3.3 decision making techniques

limitations of quantitive sales forecasting

• effective in the short term but in the long term, uncertainties can make it unreliable as it may not reflect the past

factors affecting the accuracy of sales forecasts

• seasonality: weather related factors

• competition: entrance of new arrivals

• changes to legislation

• market changes: unexpected changes to consumer income or changes in customer preferences

• publicity: positive or negative publicity or unexpected promotions by a customer with a large social following

limitations on investment appraisal techniques

• relies upon forecasted future cash flows which may lack accuracy

• long term cash flow forecasts can be inaccurate due to unexpected increase in costs, arrival of new competitors, changes in consumer tastes, uncertainties due to economic growth or recession

• other factors are not considered: business finances & availability of external finance to fund investment, overall corporate objectives, potential for positive public relations

decision trees

• (expected value of success x probability) + (expected value of failure x probability)

• chose the decision with the higher expected value

• limitations: requires skills to avoid bias and takes a significant amount of time to gather reliable data, dont consider external factors, qualitative elements are not considered

critical path analysis

• helps a business identify how long a project will take and what the critical tasks in the project are

• used to schedule a building project, launch a new product onto market, installation of new tech, renovation of old buildings, advertising campaigns

• benefits: stakeholders can see total time frame of project, parallel activities can be scheduled which saves time on the project, useful to know when to deliver resources/ arrange for labour to arive

• limitations: relies on estimates and forecasts, does not guarantee success of project