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HND Business- Unit Manual- Unit 16- Business Decision Making

UNIT MANUAL (STUDY GUIDE)

UNIT 6: BUSINESS DECISION MAKING

HND BUSINESS

NELSON COLLEGE LONDON


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Copy right
Author
Editor
Version

Nelson College London


Hillary
Nazim Uddin
V1-August 2013

HND Business- Unit Manual- Unit 16- Business Decision Making

TABLE OF CONTENT
Table of content ...................................................................................................................................................... 2
1.1: Create a plan for the collection of primary and secondary data for a given business problem ...................... 3
1.2: Present the survey methodology and sampling frame used............................................................................ 8
1.3: Design a questionnaire for a given business problem ................................................................................... 16
2.1: Create information for decision making by summarising data using representative values ......................... 23
2.2: Analyse the results to draw valid conclusions in a business context ............................................................. 24
2.3: Analyse data using measures of dispersion to inform a given business scenario .......................................... 27
2.4: Explain how quartiles, percentiles and the correlation coefficient used to draw useful conclusions in a
business context .................................................................................................................................................... 36
3.1: Produce graphs using spreadsheets and draw valid conclusions based on the information derived ........... 41
3.2: Create trend lines in spreadsheets graphs to assist in forecasting for specified business information ........ 44
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3.3: Prepare business presentation using suitable software and techniques to disseminate information
effectively .............................................................................................................................................................. 47

3.4: Produce a formal business report .................................................................................................................. 53

4.1: Use appropriate information processing tools .............................................................................................. 56

4.2: Prepare a project plan for an activity and determine the critical path .......................................................... 62

4.3: Use financial tool for decision making ........................................................................................................... 69


References ............................................................................................................................................................. 78

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HND Business- Unit Manual- Unit 16- Business Decision Making

1.1: CREATE A PLAN FOR THE COLLECTION OF PRIMARY AND SECONDARY DATA FOR A
GIVEN BUSINESS PROBLEM
BUSINESS CHALLENGES FACED BY TESCO IN AMERICA
Data may be described as facts, figures, information and measurements (BPP, 2013). The author argues that
data may be used in a statistical survey in either primary or secondary data. This method is only necessary
when a researcher cannot find the data needed in secondary sources or when data extracted from the
secondary sources are not reliable or correct. In this task, a business problem of Tesco superstore is established
to assist in planning for the collection of primary and secondary data.
Extract from Tesco fall in profit in the US market (www.tesco.com)
Tesco profits fall as supermarket pulls out of United States
Tescos annual profits have fallen for the first time in almost 20 years, as the UKs biggest supermarket
confirmed it was pulling out of the US. Tesco is exiting the US chain of 199 fresh and Easy shops, which have
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never made a profit at a cost of 1.2bn.

There was also a huge write down in the value of Tescos UK property portfolio. The companys statutory pre-

tax profits fell 51% to 1.96bn, but post-tax including the cost of the US exit were just 12bn down 95.7%.

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However, Tesco argued that sales at UK stores in the past three months, excluding fuel and VAT sales tax, rose
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0.5% a slowdown from growth of 1.8% in the six weeks to January 5 when the company hailed strong
Christmas trading.
The world third largest supermarket group which reported a stock profit warning in January last year has been
restructuring under chief executive Philip Clarke. As well as the US withdrawal, Tesco is exiting Japan and said it
would take a more measured approach to our growth in China. Mr. Clarke said the announcements made
today are natural consequences of the strategic changes we first began over a year ago and which include
today. With profound and rapid change in the way consumers live their lives, our objectives is to be the best
multichannel retailer for customers.

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A 804m write down in the UK property portfolio comes after a review in which Tesco identified more than 100
sites bought mainly during the property boom more than five years ago which the company no longer plan to
develop. Tesco is shifting its focus away from out of town stores. And many of the properties will not be
needed. Mr. Clarke said, the large stores we have are great, but we wont need many more of them because
growth in future will be multichannel (a combination of big stores, local convenience stores and online).

HND Business- Unit Manual- Unit 16- Business Decision Making

For the year, total UK sales rose 1.8% to just over 48bn, with UK trading profit falling by 8.3% to 2.27bn.
Tesco said its online grocery division has had another strong year with sales growing ahead of the market by
12.8% to 2.3bn.
Mr. Clarke told BBC that Tescos profits had been hit because of the amount of money the company is investing
to improving its operations. Tesco had hired thousands of staff in the UK and revamped stores. He said we feel
Tesco in the UK can be better for customers. That is what they want and that is what we are beginning to
deliver. He said that the US exit plans were well advanced with interest from potential buyers for all or parts of
the business. It would take about three months before the sales process was concluded. Mr. Clarke said.
Ajah Bhalla, professor of global innovation management at Cass Business School, said that the root of Tescos
US problems was a failure to understand that the US retail landscape is different from the UK. The drive to
become even-bigger, while offering lower prices, had worked for years, but made it difficult for Tesco to
change course when needed he said. The falling star of Tesco in the US is a harsh reminder that scale is not the
recipe for sustainable value creation. For years Tesco managers paid attention to perfecting the mix of supplier
driven cost deficiencies with low prices.
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While Tesco paid attention to making its US venture work, the UK retail market evolved quickly. Customers
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service and quality gained the upper hand over low pricing and Waitrose and Sainsburys emerged as the
preferable destination for the growing middle class segment. Tescos exit from the US is a reminder for
managers of the dangers of going blindly for scale and cost leaders, the wheels of which are difficult to reverse
if you need to change course to becoming a retailer known for first class customer experience Professor Bhalla

said.

PROBLEM FACED BY TESCO IN AMERICA


Tesco US problem was summarized by professor Bhalla that Tesco failed to understand US landscape.
Moreover, in creating a plan to collect primary and secondary data as a measure of tackling the problem, the
schedule design above provides a clear approach. For the primary data collection Tesco may involve in
interview that include ( face to face and telephone interview)
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SOURCES OF PRIMARY AND SECONDARY DATA COLLECTION METHODS


Table 1: Primary Secondary Data collection Plan

Tasks

Sources

Steps to Accomplish

Schedule

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Primary Data Collection

Interview

Face to face, by the use


of telephone or online
interview

The time must meet a


schedule deadline

Observation

Physical presence
(Participant observation)
to record the observation
of the phenomenon, the
researcher has to observe
what is happening to
record observation.

Same above

Focus group

The researcher brings


people together to focus
on a particular issue. The
optimal number in a
focus group is eight and
the lower number is six.
This discussion is audio
recorded

Same above

scales

Use of Likert scales. This


used in attitude research
to gather quantitative
data

Same above

Questionnaires

By post, email or
electronic online as well
as pilot test.

Same above

Previous research

Library research, and


online data search

Same above

Internet

Electronic sites. For


example, ESTA, Emerald
etc

Same above

Books/magazines

Read extensively related

Same above

Define objective of
research question

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Secondary Data
Collection.
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Define objective of
research question

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literatures and magazines


Case studies

Undergo an in-depth
examination of a number
of cases

Same above

Source: Author (2013)

MAKING A PLAN FOR THE COLLECTION OF PRIMARY AND SECONDARY DATA TO ADDRESS
TESCO'S PROBLEM IN AMERICA

Focus group may also be organized by bringing people together to discuss the problem (for example fall in sales
in the US market) see focus group above
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Likert scale questionnaire may also be used as a primary survey of collecting data on the issue of fall in sales by
Tesco in the US market.
For secondary data collection, Tesco may explore previous literature on successful supermarket operations in
the US in the last three to five years.
Learners may use the approach and get a case of business problem and use the plan above to fit in the data
collection process.

SOURCES OF PRIMARY AND SECONDARY DATA COLLECTION METHODS


Table 1: Primary Secondary Data collection Plan

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Tasks

Sources

Steps to Accomplish

Schedule

Primary Data Collection

Interview

Face to face interview of


a sample of customers,
employees, and interview
of connsumer behaviour
experts

The time must meet a


schedule deadline

Observation

Obersavation in
competitors stores (e.g.-

Same above

Define objective of
research question

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Walmart)

Secondary Data
Collection.

Focus group

The researcher brings


people (customers,
employees, and interview
of connsumer behaviour)
together to focus on a
particular issue.

Same above

Questionnaires

An structurerd
questionnaire to (general
people, potential
customers in the local
area, existing customers).
To be sent via post,
email, online, face to
face.

Same above

Research paper

Read dissertation/
coursework/ research
paper on consumber
behaviour and US culture.

Same above

Case studies

Case study of Walmart


and other overseas stores
who set up a base in the
US.

Same above

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Define objective of
research question

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1.2: PRESENT THE SURVEY METHODOLOGY AND SAMPLING FRAME USED


The survey methodology tends to be quantitative research project and the data collection method used in this
research is questionnaire or scales (Quinlan, 2011). According to Pinsonneault and Kraemer (1993) survey is a
means of collecting information about a characteristics, actions, or opinions of a large group of people. This
research methodology is used to answer questions that have been raised to solve problems, to determine
whether specific objectives have been met and to establish baselines against which future comparisms can be
made (Glasow, 2005).

A sampling frame is a set of information used to identify a sample population for statistical treatment. A
sampling frame includes a numerical identifier for each individual, plus other identifying information
about characteristics of the individuals, to aid in analysis and allow for division into further frames for more indepth analysis.

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CHARACTERISTICS OF SURVEY RESEARCH


Three characteristics faced survey research, and this include, to quantitatively describe specific aspects of a

given population, the data required for survey research are collected from people and are therefore subjective,

and finally, survey research uses a selected portion of the population from which the findings may be

generalized back to the population (Kraemer, 1991).

VARIABLES OF THE SURVEY RESEARCH


Independent and dependent variables are identified form the concept of the survey research (Glasow, 2005)
and the researcher have to design a model to identify the expected relationships among these variables.
Glasow argues that the survey is constructed to test the model against observations of the concept.
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SURVEY PROCESS
Levy and Lemeshow (1999) in Glasow (2005) suggest that survey design involves two steps. A sampling plan has
to be developed, because the sampling plan is the methodology that will be used to select the sample from the
population. Glasow (2005) posit that the sampling plan helps to describe the approach that will be used to
select the sample, how adequate sample size will be determined, and the choice of media through which the
survey will be administered. Moreover, these survey media include telephone, face to face interviews as well
as mailed surveys using either postal or electronic mail (Salant and Dillman, 1994 in Glasow, 2005).

HND Business- Unit Manual- Unit 16- Business Decision Making

Secondly, the procedures for collecting population estimates from the sample data and for estimating the
reliability of those population estimates must be established (Glasow, 2005). This process includes
identification of the desired response rate and the preferred level of accuracy for the survey (Salant & Dillman,
1994 in Glasow, 2005).
According to Glasow (2005), survey design procedures need inputs from the people that will use the survey
data as well as the researchers that will conduct the survey investigation. Further, the author argues that the
data users should identify the variables to be measured, the estimates required, the reliability and validity
needed to ensure the usefulness of the estimates, and any resource limitations that may exist pertaining to the
conduct of the survey (Levy & Lemeshow, 1999 in Glasow, 2005).

