against them and force changes

BM Unit 1 - LO311 Constraints on decision-making INTERNAL CONSTRAINTS Finance available Company policy Abilities/attitudes of employees EXTERNAL CONSTRAINTS  Govt & EU Legislation  Behaviour of competitors  Lack of new technology  Economic environment

BM Unit 1 - LO312 The outcome of decisions REVIEW what was actually achieved? EVALUATE was this what was expected? ALTER Are changed required? During the process of implementing decisions, managers must check that they are working as planned. Take, for example, how airlines across the world reacted after the terrorist attacks on America.

BM Unit 1 - LO313 The Role of Managers n Get things done through other people n Get things done by using the firm’s resources n Controls and supervises activities in the organisation n Makes decisions about running the organisation n Oversees the work of subordinates n Oversees the work of department/s n Is accountable to, and carries out the wishes of, the owner(s) of the organisation

BM Unit 1 - LO314 Role of managers Henry Mintzberg in 1973 found that managers perform a wide variety of roles: n Interpersonal role – relationships which a manager has with others n Informational role – collecting and passing on of information n Decisional role – making of different kinds of decisions

BM Unit 1 - LO315 Functions of Management (Henri Fayol) n Plans n Organises n Commands n Co-ordinates n Controls n Delegates ) n Motivates ) Modern management include these

BM Unit 1 - LO316 The GROUP View of Management n Management has conflicting GOALS n Managers are held responsible for RESULTS n Managers work in ORGANISATIONS n Managers must cope with UNCERTAINTY n Managers work with and through PEOPLE Derek Torrington put forward a mnemonic to describe the art of management:

BM Unit 1 - LO317 Why Make Decisions? n To achieve the long-term aims of the owners n To carry out roles and functions n To be able to give clear instructions n To give directions and purpose to employees n To compare actual performance with objectives n To judge the success or failure of previous decisions n To guide into decisions for the future n To modify existing decisions

BM Unit 1 - LO318 Structured Decision-making Model - “POGADSCIE” n Identify the PROBLEM n Identify the OBJECTIVES n GATHER information n ANALYSE information n DEVISE alternative solutions n SELECT from alternative solutions n COMMUNICATE the decision n IMPLEMENT the decision n EVALUATE

BM Unit 1 - LO319 ICT and Decision-making n Allows decision-making process to be quicker and more efficiently n Huge storage capacity n Vast amounts of information from the internet n Sophisticated software for processing information n Reporting and presentation packages (PowerPoint) n Improved efficiency and lower costs (less time to find information) n Problem of ‘too much’ information?

BM Unit 1 - LO320 SWOT Analysis n Strengths n Weaknesses n Opportunities n Threats

BM Unit 1 - LO321 Internal Factors Strengths THE FIRM Weaknesses

BM Unit 1 - LO322 External Factors Threats Opportunities THE FIRM

BM Unit 1 - LO323 A SWOT Grid WeaknessesPresent ExternalOpportunitiesThreatsFuture StrengthsInternal

BM Unit 1 - LO324 SWOT ANALYSIS Internal areas which may be analysed as strengths or weaknesses: n Sales & marketing n Human Resources n Orgnisational structure n Operations and Production n Finance n Technology n Management styles and structures n Products External areas which may be analysed as opportunities or threats: n Political situation n Economic climate n Social or demographic changes n Consumer tastes n Competitors n Suppliers n Environmental changes

BM Unit 1 - LO325 SWOT ANALYSIS A SWOT analysis should be used to:  Identify and build on business’s strengths  Assist with decision-making process. S and W help identify problem; S & O help with identifying objectives; all sections help with gathering and analysing information.  Correct any weaknesses identified  Take advantage of opportunities available  Provide measures to protect against threats or change threats into opportunities.  Make a firm proactive rather than reactive to changes in the business environment.

BM Unit 1 - LO326 PEST ANALYSIS Organisations often carry out a PEST analysis in conjunction with SWOT analysis.  POLITICAL, eg tax policy, consumer protection legislation, social & employment legislation.  ECONOMIC, eg stage of business cycle, unemployment and labour supply, labour costs, impact of globalisation.  SOCIO-CULTURAL, eg population growth rate and age profile, lifestyle choices, social attitudes.  TECHNOLOGICAL ENVIRONMENT, eg impact of emerging technologies, research and development acitivity, impact of Internet  COMPETITIVE – probably the biggest concern for most businesses is the actions of their competitors

BM Unit 1 - LO327 Problems/Costs of using a Structured Model n The time scale required n The ability to collect all the information n Generating alternative solutions n A structured process can stifle creativity

BM Unit 1 - LO328 Benefits of Using a Structured Model n No rash decisions are made as time is taken to gather info and analyse the situation n The quality/quantity of the information you have n The time taken to develop alternative solutions rather than jumping to first available solution. n By following a logical process, ideas are enhanced because a range of alternative solutions will have been analysed.

BM Unit 1 - LO329 Aids to Decision-making Brainstorming The step by step process of the decision-making model may be difficult to be creative in finding alternative solutions. Brainstorming is when a group meet to try to think of as many alterative solutions as possible. Benchmarking This involves comparing what you do with what the very bet organisations do, eg the market leader is often the ‘benchmark’ or ideal standard that you would want to achieve.

BM Unit 1 - LO330 Factors Affecting the Quality of Decisions  Having managers capable of making good decisions.  Staff’s ability to use decision-making techniques.  Quality and quantity of information used  Level of risk the decision-maker is willing to take.  The personal interests the decision-maker may have.