Elements Of a Decision

Elements of a decisiveness
A quantitative decision problem involves half dozen parts:
a) An object glass that can be quantified Sometimes referred to as choice criterion or objective function, e.g. maximisation of profit or minimisation of fit costs.
b) Constraints Many decision problems have one or more(prenominal) constraints, e.g. limited raw materials, labour, etc. It is and so common to decide an objective that will maximise profits subject to specify constraints.
c) A range of alternative courses of action under consideration. For example, in order to minimise costs of a manufacturing operation, the available alternatives may be:
i) to continue manufacturing as at present
ii) to change the manufacturing method
iii) to sub-contract the fiddle to a third party.
d) Forecasting of the incremental costs and benefits of apiece alternative course of action.
e) Application of the decision criteria or objective function, e.g. the calculation of expected profit or contribution, and the ranking of alternatives.
f) excerpt of preferred alternatives.
Relevant costs for decision making
The costs which should be used for decision making are often referred to as relevant costs. CIMA defines relevant costs as costs suspend to aiding the making of specific management decisions.




To affect a decision a cost must be:
a) Future: past costs are irrelevant, as we cannot affect them by actual decisions and they are common to all alternatives that we may choose.
b) Incremental: Meaning, usance which will be incurred or avoided as a effect of making a decision. Any costs which would be incurred whether or not the decision is made are not say to be incremental to the decision.
c) Cash flow: Expenses such as depreciation are not cash flows and are therefore not relevant. Similarly, the book value of existing equipment is irrelevant, but the temperament value is relevant.
Other terms:
d) Common costs: be which will be identical for all alternatives are irrelevant,...If you exigency to get a full essay, order it on our website: Orderessay



If you want to get a full essay, wisit our page: write my essay .