Strategy & Decisions: key terms, formulas and examples
Strategy is choosing where to compete and what to ignore. SWOT, KPIs and stakeholder maps guide decisions; opportunity cost says every yes is a no; sunk costs should not drive choices.
Example
Money already spent can't be recovered, so judge a project only on future costs and benefits.
Takeaway
Decide on future value and track it with clear KPIs.
Key terms
- SWOT analysis
- Reviews strengths, weaknesses, opportunities and threats.
- KPI
- A key number used to track progress toward goals.
- Stakeholder
- Anyone affected by a company's decisions.
- Opportunity cost
- The value of the best alternative you give up.
- Sunk cost
- Money already spent that can't be recovered; it shouldn't drive future choices.
- Vision statement
- A picture of what a company wants to become in the future.
- Scenario planning
- Preparing for several possible futures instead of betting on one.
- Competitive advantage
- Something that lets a company outperform rivals.
- Balanced scorecard
- Tracking performance from several perspectives.
- Decision matrix
- A table scoring options against criteria.
- Strategic alliance
- A partnership between firms to reach shared goals.
- Cost-benefit analysis
- Comparing a choice's benefits with its costs.
Formulas
PERT estimate(O + 4 × M + P) ÷ 6
Z-score(x − μ) ÷ σ
Mean (average)Σx ÷ n
Cost performance indexEV ÷ AC
Schedule performance indexEV ÷ PV
Schedule varianceEV − PV
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