Cambridge technical level 3 business - Unit 3 business decision Revision notes
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Unit 3 - Business decisions
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Cambridge technical level 3 business - Unit 3 Revision notes
Business decision
This document contains all revision material for unit 3 business decision Cambridge technical level 3. The specification is included as titles with detailed notes attached under.
These notes will help with al...
, 1.6 factors affecting the quality of decision-making, i.e.
1.5 the purposes, benefits and importance of communication:
1. 1 Different types busines decisions 1.4 how to judge the validity of information used to make decisions, i.e. • with internal stakeholders, external stakeholders, the media
• access to relevant information
· Strategic • before, during and after decisions are made
· tactical
• reliability • access to decision-making tools
·operational • bias Effectivecommunication with stakeholders assists the decision-making process. Many operational decisions only require communication • availability of finance
STRATEGIC DECISIONS
• relevance with employees. On the other hand, strategic decisions often require communication with external stakeholders and the media. • key personnel (e.g. knowledge, skills and experience of who is making the decision, analytical skills, solution-focused approach, problem-
• complexity solving abilities)
Strategic decisions refers to long term decisions
taken by senior managers, about the long term decisions of the business. • degree of detail Effective communication: • training of managers in decision-making skills
• provides information to stakeholders • power differentials and potential for bias
e. g. whether to focus on market share • currency (up to date)
• They are usually made by senior managers • improves understanding of each others viewpoints • consultation
• intended use
• if any mistakes are made the outcome of the situation is serious. They often involve the investment of large sums of money. • Allows negotiation to take place
Examples of strategic decisions for a book shop.
• quality • Reduces conflict
Factors affecting the quality of decision making Access to the right tools
Whether to expand the number of book shops • Allays fears
Whether to invest in a digital online platform Judging the Validity of Information • Reduces resistance to change
• The quality of a decision made could mean the success or failure of a business. .there are a number ofdifferent tools thatcan be used to assist decision
TACTICAl DECISIONS makers.
Validity can be judged by considering: Stakeholders • A sound decision requires the following elements.
Tactical decisions refers to medium term decisions taken by middle managers designed to fit in with strategic decisions. Relevance - Any information provided to decision makers should be useful in the context of the decision • Customers and the local community also need to be informed of a decision that has a direct impact on them. • Access to relevant information. = The most appropriate tool depends upon the situation
E.g, when to launch a new product • For example, informing customers, the local community and employees of a proposal to extend the working hours of a noisy industrial
required • Access to decision-making tools
• they are usalllu related to managing performance and rescouces, to work towards achieving the strategy.
Bias - When data is obtained it can be influenced by the way it has been obtained, e.g. the way that questions dry-cleaning business would convey an image of a caring business that is prepared to listen to their views. • Availability of finance • tools available include, but are not limited to:
• They tend to have medium term implications and getting them wrong can delay the achievements of the overall strategy.
were asked • If the decision involves huge financial commitment or a business finds itself having cash flow problems, lenders need to be informed in • Key personnel = internal and external audits
Examples of tactical decisions for a chain of book shops might include:
Reliability - This refers to the extent to which any results would be similar if research tasks were repeated the first instance to avoid confusion and distrust.
Whether to locate a new book shop • Training of managers in decision-making skills = competitor analysis
Which format to sell ebooks Intended Use - For secondary data in particular, knowing what it was originally obtained for can determine its • Power differentials and potential for bias = stakeholder analysis
Media
usefulness in other scenarios • The media need to be dealt with sensitively, especially if a crisis is involved. • Consultation = ansoff matrix
OPERATIONAL DECISIONS Quality - The quality of data refers to whether the data is from a trusted, and authoritative source, and is not • By being seen to be open and sincere, carrying out swift remedial actions, a business can avoid damage to its reputation. • Seeking advice and expertise from consultancies
fake news • Cadbury’s experience illustrates the importance of communication.
Operational decisions refer to day to day decisions taken by junior staff, that will have little impact on the success of a business.
E.g, deciding which staff do which shifts.
Degree of Detail - Information provided to decision makers should be of sufficient detail, without being • In a crisis, the business concerned must be seen to be open and willing to take
Availability of finance
• they are usually made within established rules and policies. overloaded with irrelevant details remedial action.
