MOS 1023: Pg 55-70 - Accounting: Information For Decision-Making

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Management and Organizational Studies
Management and Organizational Studies 1023A/B
Maria Ferraro

Chapter 3 (Pg 55-70) – Accounting: Info For Decision-Making Four Step Framework for Decision-Making: Decision  the choosing of one option form a set of options to achieve a goal 4 steps: QV slide 11 First: Specify the problem, including the decision maker’s goals  Decisions help accomplish goals  Individual goals normally differ in the factors they consider and importance of these factors  Understanding the factors that influence decision-makers goals and their relative importance  Max profit is not always the main goal o Based on owners motive not on profit motive Second: ID options  Business decisions usually have numerous options  Managers normally distinguish themselves by their ability to ID the most promising options  Separate the most promising goals/options from the less- fortunate options Third: Measure benefits (advantages) and costs (disadvantages)  Every option presents a unique trade-off between benefits and costs Value  equals benefits less costs  Contribution of an option to the decision maker’s goals  Measure relative to status quo  Not need to be a monetary base Opportunity Cost  value to the decision maker of the next best option  Business measures value and opp cost in terms of money, profit  Effective decisions = value of chosen decision exceeds its opp cost Fourth: make the decision, choosing the option with the highest value  Best choice = option with the highest value to the decision maker o Only option whose value exceeds opp cost Decision-Making in Organization:  2 differences between organization decisions and personal o organization tends to have focused goals o how do individual goals relate to organizational goals  individual goals might differ from companies  can lead to actions not in best interest for company Organizational Goals: Organization  a group of individuals engaging in a collectively beneficial mission Shareholder value  to maximize returns (streams of profits or, equivalently, stream of cashflows) to shareholders investing in company Aligning Individual Goals with Organizational Goals:  Firms owners would like to frame decision problems in terms of maximizing profits o Employees may equate a lower importance level to firm goals in attempts to pursue personal goals  Result = firms utilize the following methods to prevent this: o Policies and procedure to define acceptable behaviour o Monitoring to enforce policies and procedures o Incentive schemes and performance evaluations  To motivate employees to adhere to organizational goals  Key difference: (btwn firm and individual goals) o Relates to Step 1  mu
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