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Stocks and Shares BrainPop Review
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Long Call Option Trading Strategy: Learn the Basics LONG CALL SUMMARY Purchasing a call option is a bullish strategy that gives the buyer the right, but not the obligation, to buy 100 shares of the underlying asset at a specified strike price on or before the expiration date. This strategy is typically employed when an investor believes that the price of the underlying asset will increase in the future. The value of a call option is influenced by several factors, including the underlying asset's price, the strike price, the time to expiration, and implied volatility. As the price of the underlying asset increases and approaches or breaches the long call's strike price, the option's value will appreciate. This is because the option holder has the right to buy the underlying asset at a lower price than the current market price, resulting in a potential profit. Out-of-the-money (OTM) calls have a strike price that is higher than the current market price of the underlying asset. These options are typically cheaper than in-the-money (ITM) calls, which have a strike price lower than the current market price. ITM calls have intrinsic value, which is the difference between the strike price and the current market price, and extrinsic value, which is the additional premium paid for the option's time value. Extrinsic value decays over time as the option approaches expiration, and this can cause the option to lose value, especially if the underlying asset does not move towards the strike price. LONG CALL OPTION Purchasing a call option grants you the privilege, but not the responsibility, to buy 100 shares of the underlying asset at the specified strike price on or before the expiration date. This option grants you the flexibility to capitalize on potential price increases of the underlying asset. The value of a call option is positively correlated with the price of the underlying asset. As the price of the stock or ETF rises and approaches your strike price, the value of your call option increases. This is because the difference between the market price and the strike price widens, giving you a greater potential profit. This characteristic makes call options suitable for bullish strategies where investors anticipate price increases. Conversely, the value of a call option diminishes when the price of the underlying asset drops or remains constant. Time decay, which refers to the gradual loss of an option's value as its expiration date approaches, also contributes to the depreciation of call options. Over time, the intrinsic value of the option, which represents the difference between the strike price and the underlying asset's market price, decreases as the option nears expiration. Additionally, if the price of the underlying asset remains below the strike price, the option may expire worthless, resulting in a total loss of the premium paid. Understanding these dynamics is crucial when trading call options. It allows you to make informed decisions about when to enter and exit positions, taking into account factors such as the underlying asset's price movements, time decay, and market sentiment. Buying call options can provide an alternative strategy to gain long exposure to a stock's price movement without the need for purchasing shares directly. This approach, known as a long call position, offers the potential advantage of lower capital outlay compared to buying shares outright. However, it's crucial to understand the concept of time decay, which significantly impacts the value of long call options. Time decay refers to the gradual decrease in the value of an option as time passes. This phenomenon occurs due to two primary factors: theta and vega. Theta measures the rate at which an option's value decays over time, while vega measures the sensitivity of an option's price to changes in implied volatility. As the expiration date of the call option approaches, both theta and vega work together to erode the option's value. Consequently, to offset the impact of time decay, the underlying stock price must rise at a greater velocity towards the call option's strike price. This is because the intrinsic value of a call option, which represents the difference between the strike price and the underlying stock's current market price, increases as the stock price moves higher. Another important consideration when evaluating call options is the distinction between out-of-the-money (OTM) and in-the-money (ITM) calls. OTM calls have a strike price higher than the current market price of the underlying stock, while ITM calls have a strike price lower than the current market price. OTM calls are typically less expensive than ITM calls because their value is composed entirely of extrinsic value. Extrinsic value refers to the portion of an option's price that is not attributable to its intrinsic value. ITM calls, on the other hand, have both