Evaluation of Alternatives in Decision Making
After making all the alternatives, the next step in planning or in decision making is to evaluate these alternatives. Evaluation is required in order to select the best alternative for implementation.
Image Credits © Delios.
While evaluating alternatives, the managers must compare the alternative plans or decisions. For this, the manager must consider the quantitative and qualitative factors.
- Quantitative Factors : The quantitative factors are those factors that can be measured numerically. For e.g. Number of units sold, costs in rupees, etc. The quantitative factors are tangible in nature.
- Qualitative Factors : The manager must also consider the qualitative factors. The qualitative factors are intangible in nature for e.g. quality of labour force, customer satisfaction, etc.
The management must give importance not only to quantitative factors but also to qualitative factors. For e.g. An excellent production plan could not achieve its targets, due to bad quality of labour force, poor maintenance of machines, etc.
Techniques for Evaluation of Alternatives
The methods or techniques for the evaluation of alternatives are:-
- Marginal Analysis : To evaluate alternatives, a manager may use the marginal analysis technique. The marginal analysis technique helps to compare additional revenues with additional costs. If the additional revenue is greater than the additional costs, more profit can be made by producing more. However, if the additional revenue is less than the additional costs, more profit can be made by producing less.
- Cost Effectiveness Analysis : This technique is an improvement of the traditional marginal analysis. In this case, the manager considers the cost-benefit analysis. The alternative that provides the maximum benefits at the minimum cost is selected. The cost can be measured in terms of money, time, risk, goodwill, etc. The main feature of cost effectiveness analysis is that it gives importance to the results.