OCR A Level Business: Decision making and Decision trees (H431) – Practice Questions

These are original questions written for Marlbridge, for revision and practice on this content. They are not reproduced past-paper questions, and they do not replicate the exam’s exact structure, question count or mark tariffs – examination boards hold copyright in their own papers. Use these alongside the official past papers from your board or school.

These questions cover sections 1.13 Decision making and 1.14 Decision trees of the OCR A Level Business (H431) specification, Version 2.1. All businesses and figures are invented. Learn the content first from the study guide and the revision notes. Course pages: the OCR A Level Business hub and the checklist. A wider set on strategy is in the strategy practice questions.

Questions

1. Define the term decision making. [2]

2. Stoneyfold Bakery is considering three decisions. Identify whether each is strategic, tactical or operational: (i) opening a production site in a new country; (ii) planning next month’s discount offer; (iii) setting tomorrow’s staff rota. [3]

3. Distinguish between quantitative and qualitative decision-making tools, giving one example of each. [4]

4. Larchmoor Print Works has an objective of raising its market share from 8% to 12% within three years. Explain how this objective should influence its decisions. [4]

5. Larchmoor must choose between Option A, a large press, and Option B, a second-hand press. Option A costs £70,000, with a 50% chance of a £180,000 payoff and a 50% chance of £60,000. Option B costs £30,000, with an 80% chance of £95,000 and a 20% chance of £40,000.

(a) Calculate the net gain of each option. [4] (b) Evaluate which option Larchmoor should choose. [4]

6. Ferrowmoor Fitness can open a new studio at a cost of £100,000. It estimates a 25% chance of a £240,000 payoff, a 45% chance of £120,000 and a 30% chance of £20,000.

(a) Calculate the expected value and the net gain. [3] (b) New research suggests the probabilities are 15%, 40% and 45%. Recalculate the net gain and interpret the change. [3]

7. A business uses a sales forecast to decide whether to launch a product. Explain how (i) inaccurate forecasts and (ii) bias among the managers could each lead to a poor decision. [4]

8. Stoneyfold Bakery’s sales revenue rose from £450,000 to £480,000. Its net profit fell from £36,000 to £28,800. Its customer satisfaction score fell from 91% to 82%. Evaluate the usefulness of financial and non-financial measures in judging how well Stoneyfold performed. [6]

9. Explain the purpose of a decision tree and why the information it shows matters to a lender. [4]

10. Corriemoor Garden Centre has savings of £130,000 and two options. Option X, extending the café, costs £60,000, with a 60% chance of a £150,000 payoff and a 40% chance of £50,000. Option Y, opening a second site, costs £110,000, with a 35% chance of £320,000 and a 65% chance of £40,000. The forecast for Y rests on one customer survey. The owner values keeping close control of the business.

(a) Calculate the net gain of each option. [4] (b) Evaluate which option Corriemoor should choose. [6]

11. Marshwick Tiles set objectives of 15% sales growth, a 10% net profit margin and staff turnover below 10%. It achieved sales growth of 18%, a net profit margin of 6% and staff turnover of 22%. Customer satisfaction rose. Evaluate the extent to which Marshwick can be considered a success. [6]

Answers

1. Choosing between alternative courses of action [1] in order to achieve the aims and objectives of the business [1]. [2] Examiner insight: Name both the choice between options and the purpose; “making choices” alone is thin.

2. (i) Strategic: whole-business direction, costly and hard to reverse [1]. (ii) Tactical: delivers strategy over a short period in one function [1]. (iii) Operational: day-to-day running [1]. [3] Examiner insight: One-word identifications are sufficient here, but a brief reason protects you if you choose the wrong label for a borderline case.

3. Quantitative tools use numerical data to compare options [1], for example expected value from a decision tree [1]. Qualitative tools use judgement and non-numerical evidence [1], for example staff opinion on a relocation [1]. [4] Examiner insight: Make each example match its definition. A numeric technique offered as a qualitative example undermines the distinction.

4. The objective sets the criteria for judging options [1]. Larchmoor should favour options that add customers and capacity, such as a larger press [1], even if short-term profit is lower [1]. Later results can then be compared with the 12% target to judge the decision [1]. [4] Examiner insight: The strongest answers keep returning to the stated objective and figures rather than describing objectives in general.

5. (a) Option A: EV = 0.5 x 180,000 + 0.5 x 60,000 = £120,000 [1]; net gain = 120,000 - 70,000 = £50,000 [1]. Option B: EV = 0.8 x 95,000 + 0.2 x 40,000 = £84,000 [1]; net gain = 84,000 - 30,000 = £54,000 [1]. [4] (b) B has the higher net gain, but only by £4,000, so the numbers alone barely separate the options [1]. A could lose £10,000 (60,000 - 70,000) but could gain £110,000, whereas B always gains, between £10,000 and £65,000 [1]. Larchmoor’s market share objective favours A’s capacity, while limited resources favour B’s lower risk [1]. Recommend B if cash is tight, or A if Larchmoor can absorb the loss and growth is the priority, stating that condition [1]. [4] Examiner insight: When two net gains are close, credit usually comes from using risk, objectives and qualitative factors to break the tie rather than repeating the calculation.

