Decision Making Models

by Doug Hicks

The Golfer and the Decision Maker

As a golfer, John has a textbook golf swing. He can hit his drives long and straight. Every one of his approach shots travels the exact distance he intends. His putting stroke is flawless. On the practice tee, John is the most impressive golfer at his club. Unfortunately, John can never break 100 during an actual round of golf because, despite his excellent golf skills, John can not judge distance or direction.

John’s inability to judge distance or direction causes his long, straight drives to fly into the woods, his perfectly executed approach shots to fall long, short, or wide of the green and his well-stroked putts to end up farther from the hole than they began. Without improving his ability to judge distance and direction, John’s considerable golf skills will never show any “bottom line” results on the golf course.

As a business executive, John has excellent decision making skills. He can evaluate the information provided by his support staff, skillfully consider alternative courses of action, and take decisive action. Unfortunately, John’s business struggles to survive because, despite his excellent decision making skills, the cost information he is provided to support his decisions does not measure either direction or distance accurately.

The traditional cost model used by John’s accountants measures costs incorrectly and then over-generalizes their relationships to the company’s processes, products, services, and customers. As a consequence, the “facts” he is provided for any decision requiring product, service or customer cost, incremental cost, or process cost information are pure “fantasy” and – no matter how skilled he is as a decision maker – John’s company will never thrive and grow if he continues to be presented “fantasy” by his accountants as if it were “fact” when he must make critical business decisions.

Although John’s situation on the golf course may be unique, his situation at work is shared with almost every other twenty-first century decision maker. Despite nearly unanimous agreement among management accounting professionals that the continued use of traditional, twentieth-century cost models seriously impedes a company’s profit making potential, few if any organizations have taken the simple steps required to solve the problem. The inaccurate and irrelevant cost information provided by its out-of-date cost model often proves to be the “Achilles heel” that dooms an otherwise world-class business.

The IMA – Metro Detroit Chapter’s March session on Decision Costing – Using Cost Information to Improve the Bottom Line will examine the problems with today’s costing practices and present solutions that can help you turn economic cost information in to a value-adding tool for your organization. This 6-CPE hour session will be presented in two parts; a 4-hour afternoon session and a 2-hour after dinner session. The major topics covered include:

 Afternoon
 The Importance of Models in Decision Making
 The Economic Cost Model
 Understanding the Concept of “Cost”
 Using the “Lens” of Activity-Based Concepts to Create a Valid Cost Model
 A “Toolbox” of Practical Cost Modeling Techniques

 After-Dinner
 Using Accurate and Relevant Cost Information to Improve Decisions
 Case Studies

You need not attend the afternoon session for the after-dinner session to be relevant.

I hope to see you at the session on March 20th.

If you are interested in learning more about cost information and its implications at a twenty-first century organization visit our web site at www.dthicksco.com.


Douglas T. Hicks, CPA, CMC.