intrinsic and extrinsic value, resulting in a higher cost per contract. As time relentlessly marches forward, the value of call options undergoes a transformation. The extrinsic value, which represents the premium paid for the potential of future price movements, steadily diminishes as expiration approaches. This decay is universal, affecting all call options regardless of their initial strike price or distance from the underlying asset's current price. However, amidst this gradual erosion of extrinsic value, ITM (in-the-money) call options stand as an exception. These options retain their intrinsic value at expiration, which is the difference between the strike price and the underlying asset's price. This characteristic sets ITM call options apart from their OTM (out-of-the-money) counterparts, whose extrinsic value decays entirely to zero near or at expiration. The distinction between ITM and OTM call options underscores the significance of carefully considering both the time frame and strike price when making investment decisions. Traders seeking to maximize their potential gains through call options must be mindful of the impending decay of extrinsic value as expiration draws near. For long ITM call options, the ideal scenario is for the underlying asset to exhibit a significant upward movement. Such a price increase would enhance the intrinsic value of the option, making it worth more at expiration than the initial purchase price. This scenario holds true for OTM call options as well, as they require the underlying asset to move ITM at expiration to possess any value. Prior to expiration, both OTM and ITM call options have the potential to gain a combination of extrinsic and intrinsic value if the stock exhibits a rapid upward trajectory. This dynamic underscores the importance of monitoring market conditions and adjusting investment strategies accordingly. Understanding the Interplay of Time, Strike Price, and Option Value in Call Option Trading: In the realm of call option trading, comprehending the intricate interplay between time, strike price, and option value is paramount to success. These three factors collectively shape the dynamics of call option contracts, allowing traders to make informed decisions and capitalize on market opportunities. Time (Days to Expiration): Time, measured in days until expiration, is a crucial element in call option trading. As expiration approaches, the value of a call option is directly influenced by the time premium. The closer an option gets to expiration, the less time value it holds. This time decay accelerates in the final days leading up to expiration. Therefore, traders must carefully consider the time factor when selecting their expiration dates. Strike Price: The strike price represents the predetermined price at which the underlying asset can be bought (in the case of a call option) or sold (in the case of a put option). When choosing a strike price, traders must assess the current market price of the underlying asset and make an educated guess about its future direction. ITM (In-the-Money) call options are those with a strike price below the current market price, while OTM (Out-of-the-Money) call options have a strike price above the current market price. Option Value: Option value refers to the premium paid by the buyer of an option contract to the seller. This premium comprises two components: intrinsic value and time value. Intrinsic value is the difference between the strike price and the underlying asset's current market price. Time value, as mentioned earlier, is the premium paid for the remaining time until expiration. Auto-Exercise and Expiration Scenarios: Auto-Exercise: Long call options that expire ITM by $0.01 or more will be automatically exercised. This means that the buyer of the call option has the right to purchase the underlying asset at the strike price. If the investor holds only a long call, this will result in 100 long shares per contract purchased at the call option's strike price. On the other hand, investors holding the corresponding short shares will cover or buy shares at the call option's strike price. Expiration Worthless: Any long call options that expire OTM will expire worthless. In this scenario, the investor loses the entire premium paid for the contract, resulting in a maximum loss. Understanding these concepts is instrumental in developing effective call option trading strategies. By carefully considering the interplay between time, strike price, and option value, traders can position themselves to make profitable trades and minimize potential losses. PROFIT & LOSS DIAGRAM OF A LONG OTM CALL A long OTM call option can be profitable if the current market value of the option exceeds the price paid to purchase it. This can occur in two main scenarios: Stock Price Surpasses Strike Price: If the underlying asset's price rises above the strike price of the call option by more than the premium paid for the option, the call option becomes profitable. This is because