• The quality of any decision canbe directly affectedby thebudget available
• They tend to have short term implications, so eating the, wrong occasionally will have little impact on the achievement of the overall Complexity - Information, especially if it is numeric, needs to be easy to understand, otherwise it may be • Stakeholders need to be reassured and informed of the steps that the business has already taken to deal with the problem, and that the situation
strategy. misinterpreted or ignored
• The budget will determine:
is under control.
examples of tactical decisions for a chain book shop Currency - Is the information been used to make decision up-to-date. If not, the conclusions may no longer be = The amount and quality of research undertaken.
Where the latest releases should be displayed in store valid → better research leads to better informed decisions.
The number of staff needed on the customer helpline this week = whether external consultants can be used
→ although expensive, external consultant will have expertise in their field that they can share.
• The option available to choose from
1.2 different criteria used when making business decisions → more money means that a business may be able to afford a wider range of options.
Internal Key terms
• Attitude to risk. External Risk: the likelihood of negative impact on a business (e.g. financial risk,
damage to reputation, External criteria
of a business).
likelihood of success/failure and the degree of familiarity and level of competence
• Level and nature of risk
• Organisational objectives
• Impacts on external stakeholder
This is measured by Ansoff's Matrix - see Learning Outcome 6.1.
1.3 the use of different types of information when making Internal data and External Data
• Core competenciesof a business Risk averse: reluctant to take risks.
Ethics: doing what is right rather than doing the minimum that the law demands.
External critena relates to things that need to be considered when making
• Impact on internal stakeholders • Degree of uncertainty
Corporate social responsibility: actions taken by a firm tobenefit society
and the environment,
decision that are out of the control of a business. •business decisions, i.e.
• Business ethics • Changes in market rather than just benefiting its own profits and reputation. External data refers to information that has originated outside of the business.
• changes in external environment
Opportunity cost: the loss of the next best alternative. •internal and external Internal data refers to information that a business already holds. For example:
• Financial considerations For example:
• Time The level and nature of risk •qualitative a n d quantitative • • Production data from operations
• Opportunity costs (e.g.consequence decision and
• Market research data
lack •historic and forecasted • Sales data from marketing
alternatives. Ansoff matrix • The size and type of risk. Risk comes in many forms including financial risk, impact on reputation, likelihood of success failure, • Government statistics
A marketing planning model that helps a business determine its product and market strategy of previous experience, lack of familiarity and lack of competence / expertise. •primary and secondary research • Costing information from finance
Attitude to risk Ansoff matrix is a model used for strategic management. a
• The level and nature of external risk can vary enormously, but a business has no control over these factors. But they can write
•
Is the business owner willing to take high levels of risk’s to try to obtain High rewards or are they risk averse • it identifies4 waysinwhich a business cangrow with varying degree of risk.
contingency plan in case events take place. Such plans usually categorise possible events, according to the risk they pose to the
Using information from outside the business will mean that:
and prefer safe course of action. The decision made should fall within the business owners risk threshold. • the attitude towards risk would affect the decision made by a Business.
Using information that a business already holds is beneficial for a number of reasons
survival of the business. • There may be lots of information available
G
Manageable risk level
• This information is cheap, quick and easy to obtain as the business already has it
Risk averse An example of using Ansoff Matrix: For example: • Can help a business understand their customers and market
A business that avoids risk is likely to take the safest option when making decisions. • Is usually more reliable than external data, since the context in which the data was
l
The merger
leve
Whist this may avoid large losses,it may limit opportunities to obtain larger rewards. Existing products New products
Iow
obtained is known
·
sk
of
Potential problems with using external data include:
ris
h ri
Market
k le
two A change in
Hig
penetration Market penetration Product development
Existing products
Risk taking
vel
A global
carries the lowest
Minimum risk as it involves
Involves risk as competitors interest rates • too much data
A business that actively takes more risks when making decisions is likely to have opportunitiesto obtain larger level of risk pandemic
Internal data does need to be used carefully as it:
Developing your existing
Selling more of your existing
rewards.The danger is that they may be exposed to greater losses. business to existing customers
product and or service is
costly, with no guarantee
• Can be costly
• ignores the external environment
or existing markets
• Can’t take time
of success
Impacts on external stakeholder
Market development Diversification • Requires accurate records to be kept
What are the risks for a business?
