Page 6 - Manac Costing Test 2 class slides - 5. Information for Decision Making
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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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