Decision Making Techniques

Question 1

What is quantitive sales forecasting?

Answer 1

a statistical technique which uses data to make predictions about the future in terms of sales

Question 2

What are the uses of QSF?

Answer 2

• Organises production
• Organise resources in the business e.g. employees, premises, raw materials
• Organise marketing to back up the sales predictions

Question 3

What are the limitations of QSF?

Answer 3

• Past performance is no guarantee of the future
• Businesses need to appreciate the SWOT and PESTLE factors that may affect future predictions

Question 4

What is investment appraisal?

Answer 4

Attempts to determine the value of capital expenditure projects

Question 5

What the 3 types of investment appraisal?

Answer 5

Simple Payback
ARR
NPV

Question 6

What is ARR?

Answer 6

Looks at the average rate of return of the project

Question 7

How do u calculate ARR?

Answer 7

All cash inflows - cost of project divided by the number of years of the project then divide by the cost of the project

Question 8

What is NPV?

Answer 8

Takes into account the change in the worth of money

Question 9

What are the limitations of payback?

Answer 9

• very simple
• only looks at the speed of the payback and not the profitability

Question 10

What are the limitations of ARR?

Answer 10

Doesn’t take into account the effects of time on the value of money

Question 11

What are the limitations of NPV?

Answer 11

• Very complex
• The higher the rate the less likely the project will go through