New markets
Does not consider future changes Primary data and secondary data
Involves the most risk as
• Finance= decisions can affect both costs andrevenues impacting on profit
. Entering new
markets
Entering new markets with
=making decisions that do not fit with external stakeholder objectives may lead to increased conflict for the •
Involves risk since new products or service as
• Reputation =some decisions mayaffect the way consumers view a business.
business. There are a number of different stakeholder groups such as
existing customers may Diversification carries
·
product is developed for an
be alienated the highest level of risk
• success = success can attract criticism that businesses need to prepare for. unfamiliar market
• familiarity = Change’s in Business behaviour can affect consumers • shareholders
Primary data
• competence = businesses often specialises so doing this can be risky • financiers Secondary data
This is new data collected via primary research such as questionnaires or focus groups
• Government This is data obtained from secondary research using sources such as newspapers and the internet
Organisational objective
• Local community
Primary data has a number of advantages and disadvantages:
• Customers
Refers to what the business is trying to achieve. Using existing data that has been collected by other has both benefits and drawbacks:
The decision made should move a Business towards achieving its objectives, or at the very least not have a negative impact on business objectives. • Suppliers
Advantages
• Pressure groups
more likely to make Benefits
The objectives that a business is working towards will impact upon the decision that are made. For example business that has set ambitious objectives is • Data is unique and not available to competitors
ambitious decisions .this may involve morerisk. For example a business pursuing an objective to increase market shares will use this to make any marketing
decisions. • secondary data is easier and cheaper to collect
• Data obtained can be tailored to the needs of the business
The degree of uncertainty • Large amounts of data can be collected
• Can obtain data to address specific issues
Core competencies of a business • Secondary data can provide context about the external market
Disadvantages
The greater the degree of uncertainty, the more difficult it will Be to reach a decision. Businesses disadvantages
Time • Primary data is more expensive
The skills that a business is good at l e.g.design, product Quality, personal service)The need to consider carefully any areas of uncertainty. • validity and reliably of data may need checking
decision made should exploits the particular strength or expertise of the Business to gain an
-When decisions are required, a business will need to manage the • It takes time to carry out the primary research that provides the data
time available in order to ensure that: • Can be very time consuming to find and analyse data
advantage over The competition. • The data obtained will only be as good as the questions asked
1)sufficient time is allocated to the decision. • by definitiona business as no control over the external risks that they face.however some risks • The same data is available to competitors
-some decisions will require more time than others
The idea was developed by prahaladand Hamel (1990) are mere likely to happen to others. Quantitative data and qualitative data
2)Where needed, research can be carried out
In an article entitled "The core competence of the • for example:
- so that decisions are well informed as possible.
Corporation"they defined thecore competency as"something unique to a busines that it does • Quantitative information means n u m e r i c a ldata. It provides
3)Internal processes can be followed • Qualitative information means information based on people's
particularly well" less likely to Accidental Changes in A competitors More likely quantifiable data that can be mathematically analysed. However, ti does not allow
opinions, attitudes and feelings. It provides depth ofunderstanding, but
A natural disaster,
-so that decisions are "signed off".
for further probing and relies on the skill ofthe researcher.
damage, such as the economic launching a new
to happen
such as a flood
Prahalad and hamel suggested a business should: happen factory fire climate product
is ditticult and time consuming to analyse
1. Develop unique areas of expertise
· A businey may also consider how long It will take for a decision
2. Deliver superior products and services The quantitative analysis of the company's financial data revealed a significant
to reap rewards. Qualitative market research uncovers key insights into how people feel about a product
3. Differentiate themselves from the competition increase in revenue over the past quarter.
e. g. Investment decisions or brand
4. Be prepeared to adapt and evolve. This can inform the decisions that a business makes. For example, if they expect that their competitor is
Qualitative data relates to opinions. Quantitative data
about to launch a new product, they can use this information when making their own decision. Data that is expressed quantities.