the intrinsic value of the call option (the difference between the strike price and the underlying asset's price) becomes positive, and the call option can be exercised to purchase the underlying asset at a price below the market price. OTM Call Moves Closer to Underlying Asset Price: Even if the underlying asset's price does not reach the strike price, a long OTM call can still be profitable if the option's price increases. This can happen when there is a quick rally in the underlying asset's price, causing the call option's price to increase as well, even if the strike price is not reached. This is because the time value of the call option increases as the expiration date approaches, and the call option becomes more likely to be in the money. However, it's important to note that long OTM call options can also result in losses if the underlying asset's price does not surpass the breakeven point. The breakeven point is the price at which the call option's intrinsic value becomes equal to the purchase price of the option. If the underlying asset's price remains below the breakeven point until expiration, the call option will expire worthless, and the investor will lose the entire amount paid for the option. The maximum profit potential of a long OTM call option indeed has no theoretical limit, as a stock's price can theoretically rise indefinitely. This means that if the underlying stock price increases significantly, the call option holder can potentially reap substantial profits by exercising the option and buying the stock at the predetermined strike price. On the downside, the maximum loss on a long call option is limited to the premium paid for the option. This premium represents the total amount invested in the option contract and acts as a protective barrier against further losses. If the stock price declines or stays below the strike price at expiration, the option will expire worthless, and the investor will lose the entire premium paid. The flattened red loss zone in the diagram illustrates this limited loss potential. This zone represents the range of stock prices below the strike price at expiration where the option holder will lose money. The loss amount decreases as the stock price approaches the strike price and becomes zero when the stock price equals the strike price. Beyond the strike price, the option holder starts to make a profit. It's important to note that while the maximum profit potential is theoretically unlimited, it is highly unlikely for a stock price to rise dramatically within the short timeframe of an OTM option's expiration period. Therefore, while the potential rewards can be significant, the probability of achieving them is relatively low. PROFIT & LOSS DIAGRAM OF A LONG ITM CALL ITM (In-the-Money) options have a unique characteristic where the price of their intrinsic value directly correlates with the underlying asset's price. This means that for every one point movement in the underlying asset's price, the ITM option's intrinsic value moves by the same amount. While purchasing an ITM option provides immediate intrinsic value, it does not guarantee profitability upon execution. Similar to buying an OTM (Out-of-the-Money) call option, the purchase price of an ITM call must increase for it to be profitable. This requires the stock price to move further above the call strike price. This relationship is visually represented in the diagram, where the red and green zones converge on the x-axis. The maximum potential loss on a long call option is limited to the debit paid for the option, which is represented by the flattened red area in the diagram. This means that the most an investor can lose on a long call is the premium paid for the option, regardless of how far the underlying asset's price moves below the strike price. Understanding the price dynamics and potential risks associated with ITM options is crucial for traders and investors. While ITM options offer immediate intrinsic value, careful analysis and consideration of market conditions are necessary to determine their potential profitability. EXAMPLE OF A LONG OTM CALL OPTION XYZ currently trading @ $45 Buy to Open +1 XYZ 50-strike call @ $4 debit Cost: $4 debit ($400 total, ($4 x 100 shares)) Time Decay Affect Works against the option’s value Max Profit Theoretically unlimited Max Loss Debit paid per contract ($400) Breakeven Price (at expiration) Strike price + debit paid ($54) Account Type Required Cash, Margin, and IRA EXAMPLE OF A LONG ITM CALL OPTION XYZ currently trading @ $45 Buy to Open +1 XYZ 40-strike call @ $7 debit ($5 intrinsic value + $2 extrinsic value) Cost: $7 debit ($700 total) Time Decay Affect Works against the option’s value Max Profit Theoretically unlimited Max Loss Debit paid per contract ($700) Breakeven Price (at expiration) Strike price + debit paid ($47) Account Type Required Cash, Margin, and IRABroken windows are covered. Floorboards are patched and doors screwed back on. The road that was ruined by German tanks is shovelled and