3.3 – Decision Making Techniques

3.3.1 – Quantitative Sales Forecasting

1. a) Calculation of time-series analysis:

Moving averages (three period/four quarter):

Explanation: This involves analyzing data points by creating a series of averages of different subsets of the full data set to identify trends over time.

1. b) Interpretation of scatter graphs and line of best fit:

Extrapolation of past data to future:

Explanation: Scatter graphs plot individual data points on a two-dimensional graph, and the line of best fit helps in predicting future values based on past data through extrapolation.

1. c) Limitations of quantitative sales forecasting techniques:

Explanation: These techniques might not account for sudden market changes, and relying solely on historical data can sometimes provide inaccurate forecasts.

3.3.2 – Investment Appraisal

1. a) Simple payback:

Explanation: This method calculates the time it takes for an investment to pay back its initial cost from the cash inflows it generates.

1. b) Average (Accounting) Rate of Return (ARR):

Explanation: ARR calculates the average annual profit of an investment as a percentage of the initial investment.

1. c) Discounted Cash Flow (Net Present Value only):

Explanation: This method calculates the present value of future cash inflows generated by an investment, subtracting the initial investment cost to find the net present value.

1. d) Calculations and interpretations of figures generated by these techniques:

Explanation: These involve mathematical calculations to assess the viability of investments, helping businesses make informed decisions.

1. e) Limitations of these techniques:

Explanation: These techniques might not fully account for risks, uncertainties, and potential changes in market conditions.

3.3.3 – Decision Trees

1. a) Construct and interpret simple decision tree diagrams:

Explanation: Decision trees are graphical representations that use branching methods to illustrate every possible outcome of a decision.

1. b) Calculations and interpretations of figures generated by these techniques:

Explanation: This involves calculating the expected values at different decision nodes to help in making the best decision.

1. c) Limitations of using decision trees:

Explanation: Decision trees can become complex and unmanageable with many variables and levels, and might not always accurately represent real-world scenarios.

3.3.4 – Critical Path Analysis

1. a) Nature and purpose of Critical Path Analysis:

Explanation: This is a technique used to identify the longest path in a network diagram to determine the minimum time needed to complete a project.

1. b) Complete and interpret simple networks to identify the critical path:

Explanation: This involves creating network diagrams to find the critical path, which is the longest path through the network with the least amount of slack.

1. c) Calculate:

Earliest Start Time:

Explanation: This is the earliest time a task can start, considering the completion of preceding tasks.

Latest Finish Time:

Explanation: This is the latest time a task can finish without delaying the project.

Total float:

Explanation: This is the amount of time a task can be delayed without affecting the project completion time.

1. d) Limitations of using Critical Path Analysis:

Explanation: It might not account for unforeseen delays and does not consider resource availability and allocation, which can affect the project timeline.