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3.3 / decision making strategies - Coggle Diagram
3.3 / decision making strategies
quantitive sales forecasting
a tool that provides an estimation of future sales figures using past data and considering predictable external factors
main methods used
moving averages
A series of averages calculated from successive segments of a
series of data - makes trends more identifiable
calculation = add 3 months together / 3 = average
extrapolation
The prediction of future sales from past data - can be done by extending the line of best fit
correlation
Where there is a link between two variables there is a correlation
limitations
only short term effective
external factors
seasonality
competition
changes in legislation
market changes
publicity
can improve the accuracy of sales forecasts by
Conducting detailed market research
Employing experts with excellent market knowledge
Revising the sales forecasts frequently
Forecasting for the short- to medium-term
investment appraisal
Investment appraisal involves comparing the expected future cash flows of an investment with the initial outlay for that investment
factors
How soon the investment will recoup the initial outlay
How profitable the investment will be
requires significant experience to interpret the data appropriately before the investment appraisal can take place
data collection
Sales forecasts
Fixed and variable costs data
Pricing information
Borrowing costs
how to value investment
ARR
It considers all of the net cash flows generated by an investment overtime
it ignores the timing of those cash flows
payback period
useful for businesses where the cash ow management is vital
It provides no insight into the profitability of investments
net present value
It considers the opportunity cost
complicated to calculate and
interpret than other methods
limitations
relies upon forecasted future cash ows
which may lack accuracy
Managers compiling cash ow forecasts may lack experience or may be biased towards a particular investment
Long-term cash ow forecasts can be inaccurate - Unexpected increases in costs / new competitors / changes in trends
decison trees
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
key advantages
may reveal options that haven't previously
been considered
Managers are forced to consider the risks associated with their choice, ahead of implementation
requires deep research to be carried out
key elements
Decision points
Outcomes
Probabilities
Expected monetary values
limitations
requires lots of skill
takes significant amounts of time to gather reliable data
constructed using estimates - don't take into account external factors
critical path analysis
Purpose of Critical Path Analysis
Critical path analysis is a project management tool that uses network analysis to plan complex and time-sensitive projects
a construction of a visual model of the project
A list of all activities required to complete the project
duration
How each project activity depends on others
what it shows
The order in which activities must be completed
The longest path of project activities to the completion of the project
The earliest and latest that each project activity can start and finish without delaying completion of the project as a whole
Activities within a project that can be carried out simultaneously are identified
The critical project activities which if delayed will cause the project as a whole to over-run
Those project activities where some delay is acceptable without delaying the project as a whole
The shortest time possible to complete the project
all of this allows for better efficiency
Resources such as raw materials and components can be ordered or hired at precisely the right time they are needed
Working capital may be managed efficently
Where delays occur managers can identify the implications for the project’s completion and redirect resources if required
construction
The node is split into three sections
The left half of the circle is the activity number
The top right section shows the earliest start time (EST)that an activity can begin
The bottom right section shows the latest finish time (LFT) by which the previous activity must be finished
limitations
Very lengthy or complex projects involve a very large number of activities that have numerous dependencies
Specialist network planning software may be required
Layers of supervision may be required to manage different groups
Network analysis often relies on estimates and forecasts
Significant research is required prior to the completion of network analysis
Network analysis does not guarantee the success of a project