KEY ELEMENTS OF SURVEY DESIGN


Sampling Frame: This is the source material which a sample is drawn. This frame is a list of items within a
population that can be sampled (Quinlan, 2010).
Kinds of sampling: There are two kinds of sampling (Quinlan, 2010). They are probability and non probability
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sampling (Blumberg, 2011). Quinlan (2010) argue that the probability sampling is when the sample selected

from the population is a representative of the entire population. This is because the researcher using the

probability sampling wants to claim that the findings of the research carried out with the sample are
generalizable to the entire population of the study. Probability sampling includes simple random sampling,

stratified sampling, systematic sampling and cluster sampling (Quinlan, 2010; Blumberg, 2011).

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Simple Random sampling: This sample involves selecting a sample at random from a sample frame. For
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example, Quinlan (2010) posit that the examination of a class population of 30 students as the sample frame
begins with the collating of all the names of the students in the class, and tear each name and place in a bag or
box and then select one name at a time from the box. This process is called a simple random sampling.
Systematic sampling: This sampling technique involves the idea of selecting items at regular intervals from the
sample frame (Quinlan, 2010). For example, Quinlan argues that suppose a person working in a housing estate
trying to establish a brand of washing powder to use in each house. The sampling frame is made up of all the

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houses in the housing estate. Given that there are 500 houses in the estate and first random sample and then
every third house or every fifth house or whatever interval until the sample is complete. The completed sample
is the number of houses included in the study known as systematic sampling.
Stratified sampling: This sampling tool is chosen based on some known characteristics of the population that
will have impact on the research (Quinlan, 2010). According to Quinlan, using stratified sampling, the

HND Business- Unit Manual- Unit 16- Business Decision Making

researcher divides or stratifies the sample selected using characteristics that he/she knows will have an impact
on the study.
Cluster sampling: This sampling is when the people or unit that make up the population of the study are found
in groups or clusters. In this process, sampling is conducted by randomly selecting a sample of the clusters to
study rather than randomly selecting from the population to study. This is efficient especially geographically
spread population (Quinlan, 2010).
Non probability sampling is when the sample is selected to represent the population, but cannot be a
representative of a population because this sampling is on the capacity of a relatively small number of cases
(Quinlan, 2010). The non probability sampling could be judgmental sampling, quota sampling, snowball
sampling, and convenience sampling.
Judgmental/Purposive sampling: In this sampling, the researcher makes judgment or decides about who to
include in the research (Quinlan, 2010). Quinlan posits that the criterion for inclusion in the study is the
capacity of the participants to inform the study. Each person or unit chosen to be included has a contribution
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to make to the study. Further, people chosen to be included in the sample would be key informants on the
topic under investigation.

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Quota sampling: In this tool, the researcher a sample of participants for the study using different quota
criteria. For example, Mary needed 100 participants in her survey. The population of the study was a

population of students and staff from the college. She decided that there will be four quotas. The first quota

was made up of 25 female students, the second quota was made up of 25 male students, the third quota was

made up of 25 female members of staff, and the fourth was made up of 25 male members of staff. In the
process, Mary used quota sampling technique (Quinlan, 2010).
Convenience sampling: In this case, the researcher engages those participants in the research whom it is
easiest to include. For example, Quinlan (2010) suggest that people in the newsagents, people in the
supermarket etc. In this case, the researcher knows the number of people included in the sample then
continues to engage people on the research until the sample is filled.

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Snowball sampling: In this non probability sampling technique, the researcher finds one participants in the
research, investigates the research with the participants, and then ask the participants ton recommend the
next participant (Quinlan, 2010). Participant must fit the inclusion criteria for the research study. The
researcher goes through the procedure with the second participant and when finished, asks the participants to
recommend another participant to be included in the research. The researcher continues in this manner until
the sample is complete (Quinlan, 2010).

HND Business- Unit Manual- Unit 16- Business Decision Making

Sample selection: This depends on the population size, its homogeneity, the sample media and its costs of use,
and the degree of precision required (Salant and Dillman, 1994 in Glasow, 2005). In addition, Salant and
Dillman suggests that the people selected to participate in the sample must be selected at random, they must
equal or independent chance of being selected. Further, the prerequisite to sample selection is to define the
target population as narrowly as possible (Salant & Dillman, 1994).
Sample size: Sample size is determine by five factors which include desired degree of precision, statistical
power required, ability of the researcher to gain access to the study subjects, degree to which the population
can be stratified, and selection of the relevant units of analysis (Glasow, 2005)
Degree of precision: Postulated effect exists in the sample. For example, Glasow (2005) posit that the effect
exist in the alternative hypothesis. The null hypothesis claims that this effect does not exist. According to Slant
and Dillman (1994), the sample must be large to yield a desired level of precision. Two measures of precision
are considered. The significance level is the amount of type 1 error that the researcher will allow in the study.
This type 1 error occurs when the null hypothesis is rejected when it is in fact true. The second measure is the
confidence interval. The researcher has to create a confidence interval for example 95 percent confident that
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the corresponding statistic for the population falls within the specified range of the sample statistic.
Statistical Power: The probability that the researcher rejects the null hypothesis given that the alternative
hypothesis is true (Attewell & Rule, 1991 in Glasow, 2005) the author argues that where the null hypothesis is
erroneously accepted and the alternate hypothesis is true, a type 11 error is said to exist.

Effect size as a determinant of Power: This helps to evaluate the overall importance of the result.

Choice of survey media: This is to determine the availability of resources (Salant and Dillman, 1994). For
example, Salant and Dillman, suggest that written surveys require minimum resources (staff, time and cost)
and are best suited to eliciting confidential information. Written survey encourages minimal interviewer and
respondent measurement errors. Written survey is distributed via postal or electronic mail, as well as hand
delivery.
Verbal survey: This includes telephone, face to face interviews. The face to face interview is a particularly

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flexible tool that can capture verbal inflexion, gestures and other body language (Glasow, 2005). However, the
face to face are used where the true population is not known or when respondents are unable or unlikely to
respond to written surveys (Salant & Dillman, 1994). Verbal surveys are subject to measurement error when
untrained interviewers are used (Slant and Dillman, 1994 in Glasow, 2005). This method is also resource
intensive in terms of staff, facilities and time. Findings from face to face interviews are difficult to summarise
and incorporate in data analyses (Isaac & Michael, 1997 in Glasow, 2005).

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SURVEY INSTRUMENT DEVELOPMENT


This must be preceded by certain prerequisites. First the survey must be carefully defined; secondly, the study
objectives must be translated into measureable factors that contribute to that focus. Third, the researcher
must make sure that he or she understand the topic, and finally, the survey must be consistently administered
(Salant & Dillman, 1994; Fowler, 1995 in Glasow, 2005)
Standard for Good Questions: Good questions provide answers to reliable and valid measures.
Question wording: The question and any response options must be clear to both respondent and the
researcher (Salant & Dillman, 1994; Fowler, 1995).
Feasible and ethical: Good survey question must be feasible to answer and respondent must be willing to
answer them (Fowler, 1995 in Glasow, 2005). Questions must be civil and ethical, and the researcher must
avoid questions that ask the respondent for data they could not or do not have, including questions that
assume that the respondent know something about the subject (Salant & Dillman, 19934).
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Additional consideration: The researcher should avoid questions that involve double negatives and long
questions that lose the respondents in the reading (Glasow, 2005). Glasow suggests that undefined

abbreviations, acronyms, and jargon should not be used. In a similar study, Salant and Dillman (1994)

maintained that the tone of the survey questions should avoid biased wording that evokes an emotional

response. Rating scale should be balanced to provide an equal number of positive and negative response
options (Salant & Dillman, 1994).

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Biased Wording: Questions that include predisposition of either for or against a particular perspective (Salant
and Dillman, 1994). These questions may be leading or include assumptions that may not be true.
Biased context: The placement of questions in a particular order so that the respondent is already thinking
along certain lines on the basis of previous questions (Browne & Keeley, 1998 in Glasow, 2005).

TYPES OF SURVEY QUESTIONS


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Open ended: This allows the respondents to answer questions in their own words. Open ended questions also
allow the researcher to explore ideas that would not otherwise be aired and are useful where additional
insights are sought (Salant and Dillman, 1994). These questions are also helpful where the researcher is less
familiar with the subject area and cannot offer specific response options. Further, salant and Dillman note that
open ended questions provide greater thought and contemplation on the part of the respondent therefore
create more time to answer (Glasow, 2005). The results from open ended questions are often more difficult to
analyze.

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Close ended: This requires the respondent to choose from among a given set of responses (Mclntyre,
1999).These types of questions are easiest for respondents answer and the researcher to analyse the data.
Survey Execution
The third phase of the survey methodology is execution. According to Salant & Dillman, (1994), the importance
of maintaining the confidentiality of individual responses, and reporting survey is only in the aggregate values.
Another ethical consideration is recognizing that survey participation is a voluntary event that requires the
researcher to encourage participation without undue pressure (Salant & Dillman, 1994 in Glasow, 2005).
Levy and Lemeshow (1999) argue that pre-test must first be carried out to test both the instrument and the
survey procedures before the actual survey. Surveys may be evaluated in two ways. First, survey questions van
be evaluated using focus group discussions, cognitive interviews

to determine how well respondents

understand the questions and how they formulate their responses, and pilot tests of survey under field
conditions (Fowler, 1995). Second, response to surveys can be analyzed to reveal expected relationships among
the answers given, and to ensure consistency of respondent characteristics across questions.
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Data Analysis and Reporting Survey Results


Data analysis and effective presentation of results are important elements of a credible and successful survey.

Isaac and Michael (1997) averred the use of automated data collection tools to facilitate data tabulation and

manipulation. Lucas (1991) suggests that use of nonparametric statistics where small sample sizes are involved.

Note: Using the Tesco fall in sales in the US market, the survey methodology discussed above may be explored

to fit into Tesco survey approach in order to collect reliable data.


Tesco need a sampling plan to be developed to select the sample from the population. Also adequate sample
size will be determined, and the choice of media through which the survey will be administered such as
telephone, face to face interviews as well as mailed surveys using either postal or electronic mail.

