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Decision-Making for Managers

The document discusses types of managerial decisions, factors to consider when making decisions, arguments for and against decision trees, and the use of accounting ratios for strategic decisions. It provides examples of tactical and operational decisions and explains that decision trees can oversimplify problems while accounting ratios like the income statement, balance sheet, gearing ratio, and management accounting can help evaluate business performance and identify weaknesses.

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18 views2 pages

Decision-Making for Managers

The document discusses types of managerial decisions, factors to consider when making decisions, arguments for and against decision trees, and the use of accounting ratios for strategic decisions. It provides examples of tactical and operational decisions and explains that decision trees can oversimplify problems while accounting ratios like the income statement, balance sheet, gearing ratio, and management accounting can help evaluate business performance and identify weaknesses.

Uploaded by

haseebahmed.ms
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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QUIZ # 4

List two of the types of decisions that are made by


managers.

1. Tactical Decisions
2. Operational Decisions

Explain the factors that need to be taken into account


when making decisions.

The time scale: money received in the future being worth less than money received today

The risk: factoring in the probability of under- or over performance (also called negative or
positive variance).

Once a decision is made and implemented it requires monitoring and control to ensure smooth
flow of operations and indication of problems.

Analyse the arguments for and against the use of decision trees.

Decision trees encourage managers to look at a range of options rather than relying on ‘gut
feeling’. However, they are only as accurate as the data on which they are based. This data is
usually based on estimates.
They do also run the risk of over-simplifying a problem particularly where human or other
external factors are involved. Other analysis tools can supplement the decision-making process.

Evaluate the use of accounting ratios when making strategic decisions.

The income statement sets out the total sales revenue and subtracts the costs of generating
that revenue to give operating profit. This is the surplus earned by the normal operations of the
company and tells us most about underlying business performance.

The balance sheet (or statement of financial position) shows the wealth of a company at a
particular date. It lists the company's assets (what it owns) followed by its liabilities (what it
owes) – the difference being the net assets.
Assets may be current, such as cash, or fixed, such as property or equipment. This value
represents the shareholders' equity – the value in the company that the shareholders actually
own.

The gearing ratio shows how much of a firm’s capital is from long-term loans, which must be
paid back regularly with interest. The more highly geared a firm is, the greater the risk it faces.

Management accountants use complex business data to help businesses identify critical points
and isolate weak and under- performing system
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