3.3 – Decision Making Techniques

3.3.1 – Quantitative Sales Forecasting

- 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.

- 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.

- 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

- 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.

- b) Average (Accounting) Rate of Return (ARR):

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

- 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.

- 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.

- 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

- 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.

- 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.

- 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

- 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.

- 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.

- 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.

- 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.