FURTHER GUIDANCE ON SAMPLING FRAME


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Sampling Frame is a physical representation of the target population


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It consists of sample units that are potential members of the sample

Extent (size) of the frame is obtained by summation

Sample Frames almost always are not exact representations of the target
population

Sample Frame may not include some Target Population elements:


Undercoverage

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Sample Frame may contain non-target elements, e.g., mis-identified


sample units: Overcoverage

A subset of the Sample Frame sample units are selected for sampling: the sample
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Probability survey designs used to select the subset


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One design: Generalized Random Tessellation Stratified Designs - GRTS

May include stratification, unequal probability selection, panels for surveys


over time

Sample Frame overcoverage and sample site field access problems addressed by
including an Oversample.
Sampled Population is a conceptual population that is a subset of intersection the Target
Population and the Sample Frame
It excludes portion of the Target Population within the Sample Frame that could not be
sampled (conceptually) due to access problems, lost samples, or other reasons a sample
could not be collected
It doesn't include part of the Sample Frame that is determined to not be elements of the
Target Population

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SUMMARY OF THE SURVEY METHODOLOGY TESCO MAY USE


A sampling Frame to indicate source material which a sample is to be drawn. The number of items within a
population that can be sampled See sample frame above

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A simple random sampling that will involve selecting a sample at random from a sample frame see discussion
on random sampling above

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A Judgmental/Purposive sampling may be considered to make: judgment or decides about who to include in
the research. See discussion on purposive sampling above
Tesco may also consider the survey media in terms of the resources (staff, cost)
Tesco may consider the closed and open ended format of questions in the questionnaire.
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In execution of the survey, Tesco may consider that the exercise should be voluntary

Target Population

Sample size

Sampling method

Existing clients

1%

Stratified Random sampling (select store, and then


randomly select any customers)

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Potential customers

Experts

50 customers who shop

Stratified Random sampling (select store, and then

at other competitors

randomly select any customers)

5 top experts

One academic, one retail analyst, one public relation


expert, one marketing, one former CEO of competitors)

Employees

12

2 from the Board of Directors


5 from senior/middle managers
5 from shop floor managers and shop floor assistants.

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1.3: DESIGN A QUESTIONNAIRE FOR A GIVEN BUSINESS PROBLEM


When a study engages a large population, it is not possible to engage every member of the population. Quinlan
(2011) posit that when a large population is involved the researcher must design a research instrument that
facilitates a wide approach to studying the phenomenon using a large number of respondents. Questionnaire
and or scales are appropriate data collection instruments in such research. These instruments are structured to
ensure that each respondents is asked the same simple, clear and precise questions and to make sure that the
responses made to the questions/issues are also simple, clear and precise (Quinlan, 2011).
In designing a questionnaire, two main objectives are considered. To maximize the proportion of subject,
answer questions, and to collect accurate information Quinlan observed that to maximize the response rate,
the researcher need to administer the questionnaire, establish rapport, explain the purpose of the survey, and
remind those that have not responded. In addition, the length of the questionnaire have to be accurate and in
order to collect accurate relevant information, the researcher need to give some thought top what questions to
ask, how to ask them, the order at which they are ask, and the general layout of the questionnaire (Quinlan,
2011). Similarly, Blumberg et al (2011) provided four questions covering the designing a questionnaire. This
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includes should the questions be asked? Is the question of proper scope and coverage? Can the respondents

adequately answer this questions as asked? Will the respondents willingly answer the questions as asked?

Deciding what to ask: There are three potential information: Information the researcher is interested in

(dependent variables), information that might explain the dependent variables (independent variables), and

other factors related to both dependent and independent variables which may distort the results and have to
be adjusted (confounding variables).

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Wording of individual questions: the way questions are phrased are very significant in research project, there
are some general rules for constructing good questions in a questionnaire.
A: Use short and simple sentences: Short, simple sentences are less confusing and ambiguous than long,
complex ones. As a rule of thumb, most sentences should be one or two clauses. Sentences with more than
three clauses should be rephrased.
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B: Ask for only one piece of information at a time: Only ask for one piece of information at a time
C: Avoid negatives if possible:

Negatives should be used only sparingly. For example, instead of asking

students whether they agree with the statement small group teaching should be cancelled the questions
should be rephrased as small group teaching should continue double negatives should be avoided.

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D: Ask precise questions: Questions may be ambiguous because a word may have different meaning. For
example, if students are asked to rate their interest in medicine this term might mean general medicine as
opposed to general surgery.
E: Ensure that the respondents have necessary knowledge: The researcher must make sure that the
respondents should have some knowledge to the topic. For example, the survey of university lecturers on
recent changes in higher education, the questions Do you agree with the recommendations in the Dearing
report on higher education? Not only does the researcher ask for several pieces of information at the same
time as there are several recommendations in the report. The question also assumes that all lecturers know
about the relevant recommendations.
F: Level of details: It is very important for the researcher to ask for the exact level of details required. It is good
to avoid unnecessary details.
G: Sensitive issues: It is often difficult to collect truthful answers to sensitive questions. For example, have you
ever copied other students answers in a degree exam? Is likely to provide either no responses or negative
N
E
L

responses.
Format for responses: The responses may be open or closed format. In an open ended question, the
respondents may formulate their own answers. In closed format, respondents are forced to choose between
several given options. Quinlan (2011) and Blumberg et al. (2011) argues that it is good to make use of the two

S
O
N

formats.
Length of questionnaire: There are no universal agreements about the optimal length of questionnaires. It may
depend on the type of respondents. Blumberg et al (2011) suggest that short simple questionnaires usually
attract higher response rates than long complex ones.
Arranging the questions: Quinlan (2011) posit that the orders of the questions are important. According to
Quinlan, some general rules include: from general to particular, from easy to difficult, from factual to abstract,
start with closed format questions, start with questions relevant to the main subject and do not start with
demographic and personal questions.

C
O
L
L
E
G
E

Introduction, personalized letter and ending: It seems a good idea to have either a personalized covering
letter or at least an introduction explaining briefly the purpose of the study, the importance of the
respondents participation, who is responsible for the study and a statement guaranteeing confidentiality i t is
also good to thank the respondent at the end of the questionnaire.
How to administer the questionnaires: Blumberg et al. (2011) and Quinlan (2011) argue that there are several
ways of administering questionnaires. Self administered or read out by interviewers. The authors suggest that

HND Business- Unit Manual- Unit 16- Business Decision Making

self administered questionnaires may be sent out by post, email or electronic online. Interview administered
questionnaires may be by telephone or face to face.
Advantages of self administered questionnaires

Cheap and easy to administer


Preserve confidentiality
Can be completed at respondents convenience

Advantages of interview administered questionnaire


Allow participation by illiterate people
Allow clarification of ambiguity
Piloting and evaluation of questionnaires: Given the complexity of designing a questionnaire, it is impossible
to get it right the first time. Therefore questionnaires must be piloted on a small sample of people (Quinlan,
2011)
Questionnaires and scales are precise data collection instruments. They are designed to attract short precise
N

responses. For example, the extract below from a sample questionnaire and Learners should know that the
questionnaire has been designed to allow for simple responses.

E
(Likely example of Tesco Questionnaire)

L
S
O
N

Please answer as many questions as applicable ticking the relevant boxes. All answers will treated as
anonymous.

Questions

Answers
Yes/No

Do you approve or disapprove of the recent fall in Tesco profit in the US market?
Approve
C
O
L
L
E
G
E

Disapprove
Do you agree to the recent exit of Tesco superstore in the US market?
As there been any organizational audit before launching into the US market?
Do you agree with Tesco strategic decision to exit the US market?

HND Business- Unit Manual- Unit 16- Business Decision Making

What factors are important to your business success? (Please tick Yes or No)
A: Tesco possess good Managerial skills
B: Have Organizational culture & reputation
C: Seek new market opportunities and act to meet the emerging demand
D: Focus on our line of business, rather than spread our efforts on several different lines of
business
E Take calculated risk
f: Encourage employee skill development to improve on the business
G; Need to introduce new leadership approach
In your opinion, what are the main constraints on the growth of Tesco business?
(Please tick Yes or No)
A: High rent and rates
B: Inadequate information on America landscape
C: Insufficient demand for product
N
E
L

D: Inadequate information on markets


E: Lack of marketing for our products or services
G: Heavy competition
H: Difficulties in achieving quality standards from American customers

I: Management difficulties

J: US strong regulation on foreign businesses

K: Tax burden
R: Other (please specify)
Do the exit strategy the best option for Tesco in the America market (Please tick Yes or No)
If No, should Mr. Clarke be removed from his job

Do you agree that competing in America market with the right strategy will boost sales?
C
O
L
L
E
G
E

If Yes, how will this help British growth..

Do you have the professionals handling key positions like marketing, accounting/finance in your
organization? (Please tick Yes or No)

HND Business- Unit Manual- Unit 16- Business Decision Making

If exit strategy was the last option, what was the motivation behind it?
Shareholder pressure
Chief Executive Decision.
Competitive pressure
Concern for other risk

Any suggestions on what you think can be done to improve the sales figure of Tesco in America if
they are remain?...........................................................................................................................
..
..

N
E

For how long has Tesco been in operation especially in America (Please tick as appropriate)
Less than five (5) years

L
Between 5 and 10 years
S
O
N

Between 11 and 15 years


Between 16 and 20 years
Over 20 years

How often does Tesco hold management meeting? (Please circle as appropriate)
None at all, occasionally, weekly, irregular on situation demand
C
O
L
L
E
G
E

Has Tesco ever held a management retreat or strategy session? (Please tick Yes or No)

Do you agree that Tesco have to engage more on the best strategic planning techniques that
would drive upward their sales? (Please tick Yes or No) If Yes, what strategic planning technique is
preferable considering the market and competition

HND Business- Unit Manual- Unit 16- Business Decision Making

Author (2013)
Thank you very much for your time and help
Please return completed questionnaires in the stamped addressed envelope provided

EXAMPLE QUESTIONNAIRE 2- DIFFERENT TYPES OF CLOSED ENDED QUESTIONS

Closed-ended questions
Name: Dichotomous
Description: Question offering two choices
Example: Did you watch television at all yesterday?

Yes / No
N
E

Name: Multiple

Description: Question offering three or more choices

Example: Which of these shops do you prefer?

Next / River Island / Gap Top Shop/ Top Man

N
Name: Likert scale
Description: Statement with which respondent shows the amount of agreement / disagreement
Example: Assessment by course-work is easier than assessment by examination

C
O
L
L
E
G
E

Strongly agree

Agree

Neither agree nor


disagree

Disagree

Strongly disagree

Name: Semantic differential


Description: Scale is inscribed between two bipolar words and respondent selects the point that most represents the
direction and intensity of his / her feelings

HND Business- Unit Manual- Unit 16- Business Decision Making

Example: The degree I am taking is.............

Interesting :_____:_____:_____:_____:_____:_____:_____: Boring


Useful :_____:_____:_____:_____:_____:_____:_____: Useless
Easy :_____:_____:_____:_____:_____:_____:_____: Difficult

Name: Rank order


Description: Respondent is asked to rate or rank each option that applies. This allows the researcher to obtain information
on relative preferences, importance etc. Long lists should be avoided (respondents generally find it difficult to rank more
than 5 items)
Example: Please indicate, in rank order, your preferred chocolate bar, putting 1 next to your favourite through to 5 for your
least favourite.

Double Decker
Crunchie
Wispa
Mars Bar
Creme Egg

E
L
S
O
N

Name: Numeric
Description: Respondent specifies a particular value (can include decimal places)
Example: How far (to the nearest kilometre) did you travel today to reach this supermarket?

