Business decision making




Business Decision Making




Table of contents
Introduction        ........................................................... 02
       
Task 1
Sources for the collection of data...................................... 02

Task 2
Techniques to analyse data............................................... 05

Task 3
Produce information for decision making..............................10

Task 4
Making decision................................................................13
Conclusion........................................................................15
Reference.........................................................................16





Introduction
Decision should appropriate every time in business. Good decision with effective use of information is the way to achieve success of business. Business decision making helps to learn verity of sources and methods. Now a day’s developed technology makes it easier to us.
Task 1
Scenario 1
a)   We may use secondary sources to collect the data. Because by secondary sources, data can be more accurate and quicker.

b)   For any business customer’s opinion is very important to know about current products condition and customer’s satisfaction. So know about these we need to ask some question to the group of people for survey. Survey sample is like,
Name:
Age:
Sex:

Very satisfied
Somewhat satisfied
Either satisfied nor dissatisfied
Somewhat dissatisfied
Dissatisfied
Customer satisfaction
o    
o    
o    
o    
o    
Service
o    
o    
o    
o    
o    
Quality
o    
o    
o    
o    
o    
Cleaning
o    
o    
o    
o    
o    
Decoration
o    
o    
o    
o    
o    
 
Additional comments...................................................................




c)  Mean servicing calculation:

f                           fx
    1 – 100          1      50.5           50.5
101 – 200           5      150.5        752.5
201 – 300           6      250.5        1503.0
301 – 400           21     350.5        7360.5
401 – 500           14     450.5        6307.0
501 – 600           3      550.5        1651.5

∑fx = 17625
n = 50
Mean servicing cost = ∑fx/n
         = 17625/50
                         = 352.5
Median:
f         CF              
    1 – 100          1          1           
101 – 200           5          6
201 – 300           6         12         
301 – 400           21        33         
401 – 500           14        47 
501 – 600           3         50
Median, n/2 = 50/2 = 25

Median = LM + CM (n/2 – FM-1): fM
                 = 301 + 100(25-12)
                                21
                 = 301 + 1300/21
 = 301 + 61.9
 = 363

Where,
CM   = median class range
LM   = lower limit of the median class
FM-1 = cumulative frequency of class before median class
n      = total of observations
fM     = frequency of median class

Mode:
Mode = L + C [d1: d1+d2]
                = 301 + 100 [21-6: (21-6) + (21-14)]
                = 301 + 100 [15: (15+7)]
                = 301 + 100 [15: 22]
                = 301 + 100×0.9
                = 301 + 90
                = 391
        Where,
        C = modal class range
 L = lower limit of modal class
       
        d1= difference between the largest frequency and the frequency before it
        d2= difference between the largest frequency and the frequency after it
Task 2
Scenario-2 (a)
8, 5, 6.5, 4, 7.9
x                 ͞x           x-͞x           (x-͞x)2
8              8-6.28               1.72          2.96
5              5-6.28               1.28          1.64
6.5            6.5-6.28     0.22          0.05
4              4-6.28               2.28          5.20
7.9            7.9-6.28     1.62          2.62
∑x = 31.4
∑x - ͞x = 7.12
∑(x - ͞x)2 = 12.47
There are two types of Measures of Dispersion,
(1)Mean Deviation
(2)Standard Deviation

(1)Mean Deviation
∑(x - ͞x)/n
= 7.12/5
= 1.42
(2)Standard Deviation
√∑(x - ͞x)2/n
= √12.47/5
= √2.49
= 1.58
Scenario-3 (a)
     Class Intervals                     Frequency            Cumulative Frequency
£340 and under £370                     9                      9
£370 and under £400                   17                     26     ......... Q1
£400 and under £430                   18                     44     ..........Q2
£430 and under £460                   12                     56     ...........Q3
£460 and under £490                   4                     60

Sum of all the frequencies = 60
Q1 = 60×1/4 = 15
Q2 = 60×1/2 = 30
Q3 = 60×3/4 = 45

