last KCQ I ended up like this

WE HAVE GOT TO MAKE SOME DECISIONS

This chapter is pertaining to the making of financial decisions when looking over the budget and know what is relevant. Understanding the cost and their particular benefits. The first section referred to leaving sunk costs. I believed they are the putting aside of moneys to cover decision previously made that need future moneys but I read that they are merely previous cost that cannot be gained back. These cost are irrelevant to decision making. In the section on what is relevant beside not looking at sunk cost. Martin writes about time. Using time and resources, the answering of yes requires and indefinite number of nos. No requires just one. It also allows for indefinite number of future choices. This on the fact that often our yes is far more restrictive than no if the decision is the wrong one and the sunk cost would show reason for those yes and no choices. Over the future time previous yes and no decisions prevents over time more yeses, hence opportunity cost or loss. Replacement cost on the other hand is the opportunity to redecide on the decision to sink funding again into the given area. It is a subtle of opportunity loss due to previous decision.

The focus must be on contribution and contribution margin. Sometimes negative contribution gets a customer through the door. An offer that can lead to better customer relations. The down side could be that the product has run it’s life span and is simply not creating a return, in those situations product reduction should be considered. The emotions are involved for workers often in these situations when product and service changes are not wound down well. Contribution margins only give the dollar value of profit. The value is in how to measure the real return obn the product in relation to other products. Woolworths does this by scanning its promotions even if it is a no $ sale. It tracks the negative margins through algorithms through the sales process. This process of scanning free items anre missed by the person scanning often because they are free, but it is this information that is relevant to link the negative margined items with the positive items. The product mix is again followed through with there rewards card system. It links for the business previously unidentified data of purchase habits. Allowing for future product placement.

Long term decisions incudes measuring the time value of the money invested and knowing the value of a dollar decreases over time. The initial capital investment verses the time it takes to gain a positive return. This is referred to as the pay back period. The equation is simple enough in reality future running costs are incurred over the payback period. It’s a simplistic calculation and are far more measurable on product type businesses rather than service based delivery. In the case of my firm they provide software products, most of the variable costs are low or rather no existent other than staffing costs. This is due to the fact that the product is complete and can be reproduced without much further input of investment. I really wonder just how much guess work goes into these types of decisions and also if decisions and opportunities are lost due to insufficient information being provided. Having quality and timely numbers to support decision making, is in essence the single most valuable part of management, followed by processes and people.