________km

C
O
L
L
E
G
E

HND Business- Unit Manual- Unit 16- Business Decision Making

2.1: CREATE INFORMATION FOR DECISION MAKING BY SUMMARISING DATA USING


REPRESENTATIVE VALUES
The use of information to improve organization decision making has received considerable attention from
academics and consultants attempting to provide insights into how information can better be used. According
to ittner and Larker (2006) in Kennerley and Mason (2008) the growing evidence is that greater use of effective
analytical tools deliver better financial performance. Also Devenport and Harris (2007) in Kennerley and Mason
(2008) suggest that the tradition basis of competitive edge have disappeared as such leading businesses are
competing on analytics by using sophisticated qualitative and statistical analysis using information technology
to improve the use of information available to managers.
The point of departure for this task is to understand raw data and how it can presented in a tabular format and
the guidelines to understand tabulation. Raw data are list of results from a survey (BPP, 2013). These data
needs to be summarized and analyzed in order to provide meaning. However, tabulation simply means putting
the data into tables (BPP, 2013). The table is shown in two dimensions (rows and columns).
N
E
L
S
O
N

C
O
L
L
E
G
E

Guidelines for tabulation


The table be given a clear title
All columns be clearly labeled
Where appropriate there should be clear sub-totals
The right hand side should carry the total columns
The total figure is advisable at the bottom of each column figures
Tables not be packed with so much data
Eliminate non essential information, rounding large numbers to two or three significant figures
Do not hide important figures in the middle of the table
Illustration
This illustration shows the cost of production at factory A and Factory B of a business organization using
representative values to represent the production of the factories.
Factory A
Factory B
Components
000
%
000
%
Direct materials
70
35
50
20
Direct labor
30
15
125
50
Production overhead
90
45
50
20
Office cost
10
5
25
10
Total
200
100
250
100
Source: BPP (2013). Adapted by Author 92013)

HND Business- Unit Manual- Unit 16- Business Decision Making

2.2: ANALYSE THE RESULTS TO DRAW VALID CONCLUSIONS IN A BUSINESS CONTEXT


The cost of production illustration above in task 2.1, the cost of the factories is shown in pie chart. In order to
convert the components into degree of a circle, BPP (2013) argue that the percentage figures or actual cost
figures are significant.
Use of percentage figures
In exploring the percentage figures, the total percentage is 100%, and the total number of degrees in a circle is
360. Therefore to convert to each degree, the author divides each detail with the total and multiplies with the
pie chart degree of 360. See example for factory A
Direct materials

70/200 = 0.35
0.35 multiply by 360 = 126

Direct labor

30/200 = 0.15

N
E

0.15 multiply by 360 = 54


Production overhead 90/200 = 0.45

0.45 multiply by 360 = 162

S
Other costs

10/200 = 0.05

O
0.05 multiply by 360 = 18

Example for factory B


Direct materials

50/250 = 0.2
0.2 multiply by 360 = 72

Direct labor
C
O
L
L
E
G
E

125/250 = 0.5
0.5 multiply by 360 = 180

Production overhead

50/250 = 0.2
0.2 multiply by 360 = 72

Other costs

25/250 = 0.1

HND Business- Unit Manual- Unit 16- Business Decision Making

0.1 multiply by 360 = 36


Factory A

Factory B

Components

Degree

Degree

Direct materials

35

126

20

72

Direct labor

15

54

50

180

Production overhead

45

162

20

72

Other costs

18

10

36

100

360

100

360

N
E
L

Source: BPP (2013) Adapted by Author (2013).


Using the actual cost figures

S
O

Formula = number of degree


Total Costs

Factory A

360/200 = 1.8

Factory B

360/250 = 1.44
Factory A

C
O
L
L
E
G
E

Factory B

Components

Degree

Degree

Direct materials

35

126

20

72

Direct labour

15

54

50

180

Production overhead

45

162

20

72

HND Business- Unit Manual- Unit 16- Business Decision Making

Other costs

18

10

36

100

360

100

360

Source: BPP (2013) Adapted by Author (2013).

N
E
L
S
O
N

C
O
L
L
E
G
E

HND Business- Unit Manual- Unit 16- Business Decision Making

2.3: ANALYSE DATA USING MEASURES OF DISPERSION TO INFORM A GIVEN BUSINESS


SCENARIO
Raw data are unprocessed information that needs to be processed to provide a meaning to organizations.
According to BPP (2013), raw data are list of results from a survey carried out. The survey results need to be
summarized and analyzed in order to provide a meaning.
Illustration
Nelson College gave a text on marketing principles to a class of forty students. After marking the papers, the
college presented the following scores

10

29

10

45

20

28

35

20

10

22

23

30

45

40

39

24

19

25

24

33

37

18

17

42

41

45

27

23

26

25

25

27

32

21

23

29

34

E
L
S

Source: Author (2013).

O
Find the mean, median, mode, variance and standard deviation of the results of the student scores using a class
N

size of 6
Draw a simple bar chart to represent the student scores
Illustration 2: The financial position of Edward Internet Caf for the last seven years shows the income and
expenditure up to 2007 accounting year

C
O
L
L
E
G
E

Details

Year 1

Year 2

Year 3

Year4

Year 5

Year6

Year 7

Cash income

1,200

1,500

1,600

1,400

1,350

1,200

1,100

Cash expanses

1,000

1,100

1,125

1,050

1,000

1,050

1,250

HND Business- Unit Manual- Unit 16- Business Decision Making

Cash

200

400

475

350

350

150

-150

surplus/Deficit

Source; Author (2013)


Draw graphs to show the movement of income and expenses for the years
Mean: The statistical distribution with a discrete random variable is described as the mathematical average of
all the items (BPP, 2010; 2013). According to the author, to calculate the mean, add up all the values of all the
items and then divide by the number of the items. This is called the arithmetic mean. The simple formula to
calculate the mean is EX/N
Simple illustration: use these numbers to find the mean (2, 5, 3, 6, 4, 3,)
X = EX/N

Where X = Mean
E = Summation
X = Variables
N = Number of variables

Therefore X = 2+5+3+6+4+3

S
O
N

6
X

= 23/6 = 3.8 or 4

Using the raw data above


X = EFX
EF
Where X = mean

C
O
L
L
E
G
E

E = Summation
F= frequency
X = Variables
Classes
2 - 7
8 - 13
14 - 19
20 - 25
26 - 31
32 - 37
38 - 43

F (frequency)
3
3
3
12
7
5
4

X (Mid Point)
4.5
10.5
16.5
22.5
28.5
34.5
40.5

FX
13.5
31.5
49.5
270
199.5
172.5
162

HND Business- Unit Manual- Unit 16- Business Decision Making

44 - 49

3
40

46.5

139.5
1038

Source: Author (2013)

= EFX
EF

1038
40

25.95 or 26

Using the coding approach


X

A +

Classes

Efu
Ef

F (Frequency)

X (Mid Point)

U (Coding)

FU

2 - 7

4.5

-3

-9

8 - 13

10.5

-2

-6

14 - 19

16.5

-1

-3

20 - 25

12

22.5

26 - 31

28.5

32 - 37

34.5

10

38 - 43

40.5

12

44 - 49

46.5

12

E
L
S
O
N

C
O
L
L
E
G
E

40

Source: Author (2013)

23

HND Business- Unit Manual- Unit 16- Business Decision Making

A +

22.5

22.5 +

22.5 +

E fu
Ef

23
40

0.575

0.575 * 6

22.5 + 3.45

X = 25.95 or 26

N
E
L

Median: the medium of a distribution with a discrete random variable depends on whether the number of
terms in the distribution is even or odd. BPP (2013) argue that when the number of terms is odd, then the
median is the value of the term in the middle.

S
Using the group data of the student scores
O
N

Median = L1 +

N/2 - E f1

Fm
Where L1 is lower class boundary of the median class
N/2 is the number of frequency divided by 2
Ef1 is the cumulative frequency before the median class
C
O
L
L
E
G
E

Fm is the frequency of the median class


C is the class size

HND Business- Unit Manual- Unit 16- Business Decision Making

Classes

F (frequency)

Cf (Cumulative frequency)

2 - 7

8 - 13

14 - 19

20 - 25

12

21

26 - 31

28

32 - 37

33

38 - 43

44 - 49

40

E
L
S
40
O
N

C
O
L
L
E
G
E

Source: Author (2013)

Median = 20 +

40/2 9
12

Median = 20 +

20 - 9
12

Median = 20 +

11
12

HND Business- Unit Manual- Unit 16- Business Decision Making

Median = 20 +

0.92 * 6

Median = 20 + 5.52
Median = 25.52 or 26
Mode: The mode of a distribution with a discrete random variable is the value of the term that occurs the most
often (BPP, 2013
Using the group data of the students scores
Mode = L1 +

D
D1 + D2

N
E

Where L1 is the lower class boundary of the modal class

L
D is the frequency of the modal class
S
O
N

D1 is the frequency before the modal class


D2 is the frequency after the modal class
C is the class size

C
O
L
L
E
G
E

Classes

F (frequency)

2 - 7

8 - 13

14 - 19

20 - 25

12

HND Business- Unit Manual- Unit 16- Business Decision Making

26 - 31

32 - 37

38 - 43

44 - 49

40

Source: Author (2013)

Mode = 20 +

12
3 + 7

Mode = 20 +

12
10

E
L
S
O

Mode = 20 +

C
O
L
L
E
G
E

Mode

Mode

= 20 +

= 20 + 7.2

Mode = 27.2

1.2

1.2 * 6

HND Business- Unit Manual- Unit 16- Business Decision Making

Standard deviation and variance


The variance And standard deviation are related indicators of the spread of data within a population or sample.
According to BPP (2013) the population variance and standard are the deviation among individual
measurements from the population mean for the entire population.
SD = C

E fu2
N

E fu
N

Where C is the class size


E is summation
F is frequency
U is the coding
N is the number of frequency
N
E

Using the group data of the students scores

Classes

F (Frequency)

X (Mid Point)

U (Coding)

FU

FU2

2 - 7

4.5

-3

-9

27

8 - 13

10.5

-2

-6

12

14 - 19

16.5

-1

-3

20 - 25

12

22.5

26 - 31

28.5

32 - 37

34.5

10

20

38 - 43

40.5

12

36

44 - 49

46.5

12

48

L
S
O
N

C
O
L
L
E
G
E

HND Business- Unit Manual- Unit 16- Business Decision Making

40

23

Source: Author (2013)


SD = 6

153
40

SD = 6

153
40

SD = 6

3.825

23
40

SD = 6

3.825 - 1.15

SD = 6

2.675

0.575

0.575 * 2

N
E
L
S

SD

SD = 9.82

C
O
L
L
E
G
E

6 * 1.636

Variance: This is the square of the standard deviation


Variance =

9.82 2

Variance

96.4

153

HND Business- Unit Manual- Unit 16- Business Decision Making

2.4: EXPLAIN HOW QUARTILES, PERCENTILES AND THE CORRELATION COEFFICIENT


USED TO DRAW USEFUL CONCLUSIONS IN A BUSINESS CONTEXT
Correlation
Correlation measures how strong the connection is between for two variables. BPP (2010) argue that when
correlation is strong, the estimated line of best fit should be more reliable. In contrast, if correlation is weak,
the line of best fit is calculated by linear regression might be insufficiently reliable.
Correlation coefficient is also called product moment correlation coefficient is defined as
R =

nExy

nEx2 - Ex 2

Ex Ey
n E y2 - Ey 2

where n is the number of variables


E is the summation
N

X is unit of variables

E
Y is unit of variables
L
S
O

Illustration
Eden college unit of goods and the unit cost incurred are as follows

