Decision making techniques

1. Decision making techniques

2. Introduction to Management Accounting • Financial accountancy • Focus on past performance • Deals with financial reports e.g. balance sheet • Management accountancy • Focus on future performance • Analyses costs, risks and value to provide business insights • CIMA = world’s leading professional body for management accountants • CIMA training supports strategy formation and decision making

3. Types of decisions • Strategic • Big, complex, long term decisions • Usually made at senior levels • Tactical • Medium term, • Deliver the strategy • e.g. what resources or timescales needed • Operational • Day-to-day, more routine decisions taken at all levels • Involve defined resources

4. Management accountancy analysis skills combine with hard data Enables assessment of risk against outcomes Decision making process involves: Analysis of information Generate alternative solutions Map these to business strategy Evaluate each option’s contribution to meeting objectives Implement selected option and monitor progress How decisions are made

5. Decision making models • Simple decisions can be made from experience • Complex decisions need systematic approach • Decision making models provide structure, e.g. • Decision trees • Ratio analysis

6. Business problems may have more than one solution Help to assess different options but need accurate data Risk of over-simplifying the problem Decision tree outlines outcomes and probabilities Decision trees

7. Accounting ratios compare different financial data Analysis of data highlights opportunities or threats Helps to steer business direction Ratio analysis