raked smooth. Boot-shaped bruises turn yellow then fade and disappear. Flowers grow and spread across the ugly German footprints stomped into garden beds. The village looks pretty once more. School stops for the summer and everyone is put to work on the kolkhoz, the village farm. Women and big boys begin harvesting the barley crops in the outer fields. The biggest girls milk the cows, morning and night, and keep the barns clean. Old Nikolay mends ploughs, horse harnesses, pitchforks and scythes in his workshop. Anna Pushinka teaches Yelena and her friends how to get the honey from the beehives that are scattered through the orchards. I am in charge of collecting eggs. My friends Olga and Nina help. Olga and Nina are five, a year younger than me. They are twins and look exactly alike, except Nina’s nose is a little bit crooked from when she fell out of bed and squashed it sideways on the floor. The hens, ducks and geese wander free in the summer, so collecting eggs is like a treasure hunt and takes hours. Catching the hens for their daily hugs takes even longer, but I think it’s important because hugs make everyone happy and happy hens lay bigger eggs. Olga says I’m the best hen-hugger in all of Russia. Nina says I’ll be the best cow-hugger, too, when my arms grow longer. But good hugs have nothing to do with the size of your arms. It’s all to do with the size of your heart. When we are done with the hens, Olga, Nina and I can spend the rest of the day doing whatever we like. We climb the apricot trees, chase squirrels, lie in the meadow marvelling at how hot Ushanka’s black fur becomes in the sunshine, make daisy chains and race little boats of bark in the stream. I teach Olga and Nina the alphabet and we use charcoal to write our letters and our names all over the village – on doors and walls and the freshly cut ends of firewood. In between, I practise my knots. In case the German princemonsters return. I slip into Old Nikolay’s workshop and tie knots in the harnesses hanging on the walls. I wander into gardens where the washing is hung out to dry and tie knots in the laces on pants and smocks. I creep up behind Anna Pushinka and tie knots in her apron strings. I find baling twine in the hay shed and tie my own ankles together. I do such a good job of these last knots that I can’t get them undone. I have to jump all the way to Olga and Nina’s house and ask them to cut me free with their mama’s knife. At the end of each day, Ushanka and I run out into the distant barley fields to meet Mama. This is my favourite part of the day, because Mama always shouts, ‘Little Rabbit!’ and smothers my head with kisses. And as we walk home, we sing. Everyone – women, big boys and me. I love to sing. Almost as much as I love to be kissed by Mama. Sometimes one of the boys, Mikhail, has his balalaika with him. He takes the instrument out from beneath the sheaves of barley piled high on the wagon and plays music. We sing about forests and orchards and people who find their true love. As we walk home, arm in arm, my heart fills with happiness and my belly swells with pride that I am allowed to sing along with the big boys. And I can almost forget about the German prince-monsters and their lies about Russia and their big ugly boots. Almost. But today, when Mikhail reaches for his balalaika, I see other things hiding beneath the barley sheaves. Three of the mamas rush forward and cover them up, but it’s too late. I know they are there. I’ve already seen them. Rifles. Lots of rifles. Mikhail hugs his balalaika to his chest and blushes. ‘So play!’ cries Mama, her voice oddly loud and high. ‘Let’s play Sasha’s favourite song, “The Little Birch Tree”.’ So Mikhail plays and everyone sings about the lovely birch tree with its curly leaves and the branches that will be turned into silver flutes. They sing too quickly, too loudly, and as they sing and walk, they cast nervous sideways glances at me. ‘It’s alright,’ I say, when the song comes to an end. ‘I didn’t see the rifles.’ Mama nods and smiles, and I know it was the right thing to say. But I did see the rifles. And I think about Yelena wanting to get lots of guns and dynamite for the Partisans so they can shoot the Germans and blow them into thousands of tiny pieces, and Mama looking as though she agreed, and I know this is what the mamas and the big boys are doing. As well as harvesting, they are helping the Partisans. Three days later, I wake before dawn and I am all alone. Yelena is always here beside me when I wake. But not this morning. I climb down from our bed above the stove. Mama is filling a cloth sack with bread. She ties it closed with a piece of string and hands it to Yelena. ‘Stay out of sight,’ says Mama. ‘And don’t return until after dark.’ ‘Where’s she going?’ I ask. ‘Nowhere,’ snaps Mama. ‘Then why does she need all that bread?’ I ask. ‘There’s nothing left for us.’ Mama baked four loaves last night and she has stuffed them all into the sack. Yelena opens her mouth, but before she can speak, Mama shoves her out the door and sends her on the way to nowhere. Mama turns and stares at me, her blue, blue cornflower eyes wide with worry. ‘I know,’ I say, flopping down on the bench. ‘I didn’t see any bread.’ Mama sits beside me and takes my hand. ‘And . . .?’ she prods, obviously waiting for more. I puzzle for a while, then say, ‘And I don’t have a sister called Yelena.’ Mama laughs, softly and with a little bit of sadness around the edges. ‘Sweet Little Rabbit! You do have a sister called Yelena.’ ‘I do?’ I ask, now confused. ‘I haven’t seen the rifles or the bread, but I have seen Yelena?’ ‘Yes.’ Mama smiles and the magic makes me smile, too. And I am glad that Yelena is real because I love her very much. ‘Yelena is real,’ Mama explains, ‘but she does not carry sacks of bread into the forest for the Partisans.’ ‘Of course not!’ I shout, slapping my forehead. ‘Because there is no bread!’ Mama laughs loudly now, with not a hint of sadness. She hugs me, pressing me against her warm, loving heart, covering my head with kisses. ‘Clever Little Rabbit,’ she murmurs, and then, in barely a whisper, ‘Your papa would be so proud.’ When I wake the next morning, Yelena is sleeping beside me, her mouth open, her braided hair unravelling. Mama is serving kasha to a strange woman seated at our table. I crawl down from above the stove and slide along the bench beside her. I stare at her pants, her tunic, the rope she is using as a belt and her big boots. She’s dressed like a man! And there’s a rifle leaning against the wall near the door. ‘Hello,’ I say. ‘I’m Sasha.’ The woman doesn’t reply. She just shovels down her kasha. I line my four wooden bears along the table in front of her bowl and say, ‘These are my bears: Big Bear, Medium Bear, Little Bear and Even Littler Bear.’ ‘Hello, Sasha. Hello, bears.’ She smiles but she doesn’t tell me her name. ‘Why are you dressed like a man?’ I ask, tugging at the sleeve of her tunic. ‘Because men’s clothes make it easier to run and climb and crawl and shoot,’ she says. ‘You’re a Partisan!’ I gasp. ‘But she’s not real,’ says Mama, placing a bowl of kasha before me. ‘Is the kasha real?’ I ask. Mama laughs. ‘Yes, Little Rabbit.’ I’m glad the food is real, because I’m hungry. But I’m disappointed that the woman is not real. I was going to ask if I could use her rope-belt to tie her ankles together. For practice. But if she’s not real, then the rope and her ankles aren’t either. The woman finishes her kasha, hangs her rifle over her shoulder, kisses Mama on the cheek then slips out the door. I run to the window to watch her leave, but by the time I get there, she’s gone. Vanished. ‘Because she’s not real,’ I whisper. A week later, Mama and I are working in the garden. We sing as we weed between the flowers and pluck caterpillars from the vegetables. Anna Pushinka is picking strawberries in her garden and wanders over. ‘Taste these,’ she says, holding out the basket. Mama reaches in and takes out a fat strawberry and a tiny piece of folded paper. The strawberry goes into her mouth, the paper into her pocket. ‘What’s on the paper?’ I ask. ‘Paper?’ Anna Pushinka replies with a wave of her hand. ‘Goodness, Sasha! Who has money for paper? These are lean times. We must choose between paper for writing and noodles for our soup. And I always choose noodles.’ She chuckles and I know the paper is yet another thing that is not real. That night, Mama slips the paper to Yelena, but she drops it on the floor. I pick it up for her, and I see that there are tiny words and numbers written all over it. I wish I could read better. I’m desperate to know what it says. Or rather, what it doesn’t say, because it’s not real. Later, when Mama has tucked us into our bed above the stove and Ushanka has wrapped herself around the top of my head, I ask Yelena, ‘What’s on the paper?’ ‘What paper?’ says Yelena. ‘The paper that isn’t real,’ I reply. Yelena stares at me, nibbling her lip, then whispers, ‘A message for the Partisans. Stuff about where the Germans have their headquarters and when their trains are travelling and where they store their ammunition.’ ‘Why?’ ‘So the Partisans can blow them up.’ Yelena grabs my arm. ‘But don’t tell anyone. It’s a secret.’ ‘What’s a secret?’ I ask. ‘The message.’ ‘What message?’ I say, my eyes wide. Yelena laughs. ‘Good boy, Sasha.’ My belly swells with pride. I know how to play this game. ‘How are your knots coming along?’ asks Yelena. ‘Good! Yesterday, I crept into the dairy and tied knots in the apron strings of all the girls who were milking and only one of them noticed. Today, I tied Olga’s ankles together with Mama’s embroidery thread and just now, while you were taking a bath, I tied the sleeves of your blouse together in an enormous knot.’ Yelena rolls her eyes, then says, ‘I’ll see if I can find you some rope for practising.’ ‘Practising what?’ I ask. ‘Your knots,’ she says. ‘What knots?’ Yelena, my big sister who is twelve and always serious t Why and How Managers Plan Importance of planning The planing process Benefits of planning Planning and time management Types of PLans used by managers Long term and short term plans Strageic and tactical plans Operational plans Planning Tools and Techiqunes Forecasting Contrigency planning Scenario planning Benchmaking Use of staff planners Implementing Plans to Achive Results Goal setting Goal management Goal alignment Participation and involvement Planning Def: The process of setting objectives and determining how best to accomplish them Planning at Eaton Corporation “Making the hard decision before events force them upon you, an anticipating the future needs of the market before the demand asset itself Objectives and goals Identifity the specific results or desired outcomes that one intends to achieve Plan Def: A statement of action steps to be taken in order to accomplish the objectives (goals) Steps in the planning process: Define your objectives Determine where you stand vis-a-vis objectives Develpo premises reagrdsing future conditions Analyze alternatives and make a plan Implement the plan and evaluate results What are the benefits of planning Improves focus and flexibility Imporves action orteitation Imporves coordination and control Imporves time management Time Managment Personal time management tips Do say “no” to request that distract you form what you should be doing Dont get bogged down inn details that can be addressed later Do screen telephone calls, emails and meeting request Dont let drop in visitors, text messaging use up your time Do prioritize your important and urgent work Dont become calendar bound by letting other control your schedule Do follow priorities; do most important and urgent work first Some 77% of mangers in one survey said that digital age has increased th number of decisions they have to make 43% said there was less time available to make these decisions Types of plans used by Managers What is teh time horizon Long term vs Short term Long term Look three or more years into teh future Short term plans Typically cover one year or less However: the increasing environmental complexity and dynamism of recent years has severely tested the concept of “long-term” planning Plans are subject to frequent revisions Most executives would likely agree that these complexities adn uncertainties challenge how er actually go about planning and how far ahead we can really plan At the very least we can conclude that there is a lot less permanency to long term plans today and that tey are subject to frequent revision Managment reaeracher Eillot Jaques believes tha people vary in their capability to think with different time horizons Types of Plans used by Managers (3 of 5) Strategic plans Set broad, comprehensive and linger term action directions for teh entire organization or major division Vision Clarifies purpose of the organization and what it hopes to be on the future Typical plans Specify how the organizations resources are used to implement strategy Tactical plans in business often take the form of functional plans Functional plans Incidate how different component within the organiztion will help accompnlish the overall strategy Production plans Finacial plans Facilites Plans Logisitc plans Marketing plans Human Resource Plans Operation plans Describe short-term activities to implement strategic plans Policies: Are standing plans that communicate guidelines for decisions Ex: Policies on office romances: The media is quick to report when a top executive or public figures runs into trouble over an office affair. Are there ant policies on office romances? Employer polices on office raltioshiis vary. One survey find teh following: 24% prohibit relationships among employees in the same department 13% prohibit relationships among employees who have the smae supervisor 80% prohibit relationships between supervisors and subordinates 5% have no restrictions on office romances Procedures: Are rules that describe actions to be taken in specific situations Budgets: are single use plans that commit resources to projects or activities Zero based budgets: allocate resources as if each budget were brand new There is no guarantee that any past funding will be renwer. All propsales, old and new, must compete for available funds at teh start of each new budget cycle Forcasting Attempts to predict the future Qualitaive forecasting uses expert opinions Quantitative forecasting uses mathematical models and statiscal aanylsis of historical data dna surveys Contingency planning Identify alternative course of action to take when things go wrong Anticipate changing conditions Contain trigger points to indicate when to activate plan (or a specific course of action) Scenario planning A long term version of contingency planning Identifying alternative future scenarios Plans made for each future scenario Increases organizations flexibility and preparation for future shocks Benchmarking Use of external and internal comparisons to better evaluate current performance Adopting best practices: things people adn organization do that