Relevant Costs.docVIP

Relevant Costs Benefits 83 rate or flag this page By hafeezrm When you have a choice between two or more alternatives and you have to select one, you are making a decision. If there is no choice, you will have to simply follow or obey. So a decision implies a selection, a choice, a verdict or a nod. In everyday life, decisions are made. A personal decision affects an individual but organizational decisions cause a change, good or bad, to a lot many people known as stakeholders. So decision making in an organization must be systematic and not off the cuff. A good executive must be good at decision making. DECISION MAKING A formal definition of decision making by W is given below: Decision making can be regarded as an outcome of mental processes leading to the selection of a course of action among several alternatives. Every decision making process produces a final choice. The output can be an action or an opinion of choice. It may be noted that every decision involves a certain degree of risk. Very few decisions are made with absolute certainty. So a good decision would be to choose a solution with the highest probability of success and in accordance with the goals, desires, lifestyle and values etc. RELEVANT COST AND BENEFITS Relevant means linked or concerned. If an event has nothing to do with a situation, it is not relevant. Marble processing units at Karachi may suffer because of unrest in a far-off area like Swat. It would be relevant as Swat supplies marble rocks. But turmoil in Hyderabad, a town much near to Karachi than Swat, would be irrelevant for the marble units. Any decision must be evaluated under cost-benefit criteria. The benefits must be more than the cost except in social projects where benefits may be equal to cost. Benefits can be in the form of cash return, perks, advantages, customer’s satisfaction or reputation of a company. While cost means value, worth or sacrifice made. Only relevant cost should be considered. CIMA defines relevant cos