Chapter 20, Problem 1Q

To determine

Explain the steps involved in management’s decision making process.

Explanation of Solution

Decision-making process: Decision making can be defined as the process of making choices through the identification of a decision, collecting information, and assessing alternative resolutions. The implementation of a step-by-step process of decision making helps in making deliberate and effective decisions through proper organization of relevant information and defining alternatives.

Management decision making process does not always adhere to a set pattern due to the dynamic nature of decision making process. However, few essential steps involved in the decision making process are as follows:

• Identify the problem and assign responsibility.
• Determine and evaluate possible courses of action, based on the relevant revenue and cost data. The evaluation will reveal the expected overall effect on the net income.
• Make a decision based on both financial and non-financial information such as information pertaining to revenue and cost and their effect on company’s overall profitability, decision on employee turnover, etc.
• Review results of the decision. Here, accounting prepares internal reports that review the actual impact of the decision.

Conclusion

Hence, the steps involved in management’s decision making process are explained as above.