Decision-making

Decision-Making in Financial and Management Accounting

The Role of Decision-Making

  • Understand the importance of decision-making within financial and management accounting.
  • Explore the various methodologies and tools available for making confident, informed decisions.
  • Recognise the role of both qualitative and quantitative data in the decision-making process.
  • Get to grips with the key decision-making models used within the field, such as Cost-Volume-Profit (CVP) analysis.

Relevant Costs and Benefits

  • Develop an understanding of the concept of relevant costs and how it aids in decision-making.
  • Distinguish between relevant costs and irrelevant costs, and learn how to factor these into your decision-making process.
  • Explore the idea of opportunity cost and understand its role in the decision-making process.
  • Grasp the importance of considering the relevant benefits associated with each decision.

Break-Even Analysis

  • Familiarise yourself with the concept of break-even analysis and its importance in the decision-making process.
  • Understand how to calculate the break-even point and what it indicates about a business’s profitability.
  • Recognise the limitations of break-even analysis and why it should only be one tool among many in the decision-making process.

Capital Investment Decisions

  • Gain knowledge about how businesses make capital investment decisions, usually involving large amounts of money and long time horizons.
  • Understand various investment appraisal techniques, such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period.
  • Learn how to apply these techniques and interpret the results to inform the decision-making process.
  • Grasp the impact of risk and uncertainty on capital investment decisions and the strategies to manage them.

Budgeting and Control

  • Explore the role of budgeting in business decision-making.
  • Understand how budgets can aid in performance management and control within an organisation.
  • Learn about the various types of budgets, including operating budgets, financial budgets, and cash budgets.
  • Acknowledge the process of budget monitoring and the importance of taking corrective actions when necessary.