Fiche de révision : Business Decision-Making Techniques

📋 Course Outline

1. Decision Tree Structure and Purpose
2. Decision Tree Strengths and Limitations
3. Decision Tree Evaluation
4. Cost-Benefit Analysis Framework
5. Cost-Benefit Analysis Appraisal
6. Critical Path Planning
7. Critical Path and Float
8. Critical Path Calculation
9. Critical Path Benefits and Limits

📖 1. Decision Tree Structure and Purpose

🔑 Key Concepts & Definitions

• Decision tree : A map of the possible outcomes of a series of related choices, allowing actions to be compared using costs, probabilities and benefits.

★ Must-know

• A decision tree starts with one decision node, branches into possible outcomes, and continues through further nodes representing additional possibilities.

• In a decision tree, the square marks the point where a decision is made and the circles mark the points where outcomes are realised.

Further detail

• Decision trees can support informal discussion or map an algorithm that predicts the best choice mathematically.

📖 2. Decision Tree Strengths and Limitations

★ Must-know

• Decision trees are easy to understand and interpret, require minimal data preparation, and force decision-makers to consider multiple possible outcomes.

• Decision trees may become too complex, may rely mainly on expectations that produce unrealistic outcomes, and may narrow attention to critical decisions and objectives.

Further detail

• Decision trees can be combined with many other decision tools and help compare likely results between alternative decisions.

• Decision trees help distinguish controlled events from uncontrolled events and support best guesses using available information.

📖 3. Decision Tree Evaluation

🔑 Key Concepts & Definitions

• Expected value : Of a decision is the result obtained by combining each possible outcome with its probability to estimate the decision's likely financial outcome.

★ Must-know

• Decision-tree analysis compares alternatives by assigning their possible outcomes, probabilities, costs and benefits before selecting the option with the most favourable expected result.

Further detail

• For Project X, a 60% probability of success gives a success pay-off of $60,000 and an unsuccessful pay-off of $3,000, while Project Y has a 50% probability of success, an $85,000 success pay-off and a $(20,000) unsuccessful pay-off.

💡 Memory Hook

List options, branch outcomes, attach probabilities and pay-offs, then compare expected values.

📖 4. Cost-Benefit Analysis Framework

🔑 Key Concepts & Definitions

• Cost-benefit analysis : Compares the projected costs and benefits of a project or decision to determine whether it makes business sense.

★ Must-know

• Cost-benefit analysis requires a comprehensive list of relevant costs and benefits, after which total costs are subtracted from projected benefits or expressed as a ratio.

• Direct costs include manufacturing expenses, raw materials, direct manufacturing labour and inventory, while indirect costs include utilities, rent, overheads and electricity.

Further detail

• Other relevant costs include competition, regulatory and environmental risks, opportunity costs, and intangible costs such as employee impact, delivery delays, construction and a new business strategy.

• Benefits may include competitive advantage, intangible benefits from customer satisfaction and improved employee safety, and increased revenues or sales from a new product or higher production.

📖 5. Cost-Benefit Analysis Appraisal

★ Must-know

• Cost-benefit analysis provides an evidence-based evaluation that reduces personal bias and simplifies complex decisions by expressing them as costs versus benefits.

• Cost-benefit analysis is limited because market demand, material costs and the global business environment can be difficult to predict, especially over long periods.

• The quality of a cost-benefit analysis depends on the accuracy and completeness of the data used to prepare it.

Further detail

• Cost-benefit analysis can reveal hidden indirect or intangible costs and benefits that are not initially obvious.

• Cost-benefit analysis is better suited to short- and medium-length projects because long-term forecasts may fail to account accurately for inflation and other changes.

• Cost-benefit analysis should not be the only tool used to determine the future direction of a business because moral and human considerations may not be captured by the business case.

📖 6. Critical Path Planning

🔑 Key Concepts & Definitions

• Critical path method : A project-planning technique that identifies the activities determining project duration and the tasks that must be completed before dependent tasks begin.

★ Must-know

• Critical path analysis represents the entire project as a network of smaller activities that are linked according to their dependencies and required completion order.

• Critical path analysis helps managers predict project timescales, show how each activity affects later work, and assign appropriate teams or departments to tasks.

Further detail

• The duration of each activity is initially an estimate and may need to be reassessed during the project when conditions change.

📖 7. Critical Path and Float

🔑 Key Concepts & Definitions

• Critical path : The series of activities that determines the length of a project, so delaying any activity on it delays the whole project.
• Total float : The amount of time an activity can be delayed before it affects the duration of the entire project.

★ Must-know

• Total float is calculated as $\text{latest finishing time} - \text{duration} - \text{earliest start time}$.

Further detail

• Activities on the critical path have identical earliest and latest start times and identical earliest and latest finish times.

📖 8. Critical Path Calculation

★ Must-know

• To find the critical path, managers list activities with their predecessors and durations, draw the network, calculate earliest and latest times, and trace the activities with no available float.

Further detail

• Working backward from the final activity helps identify the connected line of activities that have no float and therefore must remain on schedule.

• In the Hunter Ltd building project, activity A takes 10 weeks, B takes 5 weeks after A, C takes 4 weeks after A, D takes 3 weeks after B, E takes 2 weeks after D, F takes 3 weeks after D, G takes 1 week after E, H takes 6 weeks after C and F, and I takes 2 weeks after G and H.

💡 Memory Hook

Map activities, identify dependencies, calculate earliest and latest times, then trace zero-float activities.

📖 9. Critical Path Benefits and Limits

★ Must-know

• Critical path analysis can reduce delays by involving managers in detailed planning and ensuring that resources are available for activities at the appropriate time.

• Critical path analysis can save time by allowing suitable activities to operate simultaneously, while also clarifying dependencies and identifying activities requiring attention.

• Critical path analysis may fail when complex activities cannot be represented accurately, activity-time estimates are inaccurate, external factors change, or projects are chaotic and allow frequent changes in duration.

Further detail

• Critical path analysis presents projects graphically, supports deadline management and high-quality decisions, and allows planned progress to be compared with actual progress.

📊 Synthesis Tables

Comparison of Decision Techniques