Upper quartiles Q3 = 430 + 30 (45-44)/12
                       = 430 + 30/12
                       = 430 + 2.5
                       = 432.5

Lower quartiles Q1 = 370 + 30 (15-9)/17
                       = 370 + 30×6/7
                       = 370 + 10.6
                       = 370 + 10.6
                       = 380.6
(b) Q3 is known as 75th percentiles, so Q3 = 432.5
Scenario-4
Scenario-4
(a)
     Month

        n
    Output
£’000 of units
         x
      Cost
    £’000s
       y

        xy

         x2

        y2
        1
         4
      14
        56
        16
       196
        2
         3
      11
        33
          9
       121
        3
         5
      16
        80
        25
       256
        4
         1
        6
          6
          1
         36
        5
         3
      11
        33
          9
       121
        6
         2
      10
        20
          4
       100

∑x   = 18
∑y   = 68
∑xy = 228
∑x2  = 64
(∑x)2 = 324
∑y2  = 830
(∑y)2 = 4624
Correlation coefficient r =   n∑xy - ∑x∑y ÷ √ [n∑x2 – (∑x)2] [n∑y2 – (∑y)2]
                            = (6×228) – (18×68) ÷ √ [(6×64) – 324] [(6×830) – 4624]
                            = 1368 – 1224 ÷ √ [384 – 324] [4980 – 4624]
                            = 144 ÷ √60×356
                            = 144 ÷ √21360
                            = 144 ÷ 146
                            = 0.98
The value of ‘r ‘is always between -1 and +1.
Therefore, there is perfect positive correlation between the output and cost in MPL production factory.
Scenario-5
(a)Spreadsheet data of Budgeted sales figures of Three departments,

October
November
December
Total

£’000
£’000
£’000
£’000
Novel
2,532
3,826
2,124
  8,482
Soft
6,431
5,001
6,189
17,621
Weld
   895
   432
   596
  1,923
Total
9,858
9,259
8,909
28,026

(b)Column Chart
       







Line Chart
        

        Bar Chart
          
       
It can be seen that Soft Department has the largest amount of sales figures for the last quarter of the year among the other departments. Bu the total amount of all three departments fell gradually through the last 3 months.



Task (3)
(a)               Network Diagram

(b)               The critical path is defined as the longest path of the Network Diagram;
A+D+H+I+J+K = 1+2+0.5+0.5+1+1 = 6

(c)               To illustrate the plan for this installation, we can use the Gantt chart.
Gantt chart

                    Weeks

1
2
3
4
5
6
A
Obtain estimates for buildings and electrical works






B
Arrange computer link with head office






C
Appoint new staff






D
Building alterations






E
Test computer link







F
Train new staff






G
Internal re-wiring






H
Install internal computer links







I
Install new computer







J
Test new computer






K
Test system







d)  This is a formal business report of installation a new computer system.
To: Board of Directors
From:    IT’S Department
Status:  Operational
Date:     24 November 2010
Introduction
This report details an approximates plan of installing a new computer system in one of the branch offices by IT department during 6 weeks period.
The following procedures will be adopted:
Task A: First of all, we have to start obtaining estimates for buildings and electrical works in one week.
Task B: Within four weeks, we would be able to arrange computer link with head office.
Task C: Appointing new staff for the system will be proceed at the same time as Task A.
Task D: After preceding Task A, we can precede building alterations which will take 2 weeks time.
Task E: Computer link will be tested as soon as Task B and C are carried out.
Task F: New staff will be trained in 2 weeks time after they are appointed.
Task G: Internal re-wiring will be proceeding as soon as Task D is carried out which will take 3 weeks period.
Task H: Installing internal computer links will be done at the same time as Task G.
Task I: Within less than a week, new computer will be installed.
Task J: Testing new computer will be accomplished after Task F, G and I in week 5.
Task K: On last week, the new computer system will be tested.
Conclusions,
The project of installing a new computer system will not take long term period to be accomplished as most of the Tasks will be carried out at the same time. So, we strongly recommend that this should be done as soon as possible.
e) All the business organisations require information for following purposes;
·        Planning
·        Decision making
·        Controlling
·        Recording transactions and
·        Performance measurement
In order to fulfil those purposes, good quality information is needed. There are three types of information. They are Strategic, Tactical and Operational information.
Strategic information is used for planning the organisation’s long term objectives and goals and the senior managers are involved. It is both quantitative and qualitative but the future cannot be predicted.
Tactical information is short and medium term planning in which productivity measurements are included. It is generated internally and external component are limited. It based on quantitative measures and prepared regularly.
Operational information is used to ensure specific tasks properly within a factory or office. It is relevant to day-to-day plans which involve all managers. It is largely quantitative and task-specific.
In Management Information System (MIS), the installation of new IT will be identified as Operational decision.

