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The decision-making process is critical in ensuring smooth and professional operation. Often, company agents are faced with situations that call for analytical decisions backed by financial implications analysis. The decision involves a review of the cost and benefit of preferring one option over another. In order to come up with a viable and well-informed choice, the decision-maker should involve analytical skills, accounting experience, and laws governing the existence, legality, and operations of the business entity.
For instance, Michael is the management accountant at company A and is the sole decision maker for the purchase of various electronic assortments to be used in an upcoming geothermal power generation project at an approximated budget of $ 550, 000. After carrying out research, he comes up with three options which seem viable and are attached to competitive prices. The first option is direct importation of the electrical appliances from Frillic company from Germany which offers free shipment for goods worth over $ 500, 000 but at the client’s risk when the goods are on transition. Besides, there is no guarantee once the goods have been delivered. Option two involves outsourcing supplier B who is willing to supply the same on a contractual basing for each stage of the project at a fixed price. This contract is binding and payments are expected a week after each delivery. In total, this would cost the company $ 600, 000. The third option would be subcontracting the project to another company that will purchase these appliances themselves. This company has presented an estimated budget of $ 450, 000 but on the condition that any additional cost would be taken in by company A., Michael has to make a decision on the best option for the company. How can he go about it?
The first option is subject to material alteration. The obligations for supplies end when the goods are delivered. Once company A has endorsed the supplies, transfer of ownership of liability remains with it. Article three; cap 113 of U.C.C permits this foreign company the full rights of conditional endorsement (Richard & Barry, 2002). Though their quotation is within the company’s budget, risks involved and fear of material alteration may influence Michael to reject this offer. Besides, any eventuality during transit would e the company to absorb unnecessary costs. Option two would put the company in a binding contract since the supplies are to be made in stages. The costs are fixed in the contract. Any resultant variances in prices due to inflation will have to be absorbed by the supplier and not the company (Richard & Barry, 2002). Thus, the total costs inclusive of hidden charges are fixed at $ 660, 000 as stipulated in the binding contract. The company will have no liability for any charges other than what is stated in the contract during the process of acquiring these supplies. The third option has a lower quotation than the first two. However, this contract operates on the flexibility of costs accrued in doing business. For instance, in the circumstance of inflation, company A may end up spending double the initial estimates for the project.
At Paribas paribas, Michael would opt for option two. The quotation of this supplier is the real price company A is to pay for the services delivered. Besides, this option offers the most convenient, competitive, and flexible bundles in the Pareto efficiency curve. This decision would save the company risks involved in purchasing and procurement of these appliances as the final price is preset. The company may not have to worry over hidden costs (Richard & Barry, 2002). In summary, the decision to adopt option three is well informed and very friendly to company A. Generally, decision-making requires legal and ethical support. In the process of making a sound decision, the agency entrusted with the ability to make practical choices should factor in the cost-benefit analysis at the micro and macro levels.
Reference
Richard, A, M,. & Barry S. R. (2002). Business law and the regulation of business, 10thEd, Alabama: South West/Thomson Learning.
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