baba manage decisions making

Why do managers make decisions and what do they relate to?

Managers spend much of their working day making decisions, such as choosing how to use money, people and time to meet business goals. Clear, timely decisions keep firms competitive, allow resources to be allocated well and help employees adapt to change.

Decisions may relate to any aspect of business operations, such as: pricing tactics, product changes, recruitment and training plans, investment in new machinery, choosing suppliers, entering new markets.

What are strategic decisions?

These are big, long-term decisions that set the overall direction of the business, such as whether to enter the Asian market or build a new factory. They use lots of resources and involve high uncertainty.

Who makes them: Usually senior executives or the board

Why they matter: They shape everything else the firm does and can't easily be reversed

Example: Tesla chose to build its first European "Gigafactory" near Berlin to serve EU customers and cut shipping costs.

What are tactical decisions?

These are medium-term decisions that turn strategy into reality, such as setting the price for a new product line, launching a six-month promotional campaign or adjusting staff rotas.

Who makes them: Middle managers or team leaders

Why they matter: Done well, they improve performance and keep strategy on track; done badly, they waste money or time

Example: Ford cut the price of its F-150 Lightning pickup truck by up to £8,000 in July 2023 to boost demand and stay competitive.

What are programmed decisions?

These are routine, repeat decisions handled by rules or, increasingly, software, such as reordering stock when it falls below a set level and approving staff expenses.

Who makes them: Often automated or delegated to junior staff

Why they matter: They save time, ensure consistency and free managers to focus on more complex issues

Example: Toyota's Kanban system automatically reorders parts the moment an item runs out of stock, without a manager having to think about it.

What are non-programmed decisions?

These are one-off, unfamiliar and high-risk decisions, such as responding to a data breach, deciding on a merger or making key changes during a pandemic.

Who makes them: Senior managers or crisis teams using judgement and creative thinking

Why they matter: They can rescue or transform the business but carry a lot of uncertainty, so managers need good information and clear criteria

Example: General Motors decided to recall every Chevrolet Bolt EV after rare battery fires, an urgent and unplanned — but necessary — decision, which cost over $1bn.

What are risks, rewards and uncertainty in decision-making?

Managers never know the future for certain. Every choice - e.g. launching a new car model, cutting prices or building a factory - involves:

· Risk: A chance that something will go wrong. Risk is measurable using data and probability

· Uncertainty: Unknown or unpredictable events. Uncertainty cannot be measured, so good judgement and flexibility may be needed

· Potential reward: E.g. profit, growth or an improved reputation

Bigger rewards usually require bigger risks. Effective managers identify and quantify risk, then decide whether the reward is worth the risk, given the uncertainties.

What are real business examples of risks, uncertainty and rewards?

Tesla's Berlin factory:

· Risk: Spending €5bn on a new plant near Berlin was a risk; local permits and protests held the project up, so the money could have been wasted

· Reward: If it works, Tesla can deliver cars faster and gain sales in the important EU market

Boeing 737 MAX update:

· Risk: Rushing design changes risked safety; two crashes grounded the jet

· Uncertainty: Boeing set aside $4.9bn to cover legal payouts and potential lost orders

Surprise Guinness shortage:

· Uncertainty: A Christmas 2024 TikTok craze made Guinness so popular that brewer Diageo had to divert extra stock from Ireland. Sudden demand spikes are hard to predict

· Cost: Pub chains publicly complained about the beer shortage

$1.2tn EV gamble:

· Risk: Global car makers plan to spend $1.2tn by 2030 on developing electric cars and batteries

· Reward: Market leadership in a fast-growing sector

What is opportunity cost?

Opportunity cost refers to the value of the next best alternative that you give up when making a choice. Due to the problem of scarcity, choices have to be made about how to best allocate limited resources among competing wants and needs. In simple terms, when you decide to do one thing, you lose the chance to do something else. Every decision forces a choice and an opportunity cost.

Examples:

· The National Health Service must allocate a fixed budget: Spending £1bn on new cancer drugs leaves less for mental-health nurses, so health leaders weigh which benefits patients more

· A farmer near Norwich can lease land for a solar farm or keep growing wheat; high energy prices push many towards panels, cutting local grain supply

· A student with £50 can buy a gig ticket or new textbooks; whichever they skip is their opportunity cost

How does opportunity cost affect decision-making?

For managers making decisions, every choice uses scarce resources. E.g. when a manager spends £2m updating machinery, the opportunity cost is the project they now can't fund, such as launching a new product line.

Comparing options sharpens managers' priorities. Listing what must be given up helps managers rank projects by the value they add to the business.

Makes decision trade-offs clear to stakeholders. E.g. showing that hiring more staff may mean delaying a marketing campaign helps teams understand why one option wins and may commit them to the final decision.

What are the stages in the decision-making process?

