3 3 decision making techniques

A moving average is a series of averages calculated from successive segments of a series of data to smooth out the data and identify trends.

Extrapolation is the prediction of future sales from past data, often done by extending a line of best fit.

Correlation occurs when there is a link between two variables, which may be positive or negative.

True. A positive correlation means as one variable increases, so does the other variable.

A scatter graph plots two variables, such as sales volume and advertising, to allow a business to establish if there is any correlation between them.

False. Quantitative sales forecasting techniques are useful where the future is expected to reflect what has happened in the past.

A line of best fit is a line identified on a scatter graph that slopes upwards for a positive correlation, or downwards for a negative correlation.

No correlation means there is no connection between the two variables being compared.

True. Businesses can improve the accuracy of sales forecasts by employing experts with excellent market knowledge.

Quantitative data is numerical data that has a value and is measurable.

True. Seasonality and the entrance of new competitors can affect the reliability of sales forecasts.

False. When drawing a line of best fit, you should try to include as many data points above the line as below the line. Outlying data should not influence your line of best fit.

Investment appraisal involves comparing the expected future cash flows of an investment with the initial outlay for that investment.

The simple payback period is a calculation of the amount of time it is expected an investment will take to pay for itself.

Formula.

The average rate of return (ARR) compares the average profit per year generated by an investment with the value of the initial outlay.

Formula.

Net Present Value (NPV) evaluates the value of an investment by taking into account the effects of interest rates and time.

True. If the NPV of an investment is positive, then the investment is likely to be worthwhile.

False. The simple payback period allows businesses to identify the point at which an investment is paid back, contributing positively to cash flow

Discounted cash flow is a method used to calculate the present value of future cash flows by discounting (reducing) their future value. It accounts for the time value of money (inflation) and opportunity cost.

True. Even small changes in the discount rate can significantly impact the calculated net present value.

A decision tree is a quantitative method that traces the outcomes of a decision so that the most profitable decision can be identified using estimates and probabilities.

True. A decision tree is constructed using estimates, which rarely take full account of external factors and cannot include all possible eventualities.

The key elements in a decision tree diagram are

Formula. Expected monetary value =

False. A decision tree does not consider qualitative elements such as human resource impacts.

In a decision tree diagram, a node is a circle that represents a point where there are different outcomes.

False. In a decision tree, points where decisions need to be made are represented by squares.

Probability is the likelihood of an outcome occurring in a decision tree diagram.

False. A certain outcome has a probability of 1. An impossible outcome has a probability of 0.

True. The time lag between constructing a decision tree and implementing the decision is likely to affect the reliability of the expected values.

Critical path analysis is a project management tool that uses network analysis to plan complex and time-sensitive projects.

Critical path analysis shows:

In critical path analysis, a node is a circle that represents a point in time where an activity is started or finished in a network analysis diagram.

An activity is a process or task within a project that takes time, shown as a line linking nodes in a network analysis diagram.

Duration is the length of time taken to complete an activity, shown as a number of time units below the activity line in a network analysis diagram.

True. The critical path highlights those activities that determine the length of the whole project.

Float time is the spare time available for an activity so that the overall project completion is not delayed.

Total float refers specifically to the spare time that is available so that the overall project's completion is not delayed.

Formula.

False. Network analysis does not guarantee the success of a project.