6. (a) EV = 0.25 x 240,000 + 0.45 x 120,000 + 0.30 x 20,000 = 60,000 + 54,000 + 6,000 [1] = £120,000 [1]. Net gain = 120,000 - 100,000 = £20,000 [1]. [3] (b) New EV = 0.15 x 240,000 + 0.40 x 120,000 + 0.45 x 20,000 = 36,000 + 48,000 + 9,000 = £93,000 [1]. Net gain = 93,000 - 100,000 = -£7,000 [1]. A small change in probabilities turns a profitable studio into a loss-making one, so the decision is sensitive to these estimates and Ferrowmoor should gather better evidence before committing [1]. [3] Examiner insight: Interpreting what the changed figure means for the decision is usually where the final mark sits, not in the arithmetic.

7. (i) If the forecast is inaccurate, the payoffs and probabilities are wrong, so the tree or budget gives a precise-looking but misleading answer [1], and the business may launch a loss-making product [1]. (ii) Bias, for example managers favouring their own project, may lead them to inflate forecasts or ignore warning evidence [1], so a weaker option is chosen over a better one [1]. [4] Examiner insight: Each factor needs its own consequence for the decision. Defining bias without saying how it distorts the choice tends to earn less.

8. Financial: net margin fell from 8.0% to 6.0% (36,000 / 450,000 and 28,800 / 480,000) [1], so the business earns less profit per pound of sales despite revenue growing 6.7% [1]. Non-financial: satisfaction fell nine points, which the accounts do not show [1] and may signal lost future sales [1]. Financial measures are objective but backward-looking; non-financial measures can warn earlier but are harder to benchmark [1]. Judgement: both point to weaker performance, and the satisfaction fall suggests the profit decline may continue unless costs or service are addressed [1]. [6] Examiner insight: Calculating the margin and then using it in the argument is usually rewarded more than quoting the raw profit figures.

9. A decision tree sets out options, outcomes and probabilities so choices under risk can be compared by expected value [1], making the assumptions behind a decision visible [1]. A lender wants to know whether the business can repay, so the tree shows the likely return [1] and the size of the downside in the worst case [1]. [4] Examiner insight: Tie the stakeholder to something specific on the tree, such as the worst-case outcome, instead of saying the tree “helps everyone”.

10. (a) X: EV = 0.6 x 150,000 + 0.4 x 50,000 = £110,000 [1]; net gain = £50,000 [1]. Y: EV = 0.35 x 320,000 + 0.65 x 40,000 = £138,000 [1]; net gain = £28,000 [1]. [4] (b) X has the higher net gain (£50,000 against £28,000) [1]. Y has a higher EV and a larger upside, a £210,000 gain, but a 65% chance of a £70,000 loss, while X’s worst case is a £10,000 loss [1]. That Y loss would use more than half of the £130,000 savings [1]. Y’s forecast rests on one survey, so its probabilities are less reliable [1]. The owner’s wish for control also favours the simpler extension [1]. Recommend X, provided the café extension does not itself depend on optimistic demand assumptions, and revisit Y if better evidence emerges [1]. [6] Examiner insight: A balanced answer weighs both options and uses the case facts (savings, one survey, owner’s preference) to reach a conditional judgement.

11. Growth objective met: 18% against 15% [1]. Profit objective missed: 6% against 10% [1]. Staff turnover objective missed: 22% against below 10% [1]. Customer satisfaction rising is a positive non-financial result [1]. Owners may value growth, but staff and shareholders may judge the business on turnover and profit respectively [1]. Overall it is only partly successful: growth and customers are strong, but profitability and staff retention fall short, and the profit shortfall matters most if survival or returns are the priority [1]. [6] Examiner insight: Answers that compare each result with its own objective, then reach a judgement of degree, tend to do better than a general verdict of success or failure.

Where marks are usually lost

• Stopping at expected value without subtracting the cost of the option.
• Probabilities that do not total 1.0 (100%) at a chance node.
• Defining strategic, tactical and operational by time alone, ignoring level and scope.
• Giving a qualitative example that is really a number, or the reverse.
• Listing limits of decision trees without applying them to the case business.
• Recommending the highest EV without discussing risk, savings, objectives or forecast reliability.
• Judging success from profit alone, ignoring non-financial measures and different stakeholders.
• Conclusions that offer “it depends” without saying on what.

Frequently asked questions

Are these OCR A Level Business H431 past paper questions? No. They are original practice questions written for Marlbridge on sections 1.13 Decision making and 1.14 Decision trees, with invented businesses. Use them alongside OCR’s own past papers.

What is the most common mistake in decision tree calculations? Stopping at the expected value without subtracting the cost of the option. Also check that the probabilities at each chance node total 1.0, or 100%.

How do you choose between two options with close net gains? Use risk, the business’s objectives and qualitative factors to break the tie rather than relying on the small difference in figures. Recommending the highest expected value on its own is a common weakness.

Can you define strategic, tactical and operational decisions by time alone? No. Defining them by time horizon alone ignores their level and scope, so include who makes them and how much of the business they affect.

How should an answer that says “it depends” be written? Say what the decision depends on, such as the reliability of a forecast or the savings available, and then reach a conditional judgement. “It depends” with no detail earns little.

Next steps

• Revisit the revision notes and the study guide.
• Find weak spots with the free diagnostics.
• Return to the OCR A Level Business hub and the checklist.
• Book a free trial class.

Official syllabus

OCR Level 3 Advanced GCE in Business (H431) specification, Version 2.1, sections 1.13 Decision making and 1.14 Decision trees, published by OCR (Oxford Cambridge and RSA).