lead to superior performance Staff Planners Experts who assist in all steps of the planning process They help bring focus and expertise to a wide variety of planning tasks Important: Communication between staff planers landline managers is essential for teh success of teh planning process Goal Setting - Always set SMART goal The solution: Goal Aligment Between Team Leader and Team Member Jonintly plan: Set objectives, set standards, choose actions Individually acy: Perform tasks (member), provide support (leader) Jointly control: Review results, discuss implications, renew cycle x4 Collective effort and commitment Participatroy planning Includes in all planning steps that people who will be affected by the plans adn askedd to help implement them Unloacks motivational potential of goal setting Management by objective (MBO) promotes participation Participation increases understanding and acceptance of plan and commitment to success Participatory planning - Number of people involved in teh decision making process Amazon is intensely focused on what it does. It believes in creating tight single-threaded teams, also known as “2 pizza team.” Data and Decision Making What are some of the important competencies managers must have today? Delegate Marketing and technology Manager must have Technological competency Ability to understand new technologies and to use them to their best advantage Information competency Ability to locate, gather, organize and display information for decision-making and problem solving Analytical competency Ability to evaluate and analyze information to make actual decisions and solve real problems What is the difference between Data and Information Data Raw facts and observation Information Data made useful and meaningful for decision-making Important concepts Big data Exists in huge quantities and is difficult to process without sophisticated mathematical and analytical techniques Data production today Bernard Marr is an internationally best-selling author. He helps organizations improve their business performance, use data more intelligently Data mining The process of analyzing data to produce useful information for decision-makers Management Analytics The systematic evaluation and analysis of data to make informed decision Information drives management Bad Data Refers to information that can be erroneous, misleading, and without general formatting The challenge: Can er use the data that is available in the “Big Data” Needs to be valid Can not trust everything out there Being ethical Look at the trends Data is structured and unstructured Data BIg Data = Structured + Unstructured Information Drive Management decision making What are the characteristics of useful information Easy to access If its credible Accurate Characteristics of useful information: Timely High quality Complete Relevant Understandable What about bad data It's not credible Miss information If it is not structured/ organized Bias based on opinions Confusing If its updated Bad data Refers to information that can be erroneous miss What are some examples of Management information system Business intelligence -BI Information systems to extract and report data in organized ways that are useful to decision-makers Executive dashboards Visually update and display key performance metrics (or Key Performance Indicators -KPIs) and information on a real-time basis Information needs in organization External Environment Information exchanges with the external environment Gather intelligence information Provide public information Information needs within the organizations (internal Enviroement) Information exchange within the organization Facilitate decision making Facilitate problem-solving Managers as information processors Continually gather, share and receive information Now as much electronic as it is face-to-face Always on, always connected How many people telecommute at least once a week 70% of people globally work remotely at least once a week, Work at home after covid 19 our forecast Our best estimate it that 25-30% of the workforce will be working form home multiple days a week by the end of 2021 As of 2023, 12.7% of full time employees work from home, while 28.2% work a hybrid model Managers as problem solvers Problem-solving The process of identifying a discrepancy between actual and desired performance and taking action to resolve it Ishikawa Fishbone diagram To identify the cause of problems Decision A choice among possible alternative courses of action Performance threat Something is wrong or has the potential to go wrong Performance opportunity The situation offers the chance for a better future if the right steps are taken Problem-solving approaches or style - from textbook Problem avoiders Inactive in information gathering and solving problems Problem seekers Proactive in anticipation of problems and opportunities and taking appropriate action to gain an advantage Problem solvers Reactive in gathering information and solving problem Managers - can approach