Decision-Making Techniques

What are Decision-Making Techniques?

Structured methods that help businesses evaluate options and make strategic decisions.

What are the main Decision-Making Techniques?

• Decision Trees

• Ansoff Matrix

• Critical Path Analysis (CPA)

• Force Field Analysis

• SWOT Analysis

• PESTLE Analysis

What is a Decision Tree?

A visual diagram that maps out the different options, outcomes, probabilities, and financial impacts of a business decision.

What are the key components of a Decision Tree?

• Decision Nodes (Square): Points where a decision must be made.

• Chance Nodes (Circle): Points of uncertainty with different possible outcomes.

• Branches: Represent the different options available.

• Expected Monetary Value (EMV): Calculated for each option to determine the best choice.

How is Expected Monetary Value (EMV) calculated?

EMV=∑(Probability×Payoff), add up the weighted values of each possible outcome.

What are the advantages of Decision Trees?

• Visual representation of complex decisions.

• Quantitative evaluation of options.

• Helps compare risk vs. reward.

• Encourages thorough analysis.

What are the disadvantages of Decision Trees?

• Relies on accurate data and probabilities.

• Does not consider qualitative factors.

• Can become overly complex with many branches.

• Assumes probabilities are constant, which may not be true

What is Critical Path Analysis (CPA)?

A project management tool that outlines the sequence of activities needed to complete a project, identifying the longest path (critical path).

What are the key components of CPA?

• Nodes: Represent the start and end of activities.

• Activities: Represented by arrows between nodes.

• Earliest Start Time (EST): The earliest time an activity can start.

• Latest Finish Time (LFT): The latest time an activity can finish without delaying the project.

How is the Critical Path determined?

By identifying the path through the project that takes the longest time. Any delay in these activities will delay the entire project.

What are the advantages of CPA?

• Highlights bottlenecks and dependencies.

• Helps allocate resources efficiently.

• Identifies float time for non-critical activities.

• Improves project time management.

What are the disadvantages of CPA?

• Assumes accurate time estimates.

• Does not account for cost or resource availability.

• Can be overly complex for large projects.

• External risks like weather or supplier delays are not inclu

What is Force Field Analysis?

A tool used to analyze the forces for and against a change or decision.

How is Force Field Analysis structured?

1. Driving Forces: Push towards change (e.g., market demand, cost savings).

2. Restraining Forces: Resist change (e.g., employee resistance, high costs).

3. Each force is given a weight to assess its impact.

What are the advantages of Force Field Analysis?

• Clear visual representation of pros and cons.

• Helps identify barriers to change.

• Allows for strategic planning to overcome obstacles.

What are the disadvantages of Force Field Analysis?

• Subjective weighting of forces.

• Ignores the time element of changes.

• May oversimplify complex situations.

What is SWOT Analysis?

A strategic planning tool used to identify a business's Strengths, Weaknesses, Opportunities, and Threats.

How is SWOT Analysis structured?

Strengths, Weaknesses, Opportunities, Threats.

What is PEST Analysis?

A strategic analysis tool used to identify and evaluate the external macro-environmental factors that may impact a business's strategic decision-making.

What does PEST stand for?

• P — Political

• E — Economic

• S — Social

• T — Technological

Why is PEST Analysis important?

• Identifies external opportunities and threats.

• Helps in strategic planning and risk management.

• Allows businesses to anticipate changes and adapt strategies.

• Informs decisions about market entry and expansion.

What are the limitations of PEST Analysis?

• Broad in scope — may oversimplify complex issues.

• Static analysis — does not account for sudden changes.

• May require constant updates to remain relevant.

• Lacks quantitative data — it’s mainly qualitative.

What is the Ansoff Matrix?

A strategic planning tool that helps businesses determine their product and market growth strategy.

What are the four strategies in the Ansoff Matrix?

• Market Penetration: Increasing sales of existing products in existing markets.

• Market Development: Introducing existing products to new markets.

• Product Development: Launching new products in existing markets.

• Diversification: Introducing new products into new markets.

What is Market Penetration?

• Focus: Increasing market share with current products in current markets.

• Methods: Advertising, price adjustments, and competitive pricing.

• Risk Level: Low (least risky of the four).

What is Market Development?

• Objective: Expand into new markets with existing products.

• Methods: Entering new geographic areas, targeting different demographics.

• Risk Level: Medium — new market dynamics are less familiar.

What is Product Development?

• Objective: Introduce new products to existing markets.

• Methods: Innovation, adding features, launching complementary products.

• Risk Level: Medium — product risk but familiar market.

What is Diversification?

• Objective: Enter new markets with new products.

• Types:

  • Related Diversification: Expanding into a related industry.

  • Unrelated Diversification: Entering a completely different industry.

• Risk Level: High (most risky of the four).

Key Exam Tip for decision-making techniques?

Link back to the case study, show both quantitative and qualitative evaluation, recommend the most feasible option.