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5 Ways Managers Can Use Finance to Make Better Decisions

Business managers engaging in financial decision-making

  • 02 Jun 2020

Decision-making is an essential management skill that can both drive and impede financial performance. According to research by management consulting firm McKinsey, organizations with fast and efficient decision-making processes are twice as likely to report financial returns of at least 20 percent as a result of recent decisions.

McKinsey’s research also shows that inefficient decision-making can lead to more than 530,000 days of lost working time and $250 million of wasted labor costs per year.

To help position your organization for success and avoid these pitfalls, it’s critical to develop your financial literacy and knowledge to understand and overcome business challenges.

Here are five ways you can use finance to improve your decision-making and become a better manager .

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Strategies to Make Better Financial Decisions

1. perform financial statement analysis.

Financial statements are among the most important resources at your disposal when it comes to decision-making. You should not only know how to read them, but interpret and analyze the data they present.

Understanding the numbers on your organization’s balance sheet can indicate its current financial position, and show whether it’s on a trajectory for success or failure. By examining its cash flow statement , you can gain insight into how cash is being generated and used. Through reviewing its income statement , you can gauge how your business is doing in relation to its expected performance.

When viewed in the context of an annual report, these statements can reveal valuable information about your company, such as its profits and losses year over year and the factors that have contributed to—or hindered—its growth.

Equipped with this information, you can make more informed decisions about how to allocate your company’s resources and work toward its goals.

Related: Balance Sheets 101: What Goes on a Balance Sheet?

2. Estimate the Financial Impact of Projects and Initiatives

To effectively manage your team and department, you need to decide which projects and initiatives are worth pursuing—and which are not.

Calculating the anticipated return on investment (ROI) of a project can help support your pitch with numbers and show how much profit it’s likely to generate and the resources needed to make it a success.

The ROI of completed initiatives can also reveal critical details about how your organization allocated funds and accomplished tasks, providing valuable lessons you can apply to future endeavors.

Conducting a cost-benefit analysis is another way you can use finance to make better decisions. This method of data-driven decision-making provides a framework for performing an evidence-based evaluation of an initiative, allowing you to assess how its projected benefits compare to its costs. With this approach, you can break down complex business decisions and elect to pursue projects expected to yield the best outcomes.

3. Learn How to Budget

Budgeting is a basic finance skill all managers and decision-makers should have. At its core, your team’s budget is a vital tool that ensures your organization has the resources necessary to reach its goals.

By breaking down your team’s work into a detailed set of deliverables during the budgeting process, you can track your spending against estimated expenses and, when necessary, pivot your project management strategy to ensure tasks are completed on time and on budget.

Knowing how to manage a budget can also allow you to better communicate progress and performance to stakeholders within your organization, which can inform how company-wide initiatives are planned and executed.

4. Involve Your Team in Decision-Making

Soliciting and considering a range of alternatives is an essential step in the decision-making process . By involving your team in important business decisions, you can facilitate an in-depth evaluation of the issues at hand and stimulate more creative problem-solving. According to research by software company Cloverpop, teams make better decisions than individuals 66 percent of the time.

When addressing a financial decision, you can lean on your team members’ expertise to answer key questions and chart a path forward. One of your employees may be more versed in financial terminology , while another may have a greater understanding of the difference between GAAP and IFRS accounting standards.

By soliciting input from your colleagues and encouraging discussion and debate, you can fill in your knowledge gaps and formulate an array of potential solutions to business problems.

Related: 5 Key Decision-Making Techniques for Managers

5. Track Financial Performance

Knowledge of your organization’s past and present financial performance is crucial to sound decision-making. Monitoring financial KPIs , or key performance indicators, such as gross profit margin, working capital, and return on equity can equip you with an understanding of your company’s financial health and your team’s contributions to its strategic objectives.

Metrics like cash flow and profit are also useful for tracking how your firm is managing money and growing, which can inform how you decide to appropriate people and resources to pursue its goals.

Which HBS Online Finance and Accounting Course is Right for You? | Download Your Free Flowchart

Improving Your Financial Decision-Making

Bolstering your decision-making with an intuitive understanding of finance can equip you to thrive in your role and boost the performance of your team and organization.

Even if you don’t have a background in finance, learning financial principles and concepts can go a long way in helping you improve your management skills and excel professionally .

Do you want to develop a financial intuition that will give you the confidence to make better decisions in your career and life? Explore our six-week online course Leading with Finance and other finance and accounting courses , and download our free course flowchart to determine which best aligns with your goals.

