Information and the Decision Process

Contents

Information and the Decision Process 1

The Concept of Relevance 1

Relevant Costs and Relevant Revenues 1

Qualitative and Quantitative Relevant Information 1

Insourcing versus Outsourcing and Make versus Buy Decisions 2

Outsourcing and Idle Facilities 2

Strategic and Qualitative Factors 2

INFORMATION AND THE DECISION PROCESS

When choosing among various alternatives, managers follow a decision model, which is an established means of making a choice based on qualitative and quantitative analyses. The five step decision making process is used in decision making. The final step - implement the decision, evaluate performance and learn - is most useful in that it provides an overview of what took place during the previous four steps. Any future predictions, methods used in arriving at such predictions or the manner in which choices are made may all be affected by this overview.

THE CONCEPT OF RELEVANCE

Relevant Costs and Relevant Revenues

The term relevant costs refer to expected future costs; the term relevant revenues refer to expected future revenues. Relevant costs and revenues take place in the future, as well as they differ among alternative courses of action. Managers are able to isolate and focus on only relevant information out of any other information that is not relevant. Doing this is useful in situations where there is limited information available to formulate a detailed income statement, as well as saving time.

Qualitative and Quantitative Relevant Information

The outcomes of decisions may be categorized as being either quantitative or qualitative, with quantitative factors being outcomes being measured and expressed in financial terms, and qualitative factors being outcomes that are unable to be measured in numerical terms. When analyzing relevant costs, quantitative factors are focused upon because these factors may be expressed financially.

INSOURCING VERSUS OUTSOURCING AND MAKE VERSUS BUY DECISIONS

Outsourcing and Idle Facilities

When goods and services are purchased from external sellers, this is referred to as outsourcing. Contrastingly, insourcing refers to the production of these goods and services within the company itself. Insourcing versus outsourcing decisions may also be referred to as make or buy decisions. When making these decisions, managers focus on such factors as supplier dependability, quality and costs. On the other hand, some managers