C
O
L
L
E
G
E

Unit of Produced

Total costs

40

45

50

65

70

HND Business- Unit Manual- Unit 16- Business Decision Making

70

80

Source: BPP (2013) Adapted by author (2013)


Find the correlation Coefficient
Let x represent the unit of goods produced
Let y represent the total cost

X (unit of goods)

Y (total cost)

xy

X2

Y2

40

40

1600

45

90

2025

50

150

2500

65

260

16

4225

70

350

25

4900

70

420

36

4900

80

560

49

6400

28

420

1870

140

26550

N
E
L
S
O
N

C
O
L
L
E
G
E

Source: BPP (2013). Adapted by Author (2013)


R =

7 1870 7 140 28 2

28 * 420
7 26550 -

420 2

HND Business- Unit Manual- Unit 16- Business Decision Making

R = 7 * 1870 -

28 * 420

7 * 140 - 28 * 28

R =

7 * 26550 420 * 420

13090 - 11760

980 - 784
R =

185850 - 176400
1330

196 * 9450
R =

1330
185220

R =

1330

E
1360.9
L
S

R =

0.97

Interpretation of coefficient of correlation (note- conclusion reached using correlation)

Having calculated the value of r, it is important to interpret the result. The r of 0.97 indicates a high a degree of
positive correlation between the unit of goods produced and the total costs. BPP (2013) argue that in general,
the closer that r is to +1 or -1 the higher of degree of correlation.
Coefficient determination
The coefficient of determination is the square of the correlation coefficient. It is denoted as r2

C
O
L
L
E
G
E

R2 =

0.97 2

= 0.94

Percentile
Percentile can be captured by stating that the pth percentile of a distribution is a number such that
approximately p percent (p%) of the values in the distribution are equal to or less than that number. So if 28 is
th

th

the 80 percentile of a larger batch of numbers, 80 of those numbers are less than or equal to 28.

HND Business- Unit Manual- Unit 16- Business Decision Making

A percentile can be calculated as (a) calculated directly for values that actually exist in the distribution (b)
interpolated for values that do not exist (but which the learner may want to use to plot specific graph)o
calculate percentiles, sort the data so that xi is the smallest value, and xn is the largest with n = total number of
observation.
xi is the pth percentile of the data set where
pi = 100 1 0.5
n
Illustration 1
(Original data)
5

14

(Sorted data)

Xi
1
3
5
I
1
2
3
Pi: Calculate, using equation (I) as shown below

7
4

9
5

9
6

14
7

E
L

P1 = 100(1-0.5) / 7 = 7.1

P2 = 100(2-0.5) /7 = 21.4

P3 = 100(3-0.5) /7 = 35.7

P4 = 100(4-0.5) /7 = 50
P5 = 100(5-0.5) /7 = 64.3
P6 = 100(6-0.5) /7 = 78.6
P7 = 100(7-0.5) /7 = 92.9
Filling in the final row

C
O
L
L
E
G
E

Xi

14

pi

7.1

21.4

35.7

50.0

64.3

78.6

92.9

HND Business- Unit Manual- Unit 16- Business Decision Making

th

To take a single example, 7 is the 50 percentile of the distribution, and about half of the values in the
distribution are equal to or less than 7.
Quartile
Quartiles are the values that divide a list of numbers into quarters. They are often used in sales and survey data
to divide population into groups. For example, quartiles may be used to find the top 25 percent of incomes in a
population. For example lets have 5, 8, 4, 4, 6, 3, 8
First put the numbers in order and cut the list into four equal parts. The quartiles are the cuts.
For example: Numbers in good order as 3, 4, 4, 5, 6, 8, 8
Cut the numbers into quarters
3, 4, 4, 5, 6, 8, 8. The first 4 after 3 is lower quartile, the 5 is the middle quartile and the 8 before the last 8 is
the upper quartile. (Qi 4, Q2 5 and Q3, 8)
Quartile (array, quart)
N
E
L

Array: Array or cell range of numeric values for which you want the quartile value
Quart: Indicate which value to return

S
if Quart Equals

Quartiles Returns

Minimum Value

First quartile (25 percentile)

Median value (50 percentile)

Third quartile (75 percentile)

Maximum value

O
N

C
O
L
L
E
G
E

th

th

th

HND Business- Unit Manual- Unit 16- Business Decision Making

3.1: PRODUCE GRAPHS USING SPREADSHEETS AND DRAW VALID CONCLUSIONS BASED
ON THE INFORMATION DERIVED
Data is represented through graphs which are pictorial representation of the data (BPP, 2013). According to
BPP, the graphs commonly used are the bar charts, pie chart, histogram, frequency polygon, as well as line
graphs. The general rule to keep in mind in drawing graph include be simple and not too clustered, show data
without showing the data message, clearly show any trend or differences in the data and be accurate in a visual
sense

F (frequency)
14
12
10
8
6
N

F (frequency)

02-Jul Aug-13 14 19

20 25

26 31

32 37

38 43

44 49

O
Source: Author (2013)
N
The bar chart above explains the frequencies of the scores of students in the marketing principle text. The
students that scores between 20 to 25 had the highest bar, while students that scores 7 to 19 had the least
scores in the marketing principle text.

C
O
L
L
E
G
E

Cash income
Cash expenses
Cash surplus/(deficit)

LINE CHART

Year 1
1200
1000
200

Year 2
1500
1100
400

Year 3
1600
1125
475

Year 4
1400
1050
350

Year 5
1350
1000
350

Year 6
1200
1050
150

Year 7
1100
1250
-150

HND Business- Unit Manual- Unit 16- Business Decision Making

1800
1600
1400
1200
1000

Cash income

800

Cash expenses

600

Cash surplus/(deficity)

400
200
0
-200

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

-400
Source; Author (2013)

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EXPLANATION OF THE T RENDS- CASH INCOME


The above chart indicates that there are three data sets The blue line indicates cash income and this is plotted
against the years to indicate whether the income is going up or down. The trend shows us that the cash income

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has gone up in the first three years and then it started falling from the fourth year onwards and it has
recovered since that period.
The above chart although shows a trend, but it does not outline the reasons for the decline. We do not have
any data regarding income from banks therefore with certainity we cannot make any assumption whether the
drop in cash income was compensated by the bank income.

CONCLUSION REACHED- CASH INCOME:


If the trend continues, the orgaisation will have very little cash income, whereas teh cash expenses are
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continuously increasing. This might force the organisation to borrow cash to meet the higher cash expenses
need. This would required from year 7 onwards, unless the organisation received a healthy cash balance from
the previous years.

HND Business- Unit Manual- Unit 16- Business Decision Making

1800
1600
1400
1200
1000

Cash income

800

Cash expenses

600

Cash surplus/(deficity)

400
200
0
-200
-400

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Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

HND Business- Unit Manual- Unit 16- Business Decision Making

3.2: CREATE TREND LINES IN SPREADSHEETS GRAPHS TO ASSIST IN FORECASTING FOR


SPECIFIED BUSINESS INFORMATION
The trend is the original long term movement over time in the values of the data that has been recorded (BPP,
2013). For example, BPP provided example of time series with three types of trend

Years

Output/labour hour

Cost per unit

Number of employees

unit

2004

30

1.00

100

2005

24

1.08

103

2006

26

1.20

96

2007

22

1.15

102

2008

21

1.18

103

2009

17

1.25

98

(A)

(B)

(C)

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Source: BPP (2013) Adapted by Author (2013)


A: in the time series A, there is a downward trend in the output per labor hour. This is because the output per
labor did not fall every year. As such it went up between 2005 and 2006. However, the long term movement of
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the trend is downward one (BPP, 2013).


B: According to BPP (2013), the time series shows upward trend in the cost per unit. But unit cost went down in
2007 from a higher level in 2006. The basic movement over time is one of the rising costs.
C: For this part, the time series displays no clear movement up or down, and the number of labor remained
fairly constant around 100. Therefore the trend is static or level one.

HND Business- Unit Manual- Unit 16- Business Decision Making

Finding the trend


A: Inspection: The trend line can be drawn by eye on a graph in such a way that it appears to lie evenly
between the recorded points that are a line of best fit if it is drawn by eye. It should be drawn to pass through
the middle of the recorded points thereby having several data points.
B: Regression analysis by the least squares method: The regression analysis by the least square may be drawn
to fit the trend lines
C: Moving Averages: This method attempts to remove seasonal or synclinal variations by a process of
averaging.
Illustration

Years

Sales Units

2000

390

2001

380

2002

460

2003

450

2004

470

2005

440

2006

500

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Source: BPP (2013) Adapted by Author (2013)


Show moving averages of the annual sales over a period of three years
A: Average sales in three year period 2000 2002
390 + 380 + 460 = 1,230
3
3

410

HND Business- Unit Manual- Unit 16- Business Decision Making

The average relates to the middle year of the period 2001. See the moving averages of the whole data below

Year

Sales

Moving total of 3 year


sales

Moving average of 3 year


sales

2000

390

2001

380

1,230

410

2002

460

1,290

430

2003

450

1,380

460

2004

470

1,360

453

2005

440

1,410

470

2006

500

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Source: BPP (2013) Adapted by Author (2013)


1600
1400
1200
1000

Moving total of 3 year


sales

800

Moving average of 3
year sales

600
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400
200
0
1

HND Business- Unit Manual- Unit 16- Business Decision Making

3.3: PREPARE BUSINESS PRESENTATION USING SUITABLE SOFTWARE AND TECHNIQUES


TO DISSEMINATE INFORMATION EFFECTIVELY
In preparing a business presentation with suitable software and techniques requires the management to
consider the objective of the presentation. This is necessary because the objective will assist management plan
a specific and measureable presentation (BPP 2013). BPP (2013) argue that the presentation explains what the
audience will do, and how the audience will change at the end of the presentation.
Content of business presentation
There are several steps organization has to consider in preparing a business presentation. BPP (2013) suggest
five steps, which include brainstorming, prioritizing, structure outline, practice, and developing cue and visual
aid.
Brainstorming: Management has to think deeply about the subject, and write down the points.
Prioritizing: Select the key points and direct attention to the key points
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Structure outline: Ensure to make notes that show the selected main points and how the point link together.
BPP (2013) argue that the outline include introduction, supporting evidence, examples and illustrations, notes
of when and what visual aids are required.

Prioritize the areas of importance and accept the key points and discard the unwanted ideas.

