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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