3.2.3 Management decision making

• Opportunity cost is the value of the next best alternative foregone when a decision is made
• Decision making

  Role of managers

  Decisions can be scientific

  All decisions have opportunity cost

  All decisions carry risks and rewards
• Decision trees

  Mathematical models used to help make decisions

  Uses estimates and probabilities to calculate likely outcomes

  Helps decide which option has the highest net gain
• What is risk?

  The chance of incurring misfortune or loss
• What are uncertainties?


  Where there is a lack of knowledge and outcomes are unpredictable
• What are the two approaches to decision making?

  Hunch - low stakes, low risk

  Scientific - for big investments, collect data
• revenue = price x quantity sold
• net gain = (probability of success x gain)- (probability of failure x gain)
• A stakeholder is any individual or organisation who has an interest in business activities and decision making of a business
• A primary stakeholder is anyone that has a direct relationship with the business for example the employees
• A secondary stakeholder is a stakeholder that is affected by the actions of the primary stakeholder they are not directly linked with the business for example the local community
• What is stakeholder mapping?

  It maps the relative power of each stakeholder group against their degree of power and interest
• A stakeholder with high power but low interest is keep satisfied e.g. a customer
• A stakeholder with high power and high interest in the business is a manage closely e.g. a sole customer
• A stakeholder with low interest and low power is monitor e.g the government
• A stakeholder who was low power and high interest is keep informed e.g local community