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What Makes Strategic Decisions Different

  • Phil Rosenzweig

You have to know what kind of decision you’re making in order to make it well.

Reprint: R1311F

The past decade has seen a wealth of research on decision making, yet business executives seem impervious to its lessons. The problem is not that they lack the desire to make better decisions. It’s that the bulk of the research does not apply to the kind of decision that’s most challenging for them.

Decisions vary along two dimensions. The first considers whether the decision maker can influence the terms and the outcome. The second addresses whether the aim is to do well or to do better than others. Before making any decision, the most important thing is to understand what kind it is.

Decision research has produced good advice for routine choices and judgments, such as personal investment decisions, where people are choosing among the products before them, have no ability to change them, and are not competing with anyone. For these decisions, research has shown, it’s important to avoid common biases.

But strategic decisions, such as entering a new market or acquiring another company, are completely different. Executives can actively influence outcomes. Furthermore, success means doing better than rivals. For these decisions, executives need more than an ability to avoid common biases. They require a talent for clear-eyed analysis and the ability to take bold action.

The past decade has seen a wealth of research on decision making, much of it not only useful but also fascinating to read. At the same time, a growing chorus has noted that business executives, in particular, are largely impervious to its lessons. They seem unable to apply those lessons, or perhaps uninterested in doing so. Advances in our understanding of decision making have not been matched by improvements in practice.

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  • PR Phil Rosenzweig is a professor of strategy and international business. Since 2009, he has served as director of IMD’s Executive MBA Program. His newest book, forthcoming in January 2014, is  Left Brain, Right Stuff: How Leaders Make Winning Decisions .

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Three keys to faster, better decisions

Two years ago, we wrote about how it was simultaneously the best and worst of times for decision makers in senior management. Best because of more data, better analytics, and clearer understanding of how to mitigate the cognitive biases that often undermine corporate decision processes. Worst because organizational dynamics and digital decision-making dysfunctions were causing growing levels of frustration among senior leaders we knew.

Since then, we’ve conducted research to more clearly understand this balance, and the results have been disquieting. A survey we conducted recently with more than 1,200 managers across a range of global companies gave strong signs of growing levels of frustration with broken decision-making processes, with the slow pace of decision-making deliberations, and with the uneven quality of decision-making outcomes. Fewer than half of the survey respondents say that decisions are timely, and 61 percent say that at least half the time spent making them is ineffective. The opportunity costs of this are staggering: about 530,000 days of managers’ time potentially squandered each year for a typical Fortune 500 company, equivalent to some $250 million in wages annually. 1 On average, 54 percent of respondents to our survey report spending more than 30 percent of their time on decision making. And 14 percent of C-suite executives report spending more than 70 percent of their time on the topic. Assuming that at an average Fortune 500 company of 56,400 employees, 20 percent are managers who work 220 days per year: these managers spend an average of 37 percent of their time making decisions, and 58 percent of this time is used ineffectively. Our sources for this estimate included fortune.com and the US Bureau of Labor Statistics (for salary data).

Managers at a typical Fortune 500 company may waste more than 500,000 days a year on ineffective decision making.

The reasons for the dissatisfaction are manifold: decision makers complain about everything from lack of real debate, convoluted processes, and an overreliance on consensus and death by committee, to unclear organizational roles, information overload (and the resulting inability to separate signal from noise), and company cultures that lack empowerment. One healthcare executive told us he sat through the same 90-minute proposal three times on separate committees because no one knew who was authorized to approve the decision. A pharma company hesitated so long over whether to pounce on an acquisition target that it lost the deal to a competitor. And a chemicals company CEO we know found himself devoting precious time to making hiring decisions four levels down the organization.

In our previous article, we proposed solutions that centered around categorizing decision types and organizing quite different processes against them. Our latest research confirms the importance of this approach, and it also highlights for each major decision category a noteworthy practice—sometimes stimulating debate, for example, while in other cases empowering employees—that can yield outsize improvements in effectiveness. When improvements in these areas are coupled with an organizational commitment to implement decisions—embracing not undercutting them—companies can achieve lasting improvements in both decision quality and speed. Indeed, faster decisions are often a happy outcome of these efforts. Our survey showed a strong correlation between quick decisions and good ones, 2 Respondents who reported that decision making was fast were 1.98 times more likely than other respondents to say that decisions were also of high quality. suggesting that a commonly held assumption among executives—namely, “We can have good decisions or fast ones, but not both”—is flawed.

