Business Decision Making Notes
LO 4: Business Decision Making
D1: 'What if' Scenarios and Sensitivity Analysis
- How Business Risks are Analyzed and Evaluated: Applying risk management strategy.
- Classifications of Business Risk: Legal, reputation, and financial risks when making final recommendations/judgements.
- SWOT and STEEPLE Analysis: Using SWOT (Strengths, Weaknesses, Opportunities, Threats) and STEEPLE (Social, Technological, Economic, Environmental, Political, Legal, Ethical) to identify potential threats, risks, and opportunities in a proposed business decision.
- Data Analysis: Analyzing, comparing, and evaluating data to predict consequences, provide reasonable alternatives, and justify solutions.
- Networking and Critical Path Analysis: Contribution of networking, critical path analysis, and Gantt charts to implement business decisions.
“What if” Analysis (Sensitivity Analysis)
- Definition: A business tool to understand potential business impacts from changing one or more variables.
- Purpose: Used to compare different scenarios and their potential outcomes based on fluctuating conditions.
Importance of “What if” Analysis
- Variable Management: Helps manage numerous variables involved in running a business, from supply chain operations and product pricing to employee management and customer experience.
- Future Planning Tool: Addresses unknowns, both within and out of business control.
- Examples:
- What if expansion to a new location fails?
- How much can a supplier increase production costs before price adjustments are needed?
- What if consumer behavior changes, reducing demand for a product?
Calculation of "What if" Analysis
- Using different scenarios to predict varying outcomes.
Simple Example
- Scenario: Selling bread at a market for $2 per loaf, selling 100 loaves daily.
- Question: What happens to revenue if the price per loaf changes?
- Method: Build a simple scenario analysis in Excel to suggest different scenarios.
Critical Path Analysis
- Definition: Determines the shortest possible time to complete a project.
- Impact of Delays: Any delay on the critical path directly affects the planned project completion date (no float on the critical path).
Critical Path Algorithm Explained
- Task Duration: Each task has a specific duration.
- Task ID: Unique identifier for each task.
- Task Description: Description of the task.
- Task Predecessors: Tasks that must be completed before a subsequent task can start.
Gantt Chart
- Purpose: A tool for planning and scheduling projects.
- Benefits:
- Keeps management updated on project completion timelines.
- Informs about additional resource requirements.
- Manages dependencies between tasks.
- Applications: Scheduling production processes, employee rosters, event scheduling.
- Software: Can be created in Microsoft Excel or other specialized software.
D2: Contingency Plans
- Role: Reducing business risks that may arise following the implementation of a business decision.
Features and Purpose of Contingency Plans
- Definition: A proactive strategy outlining actions to be taken in response to a future event.
- Significance: Essential for business continuity, risk management, and disaster recovery.
- Benefits:
- Prepares for unforeseen events.
- Minimizes impact of disruptions.
- Outlines plans for resuming normal operations post-event.
- Synonyms: Plan B, backup plan, disaster recovery plan.
Contingency Plan Steps
- List Down Key Risks
- Prioritize Risks based on Impact
- Create Contingency Plans for Each Event
- Share and Maintain the Plan
Probable Risks
- Time: Schedule overruns, client changes the deadline, unexpected expenditure.
- Cost: Budget exceeded, running out of resources.
- Resources: Machine breakdown, best employee quits suddenly, loss of main raw material supplier.
- Environmental: Weather delays progress, warehouse flooded, earthquake/floods/storms.
- Technical: System crash, software virus.
Prioritizing Risks
- Assessing risks based on probability and impact (Low/High probability vs. Low/High Impact).
Contingency Plan Example (Employee Sickness)
- Risk: A large number of employees call in sick.
- Probability: High.
- Preparation: Collect employee telephone numbers to call for unscheduled shifts.
- Response: Immediately call employees requesting them to come in for an unscheduled shift.
Contingency Plan Example (Solar Energy Conference)
| Risk | Preparation | Response |
|---|
| Disaster or severe weather event | Include the right to cancel without refund in the event of a disaster or severe weather event. | Communicate cancellation in a timely manner. |
| Facility closure | Include penalties in contract with vendor. Include the possibility of facility problems in insurance coverage. | Reschedule event at a comparable facility. If dates change, offer a refund option. |
| Event host or keynote speaker cancels | Develop a deep list of potential guest speakers who could fill in. | Ask a guest speaker to fill in. |
| Catering fails to show up/deliver | Develop a list of local restaurants that can provide acceptable food for the event on a pickup basis. | Substitute by picking up food and beverages from multiple local restaurants. |
| Network Failure | Make it a requirement that facilities provide two separate wifi networks on two different backbones. | Switch to secondary network. |
D3: Use IT skills to create appropriate documentation
- Formal reports, executive summaries, and presentations.
Presentation and Report Writing
- Utilization of appropriate formats, presentation software, and techniques.
Software Packages
- For production and manipulation of financial information, including graph generation.
Report Requirements
- Title
- Cover Page
- Executive Summary
- Detailed Explanation of your Venture
- Bibliography
- Appendix
- Graphs
- Tables
- Gantt Chart
- What If Analysis
Presentation Guidelines
- PowerPoint: Maximum 15 slides.
- Text: Times New Roman, 12pt.
- Citations: In-text citations and references are required at the end of each slide.
- Time: 20 minutes.
- Content: Must include financial calculations and graphs.