Although it is more descriptive of the entirety of

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Unformatted text preview: ore descriptive of the entirety of the two alternatives, it is unnecessarily confusing. Bears repeating that decision making should be driven only by relevant costs/benefits -- those that differ among the alternatives! To toss in the extraneous data may help describe the situation, but it is of no benefit in attempting to guide decisions. In one sense, Dillaway was lucky. The insurance proceeds were more than enough to put Dillaway back in operation. Many times, a favorable outcome cannot be identified. Each potential decision leads to a negative result. Nevertheless, decisions must be made. As a result, proper incremental analysis often centers on choosing the option of least incremental harm or loss. 1.3 Complicating Factors Relevant costs/benefits are rarely so obvious as illustrated for Dillaway. Suppose the local truck dealer offered Dillaway a third option: A $27,000 trade-in allowance toward a new truck costing $80,000. The incremental cost of this option is $53,000 ($80,000 - $27,000). This is obviously more costly than either of the other two options. But, Dillaway would have a brand new truck. As a result, Dillaway must now begin to consider other qualitative factors beyond those evident in the incremental cost analysis. This is often the case in business decision making. Rarely are two (or more) options under consideration driven only by quantifiable mathematics. Managers must be mindful of the impacts of decisions on production capacity, customers, employees, and other qualitative factors. Therefore, as you develop your awareness of the analytical techniques presented throughout this chapter, please keep in mind that they are based on concrete textbook illustrations and logic. However, your ultimate success in business will depend upon adapting these sound conceptual approaches in a business world that is filled with uncertain and abstract problems. Do not assume that analytical methods can be used to solve all business problems, but do not abandon them in favor of wild guess work! Download free ebo...
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This note was uploaded on 06/07/2013 for the course BA 201 taught by Professor Cuongvu during the Fall '13 term at RMIT Vietnam.

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