PowerPoint presentation

A PowerPoint presentation is a selection of slides, handout speakers notes and the outline
Slides: These are the pages of the presentation and may contain text, images, graphs and sounds (BPP, 2013)
Handouts: These are smaller version of the slides with 2, 3, or 6 slides on an A4 page
Speakers note: The presenter can present these notes alongside the presentation

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Outline: This shows the title and main text of the whole presentation and not images.
Slides business presentation
In preparing slides for business presentation using PowerPoint software start with the a title slide
The presenter has to identify himself and the aim of the presentation
Plan for uniformity: This include the following

HND Business- Unit Manual- Unit 16- Business Decision Making

A: Use the same background for all the slide (same color, same design)
B: Consider using one of the software templates in order to help organize the information
Prepare the slides: Choose words carefully and aim for the following
A: no more than seven word per line
B: no more than seven total lines
No more than 7*7 = 49 words per slide
Use visual elements when appropriate (charts, graphs, pictures, clip art and lists)
I: use only one dominant visual per slide
Ii: keep it simple
Be sure to document borrowed images (use footnotes if appropriate, get written permission for public
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presentation)

Proofread carefully

I: use a spell checker

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Ii: double check proper name spellings
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Iii: use punctuation correctly


Iv: Make sure list are parallel
Guide for the preparation of business presentation for a new business
Once a business plan has been completed, the next step is to prepare the presentation in order to attract
potential investors and lenders.

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A good business plan presentation may work as a strong method in drawing target audience
Ensure that the presentation is not more than twenty five minutes long
Analyze the audience
I: Find out who the audiences are and what they want to know about the company
Ii: The presentation is to attract the audience in order for them to grant a loan or invest in the business

HND Business- Unit Manual- Unit 16- Business Decision Making

Iii: Ensure that the presentation is in accordance with the requirements of the audience
Iv: Get sense of what impress the audience
Get Organized
I: Draw up an outline of the important points that may impress the investors
Ii: Organize the presentation materials in the same order as it is done in the business plan
Use of visual aid
I: It is a very good idea to add visual aid to the presentation
Ii: Visual will assist to get the attention of the audience and provide a good account of the business
Iii: It will add creativity to the presentation
Keep it simple and succinct
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I: Show everything that may attract the audience, it must be in easy language

E
Review the presentation
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I: Review the presentation several times. Cut out lengthy sentences and make sure that the sentences have
flow and continuity

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Ii: Use bullet points and avoid adding more than five or six points in one slide
Practice
The presenter or the company should practice; this is because a good business presentation is borne out
continuous practice

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EXAMPLE PRESENTATION TO POTENTIAL CLIENTS OF BARCLAYS STOCKERS

HND Business- Unit Manual- Unit 16- Business Decision Making

DO YOU SAVE?
DO YOU INVEST?

Slide 1 - Do You Save? Do You Invest?

Lesson Reference: Money Management, Activity 1 Overhead 1

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SAVING VS. INVESTING

Saving
Short-term.
Postpones spending.
Has safety precautions.

Investing
Long-term.
Exchanges money for something with the future
expectation of receiving a profit.
Has risk factors.
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Slide 2 - Saving vs. Investing


Lesson Reference: Money Management, Activity 1 Overhead 2

HND Business- Unit Manual- Unit 16- Business Decision Making

TAKE A GOOD LOOK AT A PAYCHEQUE

Slide 3 Paycheque
Lesson Reference: Money Management, Activity 1 Handout 1

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SAVING vs. INVESTING

SAVING
Short-term.
Postpones spending.
Has safety precautions.

INVESTING
Long-term.
Exchanges money for something with the future
expectation of receiving a profit.
Has risk factors.
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Slide 1 - Savings vs. Investing


Lesson Reference: Money Management, Activity 4 Overhead 1

HND Business- Unit Manual- Unit 16- Business Decision Making

SAVING VS. INVESTING, HISTORICALLY

Slide 2 - Saving vs. Investing, Historically

Lesson Reference: Money Management, Activity 4 Overhead 2

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PLACES TO INVEST

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Stocks
Bonds
Mutual Funds
Retirement Plans/RRSPs
Real Estate
Collectibles/Valuables
Slide 3 - Places to Invest
Lesson Reference: Money Management, Activity 4 Overhead 3

HND Business- Unit Manual- Unit 16- Business Decision Making

3.4: PRODUCE A FORMAL BUSINESS REPORT


A formal report is a report designed for a specific audience. For this task, learners are required to produce a
report suitable for business audience. The author argue that reason of the report is to answer questions that
are being asked by either the manager, director of the organization or by any other intended audience (BPP,
2013). There are two types of business report that may serve the purpose of the company and intended
audience. This includes analytical report and practical/scientific report (BPP, 2013).
Analytical report examines events, organization situation, issues and processes. BPP (2013) suggest that the
reason for analytical report is to provide the audience with reliable information that may be used to make
decision as well as take further action.
The practical/scientific report provides an account of what as happened in a test situation, or practical session
(BPP, 2013).
Style and Tone of formal report
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Formal report command different style of writing, the writing style has to be professional and formal language
should be used. The reason for the report must be clear to both the writer and the person requesting the
report. However, it is the obligation on the person writing the report to clearly communicate information in an

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unbiased way 9BPP, 2013).


Element of Formal Report

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Title

Element of Formal Report


Subject of Report

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Terms of reference

Clarify what has been requested

Introduction

Who the report is from and to how the information


was obtained

Main body

Divided into sections with sub heading to aid reader


logical order

Conclusions

Summaries finding

HND Business- Unit Manual- Unit 16- Business Decision Making

Based on information and evidence, may be

Recommendations

combined with conclusions

Signature

Of writer

Executive summary

Saves time for managers receiving a long report


No more than one page.

Source: BPP (2013). Adapted by Author (2013)


Report on Proposed Updating of Company Policy Manual
To: Board of Directors BCD Ltd
From: Shane McFadden Computer World Ltd
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Status: Confidential
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Date: 16 August, 2013.

Introduction and Term of reference

The present report sets to examine results of an investigation commissioned by the Board on 5 July 2013. We

were asked to consider the present applicability of the companys policy manual and to prepare changes

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needed to bring it into line with current practice.


Method
The following investigatory procedures were adopted
A: Interview of all senior staff regarding use of policy manual in their departments
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B: Observation of working practice in each department


Findings
The manual was last updated ten years ago. From our observation, the following amendments are now
needed.

HND Business- Unit Manual- Unit 16- Business Decision Making

A: The policy section on computer use should be amended. It deals with safe storage of disks which is no longer
applicable as data is now stored on a server. Also it does not set out the company email policy.
B: The Companys equal opportunities policy needs to be included
C: The coding list in the manual is now very out of date. A number of new cost centers and profit centers have
been set up in the last ten years and the codes for these are not noted in the manual.
D: There is no mention of the provision of the Data Protection Act as they relate to the company
Conclusion
We discovered upon interviewing staff that very little use is made of the policy manual. When it has been
amended as above, it can be brought back to use, and we recommend that this should be done as soon as
possible.
Signed: S. McFadden Computer World Ltd
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HND Business- Unit Manual- Unit 16- Business Decision Making

4.1: USE APPROPRIATE INFORMATION PROCESSING TOOLS

INFORMATION PROCESSING TOOLS


Organisation can use a variety of tools to process information. For example:

Area

Tools

Project Management

networking and critical path analysis, , Gantt


Chart,

Programme

Evaluation

and

Review

Technique (PERT) charts

Investment Appraisal (Finance)

Net present value (NPV); discounted cash flow;


internal rates of return (IRR)

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Stock/Inventory Management Tools

Valuation: LIFO, FIFO, AVCO


Minimum and maximum stock level

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Statistics

Calculation of average: mean, mode, median


Dispersion: standard deviation, variance

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Marketing

SWOT, PEST, Porter Five Forces Model

Organisation Behaviour

Motivational tools: Maslow, Mcgregor, Theory X


&Y

Economics

Supply & Demand, Inflation and Interest Rate,


Cost of Capital

HND Business- Unit Manual- Unit 16- Business Decision Making

EXAMPLE EXPLANATION -INVENTORY/STOCK MANAGEMENT


I: Ordering, receiving and issuing materials from stock
In costing, items of materials may be regarded as either direct materials or indirect materials. Direct materials
are the materials which the product is produced. While indirect materials are consumable stores used in
production
Ii: Procedure for documentation for purchasing materials
A: Purchase requisition: This is a formal request for material to be purchased because the stock level of the
materials as gone down. The purchase requisition either prepared by the store staff or produced automatically.
This document is often authorized by either the store manager (BPP, 2010)
B: Purchase order: When authorized purchase requisition is processed, the purchase order is placed with
suitable suppliers that can meet the requisition of the organization (BPP, 2010). The buyer select suppliers
based on the price, delivery promise, quality and past history of dealing with the supplier.
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C: Goods received note: When the supplier delivered the goods, goods received note accompany the delivery

indicating what goods have been delivered. According to BPP (2010), the receiving department will do the

following upon receipt of the goods receive not

I: Check what goods have been delivered in terms of quantity, quality,, the supplier and the purchase order

number

Ii: Check the delivery not to ascertain that it agrees with the physical goods in terms of quantity and description
Iii: Check the purchase order copy to see that the goods that have been delivered are as ordered
Iv: Prepare a good received note
Iii: Purchase invoice

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This document is received from the supplier. The purchasing department attaches the good received not and
purchase order with the supplier invoice and sent to account department to arrange payment.
Iv: Valuation of closing stock and material issue
BPP (2010) suggest that if materials are purchased exactly as required for production the cost of a particular
stock could be attributed to a specific production cost. Most often, materials are purchased in large quantities
at different prices and issued to production in small quantity. In order to establish cost of production, the cost

HND Business- Unit Manual- Unit 16- Business Decision Making

accountant has to identify material cost for each issue of stock from production department. According to BPP
(2010), the methods to use to put a value to materials issued from stores are FIFO, LIFO and Weighted Average
Cost.
FIFO: This represents first in first out. With FIFO materials issued from stores are valued on the assumption that
the earliest units of the stock item received into stores are the first to be issued.
LIFO: This represents last in first out. With LIFO materials issued from stores are valued on the assumption that
the latest units of stock items received into stores are the first to be used.
Weighted Average Cost: With weighted average cost, all items in stock are valued at a weighted average price,
and issues from stores are valued at that price. A new weighted average price is calculated whenever there is a
new issue of the stock item into store.
Illustration:
In November, 1000 tonnes of stock item 1234 were purchased in three lots
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3 November
11 November
21 November

400 tonne at 60 per tonne


300 tonne at 70 per tonne
300 tonne at 80 per tonne

During the same period four materials requisition were completed for 200 tonnes each on 5, 14, 22, and 27
November.
First in first out (FIFO)
Receipt/Issue
Date
Quantity
Price

3 Nov
400
60
5
(200)
60
11
300
70
14
(200)
60
21
300
80
22
(200)
70
27
(200)
70
30 Nov (bal)
200
80
Source: BPP (2010) Adapted by Author (2013)
Last in first out
Date
3 Nov
5
11
14
21
22

Receipt/ Issue
Quantity
Price

400
60
(200)
60
300
70
(200)
70
300
80
(200)
80

Item 1234
Value
60

24000
400
(12000)
(200)
21000
(12000)
(200)
24000
(14000)
(15000)
16000

Value

24000
(12000)
21000
(14000)
24000
(16000)

Item 1234
60

70

80

300
300
(200)
(100)

(100)

70

80

400
(200)
300
(200)
300
(200)

HND Business- Unit Manual- Unit 16- Business Decision Making

27
(200)
70
(15000)
(100)
30 Nov (bal)
200
80
12000
200
Source: BPP (2010) Adapted by Author (2013)
Weighted Average Cost
Receipt/ Issue
Weighted Average Price
Date
Quantity
Price
Value
Issue Price

3 Nov
400
60
24000
60
5
(200)
(12000)
60
200
12000
60
11
300
70
21000
Balance
500
33000
66
14
(200)
(13200)
66
300
19800
66
21
300
80
24000
Balance
22
27

600
(200)
(200)

30 Nov (bal)
200
BPP (2010) Adapted by Author (2013)

43800
(14600)
(14600)

73
73
73

14600

73

(100)

Reasons for holding stock and the associated costs

Organization decides to hold back Stocks in order to increase sales and profit. According to BPP (2010), when

organization decides to hold back stock several products may be offered, customers demand may be satisfied

and production is not delayed waiting for new delivery of materials. Moreover, holding stock may be
expensive; the objective of stock policy should be to minimize the total annual cost associated with stock.

