ACC 310F Chapter Notes - Chapter 1: Celebrity Chef, W. M. Keck Observatory, Controllability

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7 Feb 2017
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Time and Decision Making
Decision Horizon
By picking an option, a decision maker chooses to receive some benefits and
incur some costs relative to doing nothing. The decision maker has control over
the costs that will be incurred and the benefits that will be received.
A decision’s horizon significantly influences the cost and benefits we to consider
as being potentially relevant to the decision.
A cost or benefit for a decision option is controllable if the decision maker can
avoid it by not picking the option
Benefits and costs that are not controllable cannot be relevant, but not all
controllable costs and benefits are relevant
Ex. home theater: Cost of 3D capable receiver is controllable but not
relevant
Time Horizons (Video)
As the time horizon of your decision expands, then more costs and
benefits are going to become relevant to your decision
Ex. Whether or not to offer yoga
Relevant cost $1,600 for instructor salaries is a controllable cost
Incremental $5,000 for membership revenue is a controllable, but not
relevant benefit
Thus the value of offering yoga is $3,400
Measuring controllable costs/benefits relative to amount if decision maker
chooses to do nothing (status quo)
Irrelevant non-controllable costs and benefits such as lease payments
and rental revenue because decision to have yoga does not change
them, and they will have to pay anyways
Categorizing Decisions Based on Time
A decision maker’s control over costs and benefits increases as the time horizon
increases
This occurs because previously made commitments and obligations expire with
time
What distinguishes short-term decisions from long-term decisions?
“The ability to change the levels of capacity resources related to plants,
equipment, and salaried staff”
In the short term, the capacities of these resources are fixed;
organizations cannot alter their abilities to deliver products or services in
the short term
Ex. the United Airlines has a certain number of planes, pilots, and
landing slots; it cannot decide to fly more because it cannot
ensure that the necessary resources would be in place in such a
short time period = non-controllable in short run
In the long term, organizations can change available capacity by
acquiring or by disposing of resources, thus the associated capacity costs
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