Quiz 14: Decision Making: Relevant Costs and Benefits


Seven steps in decision-making process are: 1. Identify the problem : Identify the problem in clear terms. The problem can be increasing competition, lack of quality control and a new alternative product in the market 2. Specify the criterion : Once the problem is identified, the manager should specify the criterion based upon which a decision would be arrived at. Conflicting objectives need to be identified. Example of conflicting objectives is: Reduce the Cost of Production. Improve Quality 3. Identify the alternatives : This step involves identifying the alternatives through which the problem can be resolved. 4. Develop a decision model : This model brings together the elements, the criterion, the constraints, and the alternatives identified. 5. Collect the data : The manager then identifies the data pertinent to the decisions and sets about steps to collect it. 6. Select an alternative : The manager then selects an alternative based on the collected data. 7. Evaluate decision effectiveness : The manager then evaluates decision effectiveness

The role of Managerial Accountant in the Decision Making process: • Design and implement the Accounting Information system. • Interact with Production, marketing and Finance teams. • Make substantive economic decisions affecting operations.

a) Difference between Quantitative and Qualitative Decision Analysis :- • Quantitative Decision analysis basically involves analyzing/identifying the problem in quantitative terms. • Example: profit maximization, or cost minimization. b) Qualitative Decision Analysis involves analyzing the problem in non quantitative measures. Example: Decreasing Quality control.