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Holding stock: Holding cost include interest on capital, the cost of storage space and equipment, administration
cost and losses from depreciation, and stealing. Holding cost can be reduced by keeping stock levels to a
minimum.
Ordering cost: This cost is incurred every time stock is purchased from supplier. Order cost include the buyer
time contacting the supplier, and the storekeepers time spent in checking the goods received. Order cost can
be reduced by placing orders only at infrequent time.
Economic order quantity: This is the order quantity for a stock item that will minimize the combined cost of
stock ordering plus stock holding over a given period of time. The economic order quantity is calculated on the

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basis of the following

There should be no stock out of item

There is no buffer stock

A new delivery of stock is received from supplier at the exact time

The delivery lead time from supplier is predictable.

Given the assumption, the EOQ is constructed as


Let Co be the cost of placing order

HND Business- Unit Manual- Unit 16- Business Decision Making

Ch the annual cost of holding stock


D the annual demand for the stock
Q the order quantity
Cost holding stock

Q/2 = Ch

Ordering cost

D/Q = Co

EOQ

2*Co*D
Ch

Illustration:
Eddy Enterprise is a retailer of beer barrels. The company has an annual demand of 36750 barrels. The barrels
cost 12 each. Fresh suppliers can be obtained immediately, but ordering costs and the cost of carriage inwards
are 200 per order. The annual cost of holding one barrels in stock is estimated to ne 1, 20
EOQ =

2*Co* D
Ch

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EOQ =

2 * 200 * 36750
1,20

EOQ =

14700000
1.20

EOQ =

12250000

EOQ =

3500 Barrels

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Total annual cost =


Total annual cost

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Holding cost + Ordering cost


=

Q/2 * Ch + D/Q * Co

Total annual cost =

3500/2 * 1,20 + 36750/3500 * 200

Total annual cost =

2100 + 2100

Total annual cost =

4200

Minimum stock level


When stock falls to its minimum level, management should check that a new delivery of the item will be
received from the supplier before stock out occurs. The minimum stock is calculated as
Re-order level Average demand for the item during the lead time

HND Business- Unit Manual- Unit 16- Business Decision Making

Maximum stock level


The maximum stock is the level that organization should ensure not to exceed. When stock level exceed the
maximum level, then something as gone wrong and the management should be informed. The calculation of
maximum stock level
Re-order level + Re-order quantity (Minimum usage per day * Minimum lead time per order)
Re-order level
The re-order level is the level of stock holding at which a fresh order is placed with a supplier. When the
demand for an item is uncertain because it varies from day to day and the when the supplier lead time is
variable, the re-order level that avoids any risk of a stock out during the lead time is
Re-order level = Maximum supply lead time (in days or weeks) * Maximum daily or weekly demand for the
item.
Illustration
Find the Re-order level, minimum stock level and maximum stock level from the following
Minimum lead time

4 days

Average lead time

5 days

Maximum lead time

7 days

Maximum usage

500 units per day

Minimum usage

300 units per day

Re-order quantity

5400 units

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Source: BPP (2010) Adapted by author (2013)

Re-order level

Re-order level = Maximum usage * maximum lead time


Re-order level = 500 * 7
Re-order level = 3500
Minimum stock level
Re-order level (Average demand * Average lead time)
3500 - (500+300)/2 * 5
3500 - (800/2 * 5)

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3500 - (400 * 5)
3500 - 2000
1500
Maximum stock level
Re-order level + Re-order quantity (minimum usage * minimum lead time)
3500 + 5400 - (300 * 4)
8900 - 1200 = 7,700

HND Business- Unit Manual- Unit 16- Business Decision Making

4.2: PREPARE A PROJECT PLAN FOR AN ACTIVITY AND DETERMINE THE CRITICAL PATH
A project is an undertaking that as a beginning and an expected end that is carried out to meet organizational
goals or individual goals (BPP, 2013) within cost, schedule as well as quality objective. BPP (2013) argue that
the characteristics of a project include specific start time and expected end, a defied objectives, it contain cost,
and schedule to produce goods. In addition, the objectives of a project encompass quality, budget and
timescale
Features of project management
A project management is designed to an expected end as such it contain certain features
Team building: Project is executed by a group of people that has to communicate among themselves to achieve
the organizational objectives.
Expected problem in managing the project has to be resolve before the commencement of the project
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If the project attracts different people with different interest it will cause problem

Planning the Project

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Analyze the project: At this point, the project is broken down into different activities and how the parts are
able to relate to each other (BPP, 2013).
Estimate the time and cost of each activity: The amount of time each activity will take in the completion of the
project is estimated in line with associated cost
Draw a network: The sequence of the activities is drawn in a diagrammatic form called the network diagram
Locate the critical path: The critical path is a chain of events that determines how long the several project will
take. Any delay in the critical path of the project will surely cause an overall delay in the completion of the
project at the expected time (ACCA, 2004; BPP, 2013).

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Schedule the project: Determine the chain of events that leads to the most effective cost schedule.
Monitor and control: There should be careful attention to the schedule and consider any other progress chart
that has been drawn in order to monitor actual progress in line of planned achievement.
Revise the plan: The plan may need to be amended in order to take account of problems that happens during
the progress of the project.

HND Business- Unit Manual- Unit 16- Business Decision Making

Tools in project management


Work breakdown structure: This involves the breakdown of the project into very smaller units and determines
the resources required to complete the project (BPP, 2013).
Network analysis: This is a tool for planning and controlling a large project that include construction work,
research and development project or the computerization of a business systems (BPP, 2013). Further, BPP
argues that network analysis assist managers to plan when to start various tasks, to allocate resources so that
the task can be executed within an expected timescale and to monitor actual progress as well as to examine
when control action is needed to prevent a delay in completion of the project.
The critical path, event times, and floats: The critical path is the path through the network with the greatest
total duration (BPP, 2013).
Gantt chart: This is horizontal bar chart used to plan the time scale for a project as well as to estimate the
resources available to use
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Resource histogram: This is a project data where resources requirements, usage and availability and shown in a
histogram. BPP (2013) posit that this is only a simple bar that explains the number and mix of employees over

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the duration of the project. Moreover, this histogram is implored to control and manage the human resources
requirement of the project.
Critical Path Analysis: This is sometimes called Network Analysis. It is a tool used to plan activities so that a job

can be completed in the shortest time. The critical path analysis breaks a job into a number of tasks and looks

at the dependency of them (BPP, 2013). This is usually explored in the manufacturing and construction
companies,
According to BPP (2013), the network consists of two elements such as activity and the node. The activity
requires time and or resources, they are drawn as arrows from left to right and the length of the arrow is not
important. Further, the author argued that the node represents the start and the end of an activity, the node is
represented by circles and every network must start and end with a node.

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The activity symbol is


The node symbol is represented as
The node

A simple network diagram


A business wishes to build a new factory and before it can do so it needs to

HND Business- Unit Manual- Unit 16- Business Decision Making

I: Buy the land (Activity A will take 12 weeks)


Ii: Draw up plans (Activity B will take 3 weeks)
A simple network may be drawn to illustrate this scenario

12

13

Using the same illustration, if the firm wants to apply for planning permission activity AA take 14 weeks
A
12
B
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AA

E
14
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S

There are a number of problems with the example

I: there is no way of identifying the nodes

Ii: It does not help in identifying the crucial activities


In order to achieve this, the nodes may be developed to show more information

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the node number 1 at the


1
left side of the circle show
Order of activities,

The right side of the circle are used to hold additional information

HND Business- Unit Manual- Unit 16- Business Decision Making

Note: The main reason for drawing a network is to identify the critical activities. To achieve this, the learner has
to calculate earliest time at which any given activity can start. Use the following formula to calculate it
EST = EST of previous activity + Duration of previous activity
Calculation of earliest start time: The information is placed in the top right hand quarter of the node. The first
node will always have an EST of zero

The earliest start time goes in the top right hand quarter of the node as zero as shown above. Using the
example previously, the EST for each activity would be calculated as follow
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E
1

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+ 12

12

+ 3

15

O
N

Finding the EST and simultaneous activities: When there are simultaneous activities there may be more than
one value for the EST
Illustration
A

12

+ 12
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2
+
AA
+

14

14

3
=

17

HND Business- Unit Manual- Unit 16- Business Decision Making

Since Activity B is dependent on both Activities A and AA, it cannot start until both are complete. Therefore the
highest figure must be taken. This means that the EST is 14 weeks
Identify the critical activities and the latest finishing time
Formula LFT = LFT at end of following activity Duration of following activity
The LFT goes in bottom right hand quarter of node
1

The first node will always have an LFT of zero

0
00
Using the first illustration, the LFT for each activity would be calculated as

A
1

2
=

12

12

3
=

15

12

15

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The earliest and the latest t me the project cam finish is 15 weeks. The EST and LFT of the last node are always
the same.
The float: The spare time is referred to as the float. Any activity without spare time is critical.

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A free float is the amount of spare time available for an activity without delaying the next activity. The total
float is the amount of spare time available for an activity without delaying the whole project.

