Decision making techniques
A CIMA case study

Page 1: Introduction

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A business aims to generate value for its owners, customers and other stakeholders. It must decide how to combine valuable resources – typically buildings and equipment, materials, people and knowledge – in such a way that the value of the output exceeds the costs of the input. As resources flow into or out of a business, information flows too. Much of this information leaves a...
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Page 2: Types of decisions

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A business continually makes decisions at all levels. Think of a retailer such as Next. To keep the brand’s high profile position, its managers have to make many decisions. Each major strategic decision leads to tactical decisions, which break down into operational decisions. Decisions are broadly taken at three levels: Strategic decisions are big choices of identity and direction. Who...
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Page 3: How are decisions made?

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Management accountants use their skills alongside hard information to support decision making. Through intelligent analysis of information, they can generate alternative solutions and match these to the larger strategy. Each alternative can then be evaluated for its contribution towards objectives, taking into account: the timescale: money received in the future being worth less than money...
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Page 4: Decision trees

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A decision tree is an outcome and probability map of the scenario. Most business problems may potentially have more than one solution. Each choice can lead to varying outcomes, some more likely than others. To illustrate this, consider the decision faced by Prospect plc, a (fictitious) property development business. The company owns a town centre building site. This could be sold now for an...
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Page 5: Ratio analysis

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Businesses generate a huge amount of data. Management accountants can use a number of the company’s key accounting statements to extract greater meaning from this information. Prospect plc - Balance sheet/statement of financial position as at 31 March 2012 The income statement sets out the total sales revenue and subtracts the costs of generating that revenue to give operating profit. This...
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Page 6: Conclusion

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Management accountants use complex business data to help businesses identify critical points and isolate weak and underperforming systems. It can also uncover opportunities that lie hidden under routines and processes. CIMA trained management accountants work at all levels in a business and partner with managers across various business functions. This can become a real source of competitive...
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