Chapter 1, Problem 1.23E

To determine

Five-step decision-making process:

Five-step decision-making process not only help in planning the various activities of the organization but also in evaluating performance and taking corrective measures when there is a deviation from the charted path.

The five-step decision-making process is explained as below:

1. Identify the problems and uncertainties: It involves identifying the loopholes that act as a bridge between the expected and actual results. Proper diagnosis helps in bringing out the problem involved and finding out the remedial measures.

2. Obtain information: It involves acquiring information about a problem before making a decision. It assists managers to attain better understanding of the uncertainties. Information can be gathered from different sources, like internal sources, customers, internet, competitors, etc, Information may be current prices of materials, labor, selling price of the product, current demand, etc.

3. Make prediction about the future: On the basis of the information gathered, it is significant to make predictions about the future. This requires correct judgments. Accountants should not be biased in making a judgment. Prediction can be related to the prices of materials, labor, current demand, etc.

4. Make decision by choosing among alternatives: When making decisions, strategy plays an important role. People in different parts of the company at different times are involved in making decisions. Stability with strategy helps individuals and timelines bind together thereby providing a common purpose for disparate decisions. Aligning decisions with strategy helps an organization to implement its strategy and attain its goals.

5. Implement the decision, evaluate performance, and learn: Management accountants acquire information to follow through on how actual performance compares to the expected performance. The process of measuring actual performance tells managers how well they and their sub-units are doing. Moreover, using rewards to award performance helps motivate managers.

To classify: The given actions as a step in the five-step decision-making process.