Decision-Making Notes

Chapter 14: Decision-Making

Lesson 1: The Decision-Making Process

• Enabling competencies:
  • Solving problems and making decisions
  • Communicating
  • Adding value
• Learning outcomes:
  • Identify how the CPA Way can be used for the decision-making process.
  • Describe how to assess the situation during the decision-making process.
  • Describe how to analyze issues during the decision-making process.
  • Describe how to conclude and advise during the decision-making process.
  • Apply the decision-making steps to a scenario.

14.1 Decision-Making

• Decision-making is a key enabling skill for CPAs.
• The decision-making process aligns with the CPA Way and involves:
  • Assessing the situation: Define the scope of the problem.
  • Analyzing major issues: Collect and verify information, and perform appropriate analysis.
  • Concluding and advising: Make a recommendation based on integrated analysis.

14.2 Assess the Situation - Define the Scope of the Problem

• The first step is to understand the problem and its context.
  • Example: A company considering outsourcing the manufacturing of a component.
  • The problem is the decision of whether or not to outsource.
• Consider whether the issue is a larger problem with sub-problems that should be analyzed separately.
  • Example: If outsourcing, choose among three suppliers. If manufacturing in-house, purchase new equipment.
• Break down the problem into manageable sub-problems:
  1. Should the company outsource or continue to manufacture in-house?
  2. Which outsourcing supplier is best?
  3. Which manufacturing equipment is best?
• Differentiating issues allows for better analysis and clearer discussion.
• Consider whether an issue requires attention at all.
  • If the company clearly plans to outsource and facts support this decision, don't analyze replacing manufacturing equipment.
• Hint: Use the facts provided in a case scenario to guide your focus.
  • If there is a lot of information about a problem, an analysis is usually expected.
  • If there is little to no information, you can likely assess that no attention is required.

14.3 Analyze Major Issues - Perform Appropriate Analysis

• The second step is to perform appropriate analyses for each potentially viable alternative.
• First, collect and verify relevant information.
  • In a case scenario, consider all the information provided and how the case facts may be used in an analysis.
  • Example: If significant information is given on costing, then the analysis will likely be focused on cost.
• Prepare an outline when planning your case to gather relevant information.
• Select the right tool(s) for your analysis. This often involves a quantitative analysis, plus consideration of qualitative factors.
• Refer to the E-book Chapter Quantitative and Qualitative Analysis for more information on how to set up your analysis.

14.4 Conclude and Advise - Make a Recommendation

• Identify the key decision-maker and their goals and objectives.
• Decision criteria are guidelines used to draw conclusions, based primarily on decision-maker goals and objectives.
• Decision criteria may include trade-offs among competing goals.
• Once you understand the decision criteria, you can use these to make a recommendation.
• Example: Outsourcing a component decision should be based on the key decision-maker’s goals and objectives.
  • A company with a strategic advantage based on low costs would likely choose the most cost-effective option.
  • A company with a strategic advantage based on high quality will consider cost, but will be more focused on the overall quality of its product.
• Hint: Always come to a recommendation based on the information you have.
• Consider whether there is more information that could be collected prior to making a final decision.
• You can increase the value of your advice by offering this information as part of your conclusion.