Task 4
1(a)
The advantage of IRR
1: It gives the attention to the cash flows.
2: It gives a clear percentage return on investment.

The disadvantage of IRR
1: It is more difficult to calculate than the other methods.
2: It only gives an approximate rate of return.
3: IT is difficult to determine which two suitable discount rates to adopt.
Payback,
Investment 40,000
Year 1     7,000              40,000 –   7,000 33,000
Year 2   25,000               33,000 – 25,000    8,000
Year 3     8,000                8,000 –   8,000          0
Year 4     5,000
As this result, payback occurs at the end of Year 3
1(b)
Internal Rate of Return IRR = [L% + NPVL× (H-L) ÷ NPVL – NPVH]
Where,
L   = lower discount rate
L   = low
H  = highest discount rate
H  = high
NPVL        = The NPV results for the lower discount rate
NPVH        = The NPV results for the highest discount rate

IRR       = [5% + (-366 × (6-5)) ÷ (-366-469)]
            = [5% + (-366) ÷ (-835)]
            = 5% + (-0.44)
            = 4.56%

2. Economic Order Quantity: EOQ = √2DCo/Ch
Where,
D  = Annual Demand
Co = Ordering cost per cycle
Ch = Holding cost per item

D  = 10 items × 12 = 120 units per year
Co = £50 per unit
C= £16 per unit

EOQ = √2DCo/Ch
        = √2×120×50/16
        = √12,000/16
        = √750
        = 27.4 units

Number of orders per year = Demand per year ÷ EOQ
                              = 10×12 ÷ 27.4
                              = 120 ÷ 27.4 = 4.4
Cycle length = Number of days in a year ÷ Number of orders per year
               = 365 ÷ 4.4
               = 82.9 days

3. A
The average rising trend line = 22.75 – 18.75 ÷ 7 = 4/7 = 0.57 = 0.6

     Year
            Quarter
         Trend Line
        3
               2nd
            22.8
               3rd
            23.4
               4th
            24



        4
               1st
            24.6
               2nd
            25.2
               3rd
            25.8
               4th
            26.4

   Year
   Quarter
Trend Line Forecast
Average Seasonal Variation
Forecast of Achieve Sale
      24
        1st
           24.6
          - 0.1
        24.5
        2nd
           25.2
       + 12.4
        37.6
        3rd
           25.8
         + 1.1
        26.9
        4th
           26.4
        - 13.4
        13

Conclusion
In an easy term we can say that business decision making gives us the opportunity to take the right decision by analysing various data. So the decision comes from it becomes more practical and reasonable. This brings more success in business.



Reference
·         Harvard Business Review on Decision Making, By Harvard Business School Press. 1 april 2001
·         Business decision making
BPP learning media LTD 2007
·         Survey sample, Retrieved from,
http://www.google.co.uk/images?um=1&hl=en&biw=1366&bih=600&tbs=isch:1&sa=1&q=survey+sample&aq=1&aqi=g6g-m3&aql=&oq=survey+SA&gs_rfai=
·         Network chart, Retrieved from, http://www.conceptdraw.com/products/img/ScreenShots/cd5/network/RegionalCableHeadend.gif
·         Business decision, Retrieved from,

http://tutor2u.net/business/organisation/decisionmaking.htm

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