Collect data: A range of internal and external sources can provide useful insights. Internal data: sales and loyalty card records, production logs, finance systems, website analytics. External data: government statistics, industry reports, social media trends, customer reviews

3. Analyse data, and select an option: Use statistics, A/B tests or forecasts to determine the best options, then make a choice based on the strongest evidence

4. Implement the decision: Put in place the resources required, such as finance, staff, equipment and premises

5. Review and learn: Compare outcomes with the original goal; make necessary changes to keep improving

How does Tesco use scientific decision-making?

Setting objectives: Define a clear, measurable target. Tesco's leadership aimed for 4% like-for-like UK sales growth in 2024/2025.

Gathering information: Collect internal data and external facts to understand customers, rivals and costs. Tesco mined 23m Clubcard households' shopping data to spot which items most influence where people shop and how often.

Choosing an option: Compare alternatives, and pick the best to achieve the objective, considering the available resources. After testing several ideas, Tesco kept its "Aldi Price Match" and expanded its "Clubcard Prices", aiming to match or beat discount rivals' prices on more than 600 products.

Implementing the decision: Allocate a budget, brief staff and launch and monitor the implementation. It rolled out bold, yellow Clubcard labels to every large store and, in late 2024, extended Aldi Price Match to its convenience stores.

Reviewing the decision: Compare results with the objective, learn lessons and decide what to do next, making adjustments if necessary. In April 2025, results showed that the UK market share had risen to 28.3%, and Tesco recorded Christmas sales growth of 4.1%. This confirmed that the price strategy would continue, as it had contributed towards achieving Tesco's objective.

What are the benefits of scientific decision-making?

Reduces risk: Decisions rest on evidence, not guesswork. Firms using reliable data are more likely to report better outcomes.

Justifies investment: Clear numbers help win the support of a board of directors, investors or lenders, such as banks.

Supports continuous improvement: Constant measurement helps a business to identify what works and what may need to be changed.

What are the limitations of scientific decision-making?

Cost and time: Gathering and analysing data is expensive. It may be unaffordable for smaller businesses or those with a poor cash situation.

Data quality issues: Bad or biased data can lead to wrong or inappropriate decisions being made.

Overreliance: Managers can ignore gut feel or ethics. They may miss out on opportunities that have a good chance of success because the data does not recognise their potential.

Incomplete picture: Not all risks are measurable, and relying on data means that businesses can miss surprises such as rapid market change.

What is intuitive decision-making?

Managers sometimes rely on gut feel, experience and pattern-spotting rather than detailed data analysis to choose a course of action. Experienced managers build quick mental shortcuts from years of experience, so their gut instantly signals, "This feels right."

Situations where intuitive decision-making may work best:

· Little time for data: Speed beats delay. Quick calls mean chances are not missed. E.g. Zara buyers approve new styles in hours to catch microtrends

· No clear precedent: Past numbers cannot predict a brand-new idea. E.g. Steve Jobs approved the first iPhone without any proof, trusting his instincts

· Decision rests on human taste: The feel for design, brand or consumer mood is hard to quantify. E.g. Richard Branson set up Virgin Atlantic because the idea "felt fun and right"

What are the benefits and limitations of intuitive decision-making?

Benefits:

· Speed: Rapid action can allow a business to seize opportunities before rivals can react

· Creativity: It frees managers to pursue bold ideas that data might reject

· Uses deep expertise: Experienced managers base decisions on past successes, failures and patterns

Limitations:

· Bias and overconfidence: Personal likes or recent events can cloud judgement

· Hard to justify: Convincing investors or lenders without data to back up ideas can be difficult

· Riskier on big bets: A wrong hunch can be very costly, so managers risk their personal reputations in pursuing them

What are decision trees and what is their value?

A decision tree is a quantitative method of tracing the outcomes of a decision so that the most profitable decision can be identified. Research-based estimates and probabilities are used to calculate likely outcomes. The net gain from a decision can be identified and used to consider whether an investment is worthwhile.

Benefits:

· Constructing a decision tree diagram may reveal options that haven't previously been considered

· Managers are forced to consider the risks associated with their choice, ahead of implementation

· The quantitative approach requires deep research to be carried out

What are the limitations of using decision trees?

Constructing decision trees that can support effective decision-making requires skill to avoid bias

· It can take significant amounts of time to gather reliable data

· A decision tree is constructed using estimates, which rarely take full account of external factors and cannot include all possible eventualities

· Qualitative elements, such as human resource impacts, are not considered, which may affect the probability of success of a decision

· The time lag between the construction of a decision tree diagram and the implementation of the decision can affect the reliability of the expected values

What are the key elements in a decision tree diagram?

