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(Solved) Running head:DIFFERENTIAL ANALYSIS AND DECISION MAKING 1 Differential analysis and decision making Name Institution DIFFERENTIAL ANALYSIS AND...

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1 Differential analysis and decision making
2 Abstract
Most organizations around the world are likely to be faced with a dilemma of managerial
decision which involves two or more choices. For managers of such organizations to find the
most productive alternative, their prime concentration should be to determine which option is
more productive taking into consideration the possible cost to be incurred. For the managers to
find the best alternative, decision making process alone might not be favorable for the
organization however, an inclusion of differential analysis which is a technique of decisionmaking where assessment is restricted to just those elements which are distinctive among
conceivable choices may be critical towards accomplishing the organization targets.
Key words; decision, analysis, alternatives. DIFFERENTIAL ANALYSIS AND DECISION MAKING
3 Why differential analysis is the key to decision making
Differential analysis is a strategy for contrasting at least two business choices with each
other in an attempt to choose the correct decision. This type of analysis is firmly a numerical
approach, where an organization is only able to compare the relevant alternative costs the
benefits likely to be raised from each of the choices. Therefore, the organization expenses which
are previously incurred plus the ones which are similar for the options would be disregarded.
Most businesses are likely to take into consideration non-monetary and benefits which are
intangible when carrying out a differential analysis process.
Most organizations are compelled to settle on difficult decisions financially ever day, and
the results of these choices can greatly affect whether the business is achieving its key objectives.
Therefore, entrepreneurs must create reliable strategies for settling on these choices, particularly
with regards to more costly ones. towards achieving this, differential analysis is regarded still as
the best technique, because it takes the greater part of the related with the conceivable decisions
and gives the managers of the business an important idea and thought of where he or she will
remain with every conceivable choice. For this reason differential analysis have been regarded to
be a very important factor in decision making.
In addition, it should be of more importance to acknowledge that differential analysis can
be extended past mere facts. It can also results into intangible profits due to a given decision that DIFFERENTIAL ANALYSIS AND DECISION MAKING
might not only results into a major impact to the profits of the business but also improving non
monetary factors. For example, an effort to promote a business products may be expensive
however may be vital in getting the business brand name to the general public, in this manner it
becomes more helpful than sparing the cost of advertising. Relevant cost and examples
In order to understand differential analysis, the major idea to take in place should be the
relevant cost. Relevant cost is a cost which is related to a specific decision in management and is
likely to change due to the decision in future. The cost idea is very important in the need to
eliminate information which might be irrelevant from a given process of decision making. It
clearly indicates that a business should only consider costs which only relates to how the
required alternative will perform in the future.
An example, an organization might need to buy a new machine that will reduce the costs
of production as compared to the old machine. Even though it would appear like a simple choice,
the new machine might have more expenses in the first year of operation thus likely to affect the
margin of profit. On the other side will depreciate thus a sunk cost with less importance for
reasons of differential examination. Therefore, the organization might require to choose whether
it can manage the monetary cost within the first year period in order to benefit from the future
benefit of the machine.
Irrelevant costs on the other hand are not influenced by any definitive choice within an
organization because the costs are likely to be incurred in every decision-making option likely to
be taken into account by the firm. Due to the fact that they are similar in all alternatives, they
turn out to be irrelevant and thus should not be included in any estimation for managerial
analysis. The cost can possibly make an organization into a wrong decision making strategy
hence should be ignored on a decision of a future course of action
An example, the pay of an investor officer might be a an irrelevant cost if an
administration choice is related to provision of a new item, because the investors has no impact
with that specific choice. While, if the organization board of directorate hopes to take the firm
private, then it might not require an investor specialist thus the pay of the investor becomes
relevant to the choice.
To sum up, an organization managers needs to apply the differential analysis criteria in
addition to their decision making procedure in order to include the most desired costs towards
achieving the company objectives. It will ensures a company evaluation process is limited to the
unique required alternatives. It also enables managers to reflect on the prospective solutions to
their firms thus determine the cost effective means to undertake ensuring the business is
operating in the required direction. DIFFERENTIAL ANALYSIS AND DECISION MAKING
6 References
Dawid, H., Doerner, K. F., Feichtinger, G., Kort, P. M., & Seidl, A. (2016). Dynamic
Perspectives on Managerial Decision Making: Essays in Honor of Richard F. Hartl. DIFFERENTIAL ANALYSIS AND DECISION MAKING
Ferrell, O. C., Fraedrich, J., & Ferrell, L. (2017). Business ethics: Ethical decision making and
Madureira, A., Reis, C., & Marques, V. (2013). Computational Intelligence and Decision
Making: Trends and Applications. Dordrecht: Springer Netherlands.
Zhao, D., & Lv, X. (2010). Differential game analysis of enterprise quality decision-making
under dynamic competition. 2010 International Conference on Future Information
Technology and Management Engineering. doi:10.1109/fitme.2010.5654743


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