Three fixes that make a difference

Avoiding life on the bubble.

Here’s a variation of a conversation we have with some frequency: in talking with a manager about her work, we ask about a routine decision we would expect her to make—about hiring, for example, or pricing or marketing.

“I don’t make that call, actually,” she says.

When pressed further, she admits that her boss doesn’t make it either. “That decision,” she says, “is made by the CEO.”

Decisions that bubble up to where they don’t belong waste time and effort and often result in poorer outcomes. In some cases, the root cause might be unclear processes. In the absence of clear decision rights or rules, for example, there may be little to stop people from escalating decisions they simply don’t like. One leader we know described a syndrome she dubbed “Everybody gets a vote and the polls are always open.” In this organization, any leader can object to a decision and often stop it or slow it down. The only way out of the logjam is to escalate it to the company’s senior-most executives, which wastes time and risks lowering decision quality.

Escalating decisions can also reflect deeper challenges in the organization’s culture. For example, if an underling learns that over time when the boss says, “You should make that decision,” she really means, “so long as you make the same decision I would have made,” then decisions are sure to bubble up. Similarly, in corporate cultures that punish mistakes, there is little upside in making a decision that turns out to be right—and lots of downside if it’s wrong. In such environments, escalating decisions becomes second nature.

Solving deeply rooted cultural challenges is beyond the scope of this article. Nonetheless, companies can take steps to avoid spending quite so much time on the bubble. These include providing clear rules and using meeting charters to clarify which decisions are in and out of scope for each committee, as well as establishing criteria for when decisions made lower down should be escalated. Capability building can help, too, for example, in learning to have difficult conversations or coaching leaders on how to influence outcomes without taking over control.

Of the four decision categories we identified two years ago, three matter most to senior leaders. Big-bet decisions (such as a possible acquisition) are infrequent but high risk and have the potential to shape the future of the company; these are generally the domain of the top team and the board. Cross-cutting decisions (such as a pricing decision), which can be high risk, happen frequently and are made in cross-functional forums as part of a collaborative, end-to-end process. Delegated decisions are frequent but low risk and are effectively handled by an individual or working team, with limited input from others. (The fourth category, ad hoc decisions , which are infrequent and low stakes, is not addressed in this article.) Clearly, it is important that these types of decisions happen at the appropriate level of the company (CEOs, for example, shouldn’t make decisions that are best delegated). And yet, just as clearly, many decisions rise up much higher in the company than they should (see sidebar, “Avoiding life on the bubble”).

Even those businesses that do make decisions at the right level, however, complain about slow and bad outcomes. The evidence of our survey—and our experience watching executives grapple with this—suggests that while the best practices for making better decisions are interrelated, there’s nonetheless one standout practice that makes the biggest difference for each type of decision (exhibit).

Big bets—facilitate productive debate

Big-bet decisions can be future-shapers for a company, the most important decisions leaders make. And they often receive much less scrutiny than they should.

The dynamic inside many decision meetings doesn’t help. It’s as if there is an unspoken understanding that the meeting should proceed like a short, three-act play. In the first act, the proposal is delivered in a snappy PowerPoint presentation that summarizes the relevant information; in the second, a few tough yet perfunctory questions are asked of the presenter and answered well; in the final act, resolution arrives in the form of an undramatic “yes” that may seem preordained. Little substantive discussion takes place.

In a global agricultural company, for example, the members of the executive committee tended to speak up only if their particular area of the business was being discussed. The tacit assumption was that people wouldn’t intrude on colleagues’ area of responsibility. Consequently, when the top team moved to decide on a proposed new initiative in Europe, the leaders from the US business stayed silent, even though they had years of hard-won experience in marketing and cross-selling similar agricultural products to those new ones under discussion. Nonetheless, the decision was made, the products launched—and sales lagged expectations. Later, the European sales force was frustrated to learn their US counterparts had relevant experience that would have helped.

Whether the cause of such dynamics is siloed thinking or a consensus-driven culture (of which, more later), the effect on decision making is decidedly negative. Bet-the-company decisions require productive interactions and healthy debate that balance inquiry and advocacy. In fact, the presence of high-quality interactions and debate was the factor most predictive of whether a respondent in our survey also said their company made good, fast big-bet decisions.

