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Decision Making and Decision Making and Relevant InformationRelevant Information

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IntroductionIntroduction

This chapter explores the decision-making This chapter explores the decision-making process.process.

It focuses on specific decisions such as It focuses on specific decisions such as accepting or rejecting a one-time-only special accepting or rejecting a one-time-only special order, insourcing or outsourcing products or order, insourcing or outsourcing products or services, and replacing or keeping equipment.services, and replacing or keeping equipment.

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Learning ObjectivesLearning Objectives

1 Use the five-step decision process to make Use the five-step decision process to make decisionsdecisions

2 Differentiate relevant costs and revenues from Differentiate relevant costs and revenues from irrelevant costs and revenues in any decision irrelevant costs and revenues in any decision situationsituation

3 Distinguish between quantitative factors and Distinguish between quantitative factors and qualitative factors in decisionsqualitative factors in decisions

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Information and the Information and the Decision ProcessDecision Process

A decision model is a formal method for A decision model is a formal method for making a choice, often involving quantitative making a choice, often involving quantitative and qualitative analysis.and qualitative analysis.

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Five-Step Decision ProcessFive-Step Decision Process

1 Gathering informationGathering information2 Making predictionsMaking predictions3 Choosing an alternativeChoosing an alternative4 Implementing the decisionImplementing the decision5 Evaluating performanceEvaluating performance

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Learning Objective 2Learning Objective 2

Differentiate relevant costs Differentiate relevant costs and revenues from irrelevant and revenues from irrelevant

costs and revenues in any costs and revenues in any decision situationdecision situation

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The Meaning of RelevanceThe Meaning of Relevance

Relevant costsRelevant costs are expected future costs that are expected future costs that differ among alternative courses of actiondiffer among alternative courses of action

Relevant revenuesRelevant revenues are expected future are expected future revenues that differ among alternative courses revenues that differ among alternative courses of action.of action.

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