The key elements in a decision tree diagram are:

· Decision points: Points at which decisions need to be made, represented by squares

· Outcomes: Points at which there are different outcomes, represented by circles called nodes

· Probabilities: The likelihood of each outcome, shown on the diagram. A certain outcome has a probability of one. An impossible outcome has a probability of zero

· Expected monetary values: The monetary value of each decision based on the expected profit or loss of the outcome

How do you calculate expected monetary values in a decision tree?

To calculate the expected monetary value of a decision, the following formula is used:

Expected monetary value = (Expected value of success × Probability) + (Expected value of failure × Probability)

Example:

Opening a new store: = (£420,000 × 0.7) + (-£24,000 × 0.3) = £294,000 + -£7,200 = £286,800

Expanding the website: = (£480,000 × 0.6) + (-£32,000 × 0.4) = £288,000 + -£12,800 = £275,200

As the expected value of opening a new store is higher (£286,800) than that of expanding the website (£275,200), based purely on financial terms, the business should choose the option to open a new store.

How do decision trees work when expected revenues and costs are provided?

In some cases, the decision tree diagram provides expected revenues rather than profit or loss for the range of outcomes. In these diagrams, the costs related to each outcome are also provided. To calculate the expected value of each outcome, costs must be deducted from expected revenues.

Formula: Expected monetary value = (Expected value of success × Probability) + (Expected value of failure × Probability) - Cost

Example - Launching a new product:

= (£520,000 × 0.6) + (-£54,000 × 0.4) - £280,000

= £312,000 + -£21,600 - £280,000

= £290,400 - £280,000

= £10,400

Example - Improving existing product:

= (£225,000 × 0.9) + (-£22,000 × 0.1) - £190,000

= £202,500 + -£2,200 - £190,000

= £200,300 - £190,000

= £10,300

As the expected value of launching a new product is marginally higher (£10,400) than improving the existing product (£10,300), the business should choose to launch a new product. In this case, the decision tree has demonstrated that there is little difference between the two options, and the business should look at other factors that may inform its decision.

How do you calculate expected values and make a decision using a decision tree? (Caramelac example)

Caramelac is a lactose-free chocolate product. Increased competition has impacted sales. Two options:

a) Redevelop the product

b) Create a new advertising campaign

Expected outcomes:

· Redevelop the product: Success £840,000 (0.5), Failure -£84,000 (0.5)

· Advertising campaign: Success £660,000 (0.6), Failure -£76,000 (0.4)

Step 1: Calculate expected value of redeveloping the product

= (£840,000 × 0.5) + (-£84,000 × 0.5)

= £420,000 + -£42,000

= £378,000

Step 2: Calculate expected value of advertising campaign

= (£660,000 × 0.6) + (-£76,000 × 0.4)

= £396,000 + -£30,400

= £365,600

Step 3: Interpret outcomes and make a decision

As the expected value of redeveloping the product is higher at £378,000 than that of the advertising campaign at £365,600, the business should choose the option to redevelop the product.

How do mission and objectives influence decision-making?

Mission: A mission states the organisation's guiding purpose; decisions must support it. E.g. The John Lewis Partnership commits to "Working in Partnership for a Happier World", so managers involve staff in key decisions, such as store refurbishments.

Objectives: Day-to-day decisions aim to hit agreed targets on sales, profit, market share, etc. E.g. Tesco's 2024/25 goal of 4% sales growth in the UK informed the decision to extend its Clubcard Prices promotion and Aldi Price Match deals.

How do ethics and resource constraints influence decision-making?

Ethics: Ethical principles, such as FairTrade, sustainability and social justice, can rule options in or out, affecting decision-making. E.g. Lush does not use single-use plastic, so it invests in "naked" shampoo bars and deposit-return pots, even when cheaper packaging exists.

Resource constraints: Decisions must fit the money, time, skills and capacity available. E.g. Electric vehicle manufacturer Arrival put its electric bus project on hold in 2022 because cash and engineering resources were tight, choosing to focus its funds on its delivery van launch instead.

How do competition and economic conditions influence decision-making?

Competition: Actions taken by rivals can force a business to take defensive or matching actions. E.g. As Lidl's reputation as the UK's cheapest supermarket has grown, rivals such as Tesco and Sainsbury's have extended their price-match tactics.

Economic conditions: Interest rates, inflation and GDP growth affect costs and demand. E.g. In 2024, the Bank of England reported that many UK firms cut investment plans or delayed projects as a result of rising interest rates.

How do social and technological change influence decision-making?

Social change: Shifts in customers' tastes and values or demographic change can impact demand. E.g. Growing vegan and flexitarian diets led McDonald's UK to launch the McPlant burger nationwide after a successful trial.

Technological change: New technology creates opportunities and leads to some products or roles becoming obsolete. E.g. Self-service machines in UK supermarkets have reduced the number of traditional cashier roles. Many workers have been moved to theft prevention or shelf-stocking duties instead.