problems in a systematic or intuitive manner Systematic thinking approaches problem in rational, step-by-step and analytical fashion Intuitive thinking approaches problems in a flexible and spontaneous fashion Multidimensional thinking- applies both intuitive and systematic thinking Managers face structured and unstructured problems Structure problems Are ones that are familiar, straight forward, and clear with respect to information needs Program decisions apply solutions that are readily available from past experiences to solve structured problems Know how to solve them Familiar Know what we are dealing with Unstructured problems Are ones that are full of ambiguities and information deficiencies Nonprogrammed decisions apply a specific solution to meet the demands of a unique problem Commonly faced by higher-level management Crisis decision making A crisis involves an unexpected problem that can lead to disaster if not resolved quickly and appropriately Ruled for crisis management Figure out what is going on Remember that speed matters Remember that slow counts, too Respect the danger of the unfamiliar Value the skeptic Be ready to “fight fire with fire” Managers make decisions with various amounts of information Certain environment Offers complete information on possible action alternatives and their consequences Risk environment Lacks complete information but offers probabilities of the likely outcomes for possible action alternatives Uncertain environment Lacks so much information that it is difficult to assign probabilities to the likely outcomes of alternative Ex: Certain and uncertain environments: The worldwide Governance Indicators for over 200 countries, comparing distinct environments (Canada-Brazil) Step 1-Identify and define the problem Focuses on information gathering information processing and deliberation Decision objectives should be established What are some common mistakes in definding problems? Common mistakes in defining problems Defining the problem too broadly or too narrowly Focusing on symptoms instead of causes Choosing the wrong problem to deal with Step 2- Generate and Evaluate Alternative Courses of Action Potential solutions are formulated and more information is gathered, data are analyzed, the advantages and disadvantages of alternative solutions are identified Common mistakes: Abandoning the search for alternatives too quickly Step 3- Decide on a preferred course of Action Two different approaches Behavioural model leads to satisficing decisions Classical model les to optimising decisions Behavioural Model Rationality is bounded because: There are limits our thinks capacity Available information (incomplete) Time constraints Step 4-Implement the decision Involves taking action to make sure the solution decided upon becomes a reality Managers need to have the willingness and ability to implement action plans Problems: Lack of participation error should be avoided Step 5 - Evaluate Results Involves comparing actual and desired results The positive and negative consequences of the chosen course of action should be examined If actual results fall short desire results, the manager returns to earlier steps in the decision-making process At all steps, check ethical reasoning Ask these spotlight questions Utility Does teh decision satisfy all constituents or stakeholders Rights Does the description respect the rights and duties of everyone? Justice Is the decision consistent with the canons of justice Caring Is the decision consistent with my responsibilities to care? Issues in decision-making How do errors happen? Heuristics: are strategies for simplifying decision-making Availability Bias: Bases a decision on recent information or events Representativeness bias: Bases a decision on similarity to other situations Anchoring and Adjustment Bias: Bases a decision on incremental adjustment from a prior decision point Framing error: Tring to solve a problem in the context perceived, positive or negative Confirmation Error: Focusing on information that confirms a decision already made Escalating commitment: Continuing a course of action even though it is not working Creative Decision making Creativity is the generation of a novel idea or unique approach that solves a problem or crafts an opportunity Big C: Creativity occurs when extraordinary things are done by exceptional people Little C: Creativity occurs when average people come up with unique ways to deal with daily events and situations The three types of situational creativity drivers Chapter review What are objectives and goals? The specific results or desired outcomes What are the 5 characteristics of great (SMART) goals? Forecasting - Attempts Qualitative forecasting uses options Quantitative forecasting uses mathematical models and statistical analysis of historical data and surveys Scenarios-Oracle’s crystal ball combines qualitative and quantitative methodsStocks and Sauces DSA Reviewstocks and bondsSTOCKS AND BONDS QUIZStocks and Stock MarketsPREPARE STOCKS AND SOUPS