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Leaders can encourage debate by helping overcome the “conspiracy of approval” approach to group discussion. Simple behavior changes can help. For example, consider starting the decision meeting by reminding participants of the overall organizational goals the meeting supports, in order to reframe the subsequent discussions. Then assign someone to argue the case for, and against, a potential decision or the various options under consideration. Similarly, ask the leaders of business units, regions, or functions to examine the decision from outside their own point of view. A rotating devil’s advocate role can bolster critical thinking, while premortem exercises (in which you start by assuming the initiative in question turned out to be a failure, and then work back for likely explanations) can pressure test for weak spots in an argument or plan. 3 For more advice on sparking debate, see Morten T. Hansen, “How to have a good debate in a meeting,” Harvard Business Review , January 10, 2018, hbr.org. And for more on premortem techniques, see Daniel Kahneman and Gary Klein, “ Strategic decisions: When can you trust your gut? ,” McKinsey Quarterly , March 2010.

The objective should be to explore assumptions and alternatives beyond what’s been presented and actively seek information that might disconfirm the group’s initial hypotheses. Creating a safe space for this is vital; at first it can be helpful for the most senior participants to ask questions instead of expressing opinions and to actively encourage dissenting views. Productive debate is essentially a form of conflict—a healthy form—so senior executives will need to devote time to building trust and giving permission to dissent, irrespective of the organizational hierarchy in the room.

A final note of caution: minimizing the number of debate participants to speed up decision making could harm decision quality. As many studies show, greater diversity brings greater collective wisdom and expertise, along with better performance . This is also true in decision making. To ensure a faster process, companies should manage the expectations of debate participants by limiting their voting rights and sticking to other agreed-upon processes, as we explore next.

Cross-cutting decisions—understand the power of process

An executive we know joked during a meeting that “a committee is born every day in this organization.” Just then, another executive nearby looked up from his computer to announce he had just been invited to join a new committee. The comedic timing of the line was perfect, but it wasn’t a joke.

Or perhaps the joke is on the rest of us? We often find companies maintaining a dozen or more senior-executive-level committees and related support committees, all of which recycle the same members in different configurations. The impetus for this is understandable—cross-cutting decisions, in particular, are the culmination of smaller decisions taking place elsewhere in the company. And cross-cutting decisions were the ones that executives in our survey had the most exposure to, regardless of their seniority.

Yet when it comes to cross-cutting decisions (involving, for example, pricing, sales, and operations planning processes or new-product launches), only 34 percent of respondents said that their organization made decisions that were both good and timely.

There are many reasons cross-cutting decisions go crosswise. Leaders may not have visibility on who is—or should be—involved; silos make it fiendishly hard to see how smaller decisions aggregate into bigger ones; there may be no process at all, or one that’s poorly understood.

Solving for cross-cutting decisions, therefore, starts with commitment to a well-coordinated process that helps clarify objectives, measures, targets, and roles. In practical terms, this might mean drawing a bright line between the portion of a meeting dedicated to decisions from the parts of a meeting meant to inform or discuss. Any recurring meetings (particularly topic-focused ones) where the nature of the decision isn’t clear are ripe for a rethink—and quite possibly for elimination.

Good meeting discipline is also a must. For example, a mining company realized that its poor decision making was related to the lack of rigor with which executives ran important meetings. As a result, the top team developed a “meeting manifesto” that spelled out required behaviors, starting with punctuality. The new rules also required leaders to clarify their decision rights in advance, and to be more deliberate about managing the number of participants so that meetings wouldn’t become bloated, on the one hand, or lack diverse views, on the other.

The manifesto was printed on laminated posters that were put in all meeting rooms, and when the CEO was seen personally reinforcing the new rules, the news spread quickly that there was a new game afoot. As the new practices took hold, the benefits became apparent. In pulse-check surveys conducted over the course of the following year, the company’s measures of meeting effectiveness and efficiency went up by almost 50 percent.

A social-network analysis, meanwhile, allowed a global consumer company to identify time wasting around decision making on a heroic scale—as many as 45 percent of interactions were found to be potentially inefficient, and 23 percent of the individuals involved in an average interaction added no value. In response, the company broke down complex processes into key decisions, clarified roles and responsibilities for each one, defined inputs and outputs for each process, and made one person accountable for each outcome. After conducting pilots in several countries, executives used two-day workshops to roll out the process redesign. The resulting benefits included a significant financial boost (as employees used the freed-up time in higher-value ways), as well as an arguably more important boost in employees’ morale and sense of work–life balance, which in turn has helped the company attract and retain talent.

Delegated decisions—make empowerment real

Delegated decisions are generally far narrower in scope than big-bet decisions or cross-cutting ones. They are frequent and relatively routine elements of day-to-day management. But given the multiplier effect, there is a lot of value at stake here, and when the organization’s approach is flawed it’s costly.

