ACCA PM Syllabus C. Decision-making Techniques - Research Techniques to Reduce Uncertainty - Notes ^{1 / 6}

Risk refers to the situation where probabilities can be assigned to a range of expected outcomes arising from an investment project and the likelihood of each outcome occurring can therefore be quantified.

For e.g., based on past experience, a sales team may estimate it has a 60% chance of winning a particular contract.

Uncertainty refers to the situation where probabilities cannot be assigned to expected outcomes. Investment project risk therefore increases with increasing variability of returns, while uncertainty increases with increasing project life.

For e.g., it is very difficult to assign probabilities to a new product entering into a market

The two terms are often used interchangeably in financial management, but the distinction between them is a useful one.

Risk Management is the process of understanding and managing the risks that the organisation will inevitably meet in attempting to achieve its objectives.

Market research assesses and reduces uncertainty about the likely responses of customers to new products, new advertising campaigns, price changes, etc.

This can be desk-based (secondary) or field-based (primary).

Desk-based research is cheap but can lack focus. It is collected from secondary sources, i.e. published and other available sources of information.

Field-based research is research by direct contact with a targeted group of potential customers. It is better than desk-based research in that you can target your customers and your product area.

However, it can be time consuming and expensive. The internet is bringing down the cost and speeding up this type of research, email is being used to gather information quickly on the promise of free gifts etc.

Field-based research can be either:

1. Motivational research

   – the objective is to unearth factors why consumers do or do not buy particular products.  Depth and group interviewing techniques are used in motivational research.

2. Measurement research

   – the objective is to build on the motivation research by trying to quantify the issues involved. Sample surveys are used to find out how many people buy the products, in what quantity, from where and when.

Focus groups are a form of market research. They are small groups (typically eight to ten individuals) selected from a broader population who are interviewed through discussions in an informal setting.

They are questioned in order to gather their opinions and reactions to a particular subject or marketing-orientated issues, known as test concepts

These focus groups can provide market researchers with much helpful information. However, it is difficult to measure the results objectively.

Their cost and logistical complexity is frequently cited as a barrier, especially for smaller companies.

Focus groups have been used by banks to assess consumer reactions to new electronic banking products and by television companies to obtain voters’ reactions to political elections.