Page 220 - 5.2 i. Manac Costing ITC Summarised Notes

INFORMATION FOR DECISION-MAKING

Recap Notes

• The concept of expected value considers a range of possible

outcomes rather than a single estimate. It involves multiplying
each outcome (say projected sales level) by its associated
probability (likelihood that it will occur).

• The standard deviation calculates the degree of variability in the
possible outcomes.

• Though expected value, standard deviation and coefficient of
variation sum up the characteristics of alternative courses of
action, these measures do not provide the decision – maker with

all the relevant information as does the probability distribution.

• When it is difficult to assign reasonable probability to possible
outcomes, management may employ the “maximin, maximax and

regret” criteria to make decisions.

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