- Analyze qualitative factors that can also affect managerial decisions
Your boss just walked into your office and offered you a new position within the company! The money is great, including a 20 percent raise and a company car. The position includes 50 percent travel and at least 10 more hours per week than you are currently working. Oh, and you get to work from home, rather than coming into the office! You call your spouse and explain this great opportunity to him! He is less than excited, even with the raise in income. Why? Well, let’s look at the non-monetary components of this offer:
- Less time at home with the additional hours and travel.
- Home office reduces the commute time, but also takes up space in your home.
So, these are decisions that are called qualitative. They affect the quality of your life, rather than your bank account. Sometimes a decision that looks great from a financial standpoint, may cause quality changes that make the choice not as attractive. We talked a bit about this in our unit about a vacation or working. Sometimes, even with a loss of a week’s paycheck, the vacation is better!
Qualitative decisions are different from quantitative decisions. Let’s first define those terms to clarify.
Qualitative decisions are based more on the quality of a particular situation. For example, if you were planning to drive or fly when you go on your next vacation, you might not make your final decision based on which option is cheaper. Flying may have the qualitative advantage of being a quicker way to get to your destination, even though it costs more. On the other hand, driving may let you see many more sites on the way, even though it takes longer.
So you can see, sometimes we have to look beyond the cost savings to other factors when we make our decisions.
Quantitative decisions are just about the money. So, if it is cheaper to drive, and you are only concerned about the dollars spent, then you will drive!
So let’s practice our skills.
You are graduating from college, and would like to have a party for 50 of your closest friends. You are trying to decide between having your party at a restaurant, or making the meal at your home. Let’s look at the details of each option to see what makes the most sense. Here are the details.
Restaurant meal with one drink per guest: $30 x 50 guests = $1,500.00
Home meal with one drink per guest : $12 (groceries) x 50 guests = $600.00
Savings to cook dinner at home $900.00
However, there are some qualitative advantages be to choosing the restaurant even though it costs more:
- More time to talk with your friends if you have the meal prepared at the restaurant.
- Less time involved if you go the restaurant, as you won’t have to cook and clean up after.
- You won’t need to clean your house, after just finishing finals and doing all the cooking if you have the party at the restaurant.
So which would you pick?
- Qualitative Factors. Authored by: Freedom Learning Group. Provided by: Lumen Learning. License: CC BY: Attribution
- Managerial Accounting 7.9: Differential Analysis and Qualitative Factors. Authored by: KurtHeisinger. Located at: https://youtu.be/NPJfSTP-SEY. License: All Rights Reserved. License Terms: Standard YouTube License