Impact on internal stakeholders For example views about the quality of a product
For example, statistical information
This refers to how the decision made will affect staff at all levels of the business. Changes in the market Obtaining opinions from consumers can be provide benefits, but
Using numerical-based data has a number of advantages and
also present challenges:
disadvantages:
Business ethics- some businesses have a strong ethical bias (e.g. A comprehensive corporate social responsibility
Businesses need to make decisions which meet the needs of the market. Markets are dynamic: customer needs and
strategy).The decision made should enhance rather than conflict with the ethics of the business. Benefits
wants change, as does competitor behaviour. The decision made should enhance the business's likelihoodofsuccess Advantages
= ethics is what is morally the right thing • More detailed information can be obtained • Large amounts of data can be easily analysed
=A business will need to consider the impact this may have on decisions, and asses whether each available option:
in the market. • Detail can provide market insights • Quantitative data is usually quicker and cheaper to obtain
• fits in with their own ethical objectives • Can give a better understanding of consumer behaviour • Trends can be identified
• will affect any ethical objecties of different stakeholder groups • When making decisions, a business will need to consider what is happening in the markets within which it operates Challenges
• A market refers to the supply and demand for a product. This means businesses should consider anything that • The data collected is subjective, and may not represent the Disadvantages
Example of decisions and business ethics affects either of these. Amongst other things, this might include: whole market • Validity of data may need to be checked
• It can be more difficult to analyse the data • Provides facts – but does not explain the reasons behind them
Price of raw Changes in • Data usually takes longer to obtain • Statistical data can be misunderstood or misrepresented
The Lego Group, a business with highly regarded CSR policies, made the decision to begin using a plant-based
materials consumer income
plastic
• The aim is to have all Lego items made from this material by 2030
• The first elements were introduced in 2018 amid great publicity Changes in Changes in taste
• Their 2019 Sustainability update confirmed that at that time just 2% of their items were made technology
Supply Demand fashions
from this new material Historic data and forecasted data
Opportunity cost Option A Option B
Undertake significant Price of competitive
(e.g. Consequence of decisions and alternatives) Update and refresh an
The number of
Forecasted data
marketing activity across a
existing product at the products
due to limited resourc es , choosing one course of action may rule out taking another course of action. When Historic data
whole product range
end of its life cycle competitors
deciding which course of action to Make a business needs to consider the benefits of altermative courses of This is predicted data, often based upon historic data.
This is data from the past that can be used to aid decisions
action which it wil miss out on. If Option A is chosen – For example predicted sales figures amd economics forecast.
then the potential
benefits from Option B Changes in the external environment For example internal sales data and government statistics
When ever a choice is made an opportunity is lost due to the alternative.this cost is called the opportunity cost. Potential Benefits are lost
Improved product sees
For example,a business can only afford to do one of the following: Potential Benefits
present and future changes in abusiness's external environment all need to be considered. Some changes can have a very
Forecasted data can often bring issues, and must be used with care, but it can also
sales increase significantly
Using historic data has a number of advantages and disadvantages:
Increased sales of the majority of
large impact on a business, for example, changes in exchange rates, interest rates, technology and legislation
products in the product portfolio
financial considerations Advantages bring benefits:
Benefits
• Historic data is often readily available
= no matter the size of the organization, funds are limited. The course of action chosen needs to take account of the availability Social - changes in social attitudes and culture can change consumers buying habits, so a business will need to be aware of them •Forecasts can help a business to plan ahead, giving them time to put a contingency
Technology - advances in technology can lead to a business becoming irrelevant unless they keep up with the changes •It can be a good indicator of what will happen in the future
and sources of finance plan in place
Economic - Changes in the economy will affect consumer confidence and spending levels, which will impact on businesses •Can help maintain a consistent approach •A forecast requires a business to consider a range of factors
• many business decisions will depend upon financial considerations that will includethe costs involved in the decisions, both in terms of Environmental - The environment presents risks to businesses in the form of natural disasters, including floods, fire and weather
Disadvantages
=up front costs conditions
Political - Changes in government may lead to changes in government policy or the law, both of which may impact on a business •It does not take into account any changes in the external environment Issues
=on going running costs
• the availability of finance whether sourced the funds can / will be sourced
Legal - Changes in legislation can pose a risk in terms of requiring changes to products, or affecting demand for a product •The context that historical data was collected in is not always known •They are predictions which can be difficult in a changing environment
Ethical - Any unethical behaviour, whether intended or not, can introduce the risks associated with negative publicity
• Forecasts are often inaccurate (just think about weather forecasts!) which can
=internally
have disastrous implications
= externally
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