The impact of inaccurate cost information on managerial decision-making in purchasing


Morssinkhof, Sebastiaan Bernard Henny (2007) The impact of inaccurate cost information on managerial decision-making in purchasing. thesis.

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Abstract:In this thesis, we describe the impact of financial information on decision-making in the context of organizational purchasing decisions. Purchasing decisions are examples of multi-attribute decisions, and these decisions are complicated for human decision makers. Total cost of ownership (TCO) numbers may simplify the decision complexity; by calculating TCO numbers the decision maker can compare purchasing alternatives by the total cost number. Some attributes, however, may not be included accurately in the overall TCO numbers. Cost information, however, is important and tempting to use in organizational decision-making. We conducted experiments with more than 2,000 participants to study the weight decision makers attach to these attributes. To do this, participants (students and practitioners) were asked to evaluate information for purchasing alternatives and select the alternative they preferred.

Our results indicate that professional experience is an important variable to understand the weight decision makers attach to costs numbers; more experienced decision makers attach more weight to inaccurate cost numbers, compared to less experienced decision makers and students. Furthermore, reflective thinking is important to make decision makers aware of inaccuracy in cost numbers.

We recommend decision makers to reflect on cost information provided to them; make decision makers aware of the information (not) included in cost numbers; and managers to explain the intention of providing cost numbers for decision-making.
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