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Free float formula

EST at End of activity EST at start + Duration of activity

Total float formula

Activitys LFT Activitys EST + Activitys Duration

Calculating the float


The free and total float in the illustration above would be
A
12
1

B
2

14

AA
0
0

3
14

17
17

HND Business- Unit Manual- Unit 16- Business Decision Making

14

Activity

Duration

EST

LFT

(Weeks)

Free

Total

Float

Float

12

14

AA

14

14

14

17

Source: Business studies (2013)


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E

In the table above, Activity A can be delayed 2 weeks without delaying Activity B.
Activity A can be delayed 2 weeks without delaying the whole project

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Activity AA and B are critical because any delay will hold up the project
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O

Identifying the critical path: The critical path identifies the activities that have no float and this critical path in
the diagram above indicates the LFT of node 1 to node 2 of LFT and node 2 to node 3 . the node on the critical

path should have equal EST and LFT

EXAMPLE- CRITICAL PATH METHOD

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HND Business- Unit Manual- Unit 16- Business Decision Making

EXAMPLE GANTT CHART


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HND Business- Unit Manual- Unit 16- Business Decision Making

4.3: USE FINANCIAL TOOL FOR DECISION MAKING


Investment Appraisal (Capital Investment)
Organizations spend huge amount of money for new fixed asset or repairing fixed asset. Expenditure on fixed
asset is capital expenditure. Capital expenditure may be necessary on maintenance, profitability, expansion and
indirect expenditure on fixed asset that do not have any direct impact on the organization operation or its
profit (ACCA, 2004; BPP, 2013).
Methods of capital investment
Organizations forecast for cost and benefits for any capital investment. According to BPP (2013) in recognition
for the forecast and benefit, the estimates have to be analysed in order to establish whether the capital
investment should be undertaken. As such, ACCA (2004) confirm that capital investment appraisal is an analysis
of the expected financial returns from a capital investment project over its expected useful life. Similarly,
several appraisal techniques are implored in appraising capital investment which include payback period,
accounting rate of return, net present value and the internal rate of return (ACCA, 2004 BPP, 2013).
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Accounting rate of return (ARR) or return on capital employed (ROCE)


According to ACCA (2004), the return on capital employed also referred as accounting rate of return expresses
the profit from an investment as a percentage of capital cost.
ROCE =

Average annual profit before interest and tax


Initial capital cost

N
Illustration

A project involves the immediate purchase of an item of plant costing 110000. It would generate annual cash
flows of 24400 for five years, starting in year 1. The plant purchased would have a scrap value of 10000 for
five years, when the project terminates. Depreciation is on straight line basis.
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Calculate ROCE
Average annual depreciation

(110000 - 10000)/ 5

Average annual depreciation

100000/5

Average annual depreciation

20000

Average annual profit

24400 - 20000

HND Business- Unit Manual- Unit 16- Business Decision Making

=
ROCE

4400

Average annual profit * 100


Initial capital cost

ROCE

4400 * 100
110000

ROCE

0.04 * 100 = 4%

Advantages of return on capital employed (ROCE or ARR)

It is very simple to calculate

It is expressed in percentage terms

Disadvantages

time value for money

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E

It fails to take account of the expected life of the project as well as the timing of the cash flows and

It might ignore working capital requirement

There is no definite investment signal, because the decision to invest and not remains subjective.

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S
O

Payback technique of appraisal


The payback period explains the time the project will take to payback the initial capital investment. ACCA
(2004) and BPP (2013) argue that it is the time that an investment will take to pay back the money spent on a

project. It is based on expected cash flows from the project, not accounting profit.
Reasons for payback period
Two reasons are involved in payback period. BPP (2013) posit that when two alternative capital investment
projects are compared, management decision is to accept one of the project and not both. As such, preference
is given to the project that can pay back quickly (ACCA, 2004).

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Management decision is to ensure that no project is undertaken unless a projected is expected to pay back in a
shorter time (BPP, 2013).
Calculating payback period
When the cash flows are constant in the expected life of the project, the formula approach is used.
Payback period

initial capital

HND Business- Unit Manual- Unit 16- Business Decision Making

Constant annual cash flows


Illustration
An expenditure of 2 million is expected to generate cash flows of 500000 each year for the next seven years.
Find the payback period.

Years

Cash flows

2,000,000

1 - 7

500,000

Source: Author, (2013)


PBP

2,000,000
500,000

PBP

4 years

Decision: The project can pay back the initial capital investment in just 4 years

Uneven cash flows

When the cash flows are not constant, the tabular method is used
Illustration

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A project has the following cash flows


Years

Cash flows

(1,900)

300

500

600

800

500

Source: Author (2013)

HND Business- Unit Manual- Unit 16- Business Decision Making

Uneven payback is tabulated


Years

Cash flows

Cumulative
Cash flows

(1,900)

(1,900)

300

300

500

800

600

1,400

800

500

Source: Author (2013)


500 * 12
800

0.625 * 12 = 7.5 or 8 month

Decision: The project can pay back in just 3 years and 8 months
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Advantages

It is simple and easily understood

If new plant it is likely to be scraped in a short period of time because of obsolescence

Disadvantage

Cash flows arising after the payback period are ignored

There is no objective measure as to what length of time should be set at the minimum payback period

Net present value (NPV)


The net present value is the value obtained by discounting all the cash flows and inflows for the project capital
at the cost of capital, and adding them up. BPP (2013) argue that when the present value is higher than the
cost of the project, it is referred to as net present value. The net present value is positive when the present
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value is higher than the cost. It is negative when the present value is less than the cost of the project (ACCA,
2004; BPP, 2013).

HND Business- Unit Manual- Unit 16- Business Decision Making

Illustration
Edward plc is considering a capital investment in new equipment. The estimated cash flows are as follows

Years

Cash flows

(240,000)

80,000

120,000

70,000

40,000

20,000

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Source: ACCA (2004) Adapted by Author (2013

The company cost of capital is 9%

Calculate the NPV of the project to assess whether it should be undertaken

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Years

Cash flows

Discount factor 9%

Present Value

(240,000)

1,00

(240,000)

80,000

0.917

73,360

120,000

0.842

101,040

70,000

0.772

54,040

HND Business- Unit Manual- Unit 16- Business Decision Making

40,000

0.708

28,320

20,000

0.650

13,000

Source: ACCA (2004) Adapted by Author (2013)


Present value

269760

Cost of project

240,000

Net present value

29760

Decision: The project is worthwhile because the present value is higher than the cost of the project.
Internal rate of return (IRR)
As discussed before, the net present value NPV of discounted cash flow, the present values PV are calculated
N

by discounting cash flows of a given cost of capital and the difference between the present value and the cost

of project is the net present value (ACCA, 2004; BPP, 2013). The internal rate of return hereafter IRR is to

calculate the exact discounting cash flow (DCF) rate of return that the project is expected to achieve. This is
the cost of capital at which the NPV is zero. BPP argues that it is a trial and error process to get to zero NPV.

S
The expected rate of return IRR is higher than the target rate of return, and then the project is financially worth
O
N

undertaking. Since the trial and error process in determining the IRR is a long time and waste of space, the
formula approach is necessary.
IRR

LR

+ NPV+
Combined NPVs

(HR - LR)

Where LR is lower rate


HR is higher rate
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Combined NPVs is the positive and negative NPVs


NPV+ is the positive NPV
Illustration
A business undertakes high risk investment and requires a minimum expected rate of return of 17% on its
investment. A proposed capital investment has the following expected cash flows

HND Business- Unit Manual- Unit 16- Business Decision Making

Years

Cash flows

(50,000)

18,000

25,000

20,000

10,000

Source: ACCA (2004) Adapted by Author (2013)


N

Find the NPV of the project if the cost of capital is 15%

Find the NPV of the project if the cost of capital is 20%

Use the NPV that is calculated to estimate the IRR of the project

S
Recommend, on financial ground alone, whether this project should go ahead
O
N

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Years

Cash flows

Discount factor 15%

Present value

(50,000)

1.00

(50,000)

18,000

0.870

15,660

25,000

0.756

18,900

20,000

0.658

13, 160

10,000

0.572

5,720

Source: ACCA (2004) Adapted by Author (2013)

HND Business- Unit Manual- Unit 16- Business Decision Making

Present value

53,440

Cost of project

50,000

Net present value

3,440

Years

Cash flows

Discount factor 20%

Present value

(50,000)

1.00

(50,000)

18,000

0.833

14,994

25,000

0.694

17,350

20,000

0.579

11,580

10,000

0.482

4,820

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Source: ACCA (2004) Adapted by Author (2013)

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Present value

48,714

Cost of project

50,000

Net present value

(1,256)

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Decision: On the NPV account the NPV with a cost of capital of 15% as a positive NPV so it is worth undertaken.
Internal rate of return

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IRR =

15

IRR =

15

3,440
4,696

IRR

15

0,732 * 5

3,440
(20 - 15)
3,440 + 1,256

(5)

HND Business- Unit Manual- Unit 16- Business Decision Making

IRR

15

IRR

3.66

18.7%

Recommendation
The project is expected to earn a DCF return in excess of the target rate of 17%, so on financial ground it is a
worthwhile investment. The company can invest in the project

SUMMARY OF CRITERIA FOR SELECTING A VIABLE PROJECT

Summary measures of project performance, such as the NPV, IRR or AIRR, are used to indicate the overall
performance of a project under economic evaluation:
either an NPV or an IRR (or AIRR) is an essential result, to be included in the Project Appraisal
Report;

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as a minimum, to be acceptable a project should have an NPV greater than zero or an IRR (or
AIRR) greater than the discount rate, which is conventionally 12% for Bank-funded transport
projects;
the NPV or IRR (or AIRR) measure should also be used to compare alternative solutions, for
example alternative routes for road and rail links, and different locations for ports and
interchanges of all types;
sometimes it can pay, in economic terms, to postpone the implementation of a project to a
later date, the NPV can be used to test whether the timing of investment is optimal.

HND Business- Unit Manual- Unit 16- Business Decision Making

REFERENCES
th

Browne, M.N., & Keeley, S.M., (1998). Asking the right questions: A guide to critical thinking 5 ed. Upper
Saddle River, N.J Prentice Hall
BPP, (2013) Business Decision Making, Business Essentials; Supporting Pearson BTEC Higher Nationals and
Foundation Degrees Published by BPP learning Media.
BPP, (2010) Business Decision Making, Business Essentials; Supporting Pearson BTEC Higher Nationals and
Foundation Degrees Published by BPP learning Media.
Isaac, S., & Michael, W.B., (1997) Handbook in research and evaluation: A collection of principles, methods, and
strategies useful in the planning, design, and evaluation of studies in education and the behavioural sciences.
rd

3 ed. San Diego: Educational and Industrial Testing Services.


Glasow, P.A., (2005) Fundamentals of Survey Research Methodology, Mitre Product.

Kraemer, K.L., (1991). Introduction. Paper presented at the information Systems Research Challenge: Survey
Research Methods.

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Kennerley, M., & Mason, S., (2008). The Use of Information in Decision Making: Literature Review for the Audit
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Commission. Centre for Business Performance Cranfield School of Management.

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McLntyre, L. J., (1999). The practical skeptic: Core concepts in sociology. Mountain View VA: Mayfield
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N

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Publishing.
Quinlan, C., (2010) Business Research Methods, Cengage learning. Publication UK.