In our experience, ensuring that responsibility for delegated decisions is firmly in the hands of those closest to the work typically delivers faster, better, and more efficiently executed outcomes, while also enhancing engagement and accountability.

Our research supports this view. Survey respondents who report that employees at their company are empowered to make decisions and receive sufficient coaching from leaders were 3.2 times more likely than other respondents to also say their company’s delegated decisions were both high quality and speedy.

A vital aspect of empowerment, we find, involves creating an environment where employees can “fail safely.” For example, a European financial-services company we know started a series of monthly, after-work gatherings where leaders could meet over drinks to discuss failure stories and the lessons they’d learned from them. The meetings were purposely kept informal, but top management nonetheless established ground rules to ensure that the stories would be meaningful (not trivial) and that employees telling the stories would be protected. The meetings started small but became popular quickly. Today, a typical session includes 40 to 50 of the company’s top 150 leaders. The climate of trust and openness the sessions encourage has translated into better ideas, including practical lessons that have helped the company speed up its release of new products.


The case for behavioral strategy

As this example suggests, empowerment means not only giving employees a strong sense of ownership and accountability but also fostering a bias for action, especially in situations where time is of the essence. That’s easier said than done if there’s no penalty for avoiding a decision or sanction for escalating issues unnecessarily.

Executives who get delegated decisions right are clear about the boundaries of delegation (including what’s off-limits and how and where to escalate what’s beyond an individual’s competence), ensure that those they entrust with decision-making authority have the relevant skills and knowledge to act (and if not, provide them with the opportunity to acquire those capabilities), and explicitly make people accountable for their areas of decision-making responsibility (including spelling out the consequences for those who fail to respond to the challenge). This often means senior leaders engaging in conversations and dialogue, encouraging those newly empowered to seek help, and in the early days subtly and invisibly monitoring the performance of those participating in “delegated” forums so as not to appear to be taking over. Leaders might want to start mentoring their reports with a small “box” of accountability, slowly expanding it as more junior executives grow in confidence.

For leaders looking to become better delegators, it’s not a question of choosing between a style that is “hands-on” or “hands-off,” or between one that is “controlling” or “empowering.” There’s a balance to be struck. Root out micromanagers who are both hands-on and controlling, as well as “helicopter autocrats” who are hands-off and controlling, occasionally swooping in, barking orders, and disappearing again. But the laissez-faire executive—generally too hands-off, delegating but leaving those with the responsibility too much to their own devices (sometimes with disastrous results)—is also a danger. The ideal in our experience are hands-on and delegating leaders who coach, challenge, and inspire their reports, are there to help those who need help, and stay well clear of actually making the decision.

After the decision: Seek commitment, not unanimous agreement

In his April 2017 letter to Amazon shareholders, CEO Jeff Bezos introduced the concept of “disagree and commit” with respect to decision making. It’s good advice that often goes overlooked. Too frequently, executives charged with making decisions at the three levels discussed earlier leave the meeting assuming that once there’s been a show of hands—or nods of agreement—the job is done. Far from it.

Indeed, any agreement voiced in the absence of a strong sense of collective responsibility can prove ephemeral. This was true at a US-based global financial-services company, where a business-unit leader initially agreed during a committee meeting not to change the fee structure for a key product but later reversed course. The temptation was too great: the fee changes helped the leader’s own business unit—albeit ultimately at the expense of other units whose revenues were cannibalized.

One of the most important characteristics of a good decision is that it’s made in such a way that it will be fully and effectively implemented. That requires commitment, something that is not always straightforward in companies where consensus is a strong part of the culture (and key players acquiesce reluctantly) or after big-bet situations where the vigorous debate we recommended earlier has taken place. At a mining company, real commitment proved difficult because the culture valued “firefighting” behavior. In staff meetings, company executives would quickly agree to take on new tasks because it made them look good in front of the CEO, but they weren’t truly committed to following through. It was only when the leadership team changed this dynamic by focusing on follow-up, execution risks, and bandwidth constraints that execution improved.

While it’s important to devote enough resources to help propel follow-through, and it’s also important to assign accountability for getting things done to an individual or at most a small group of individuals, the biggest challenge is to foster an “all-in” culture that encourages everyone to pull together. That often means involving as many people as possible in the outcome—something that, paradoxically, in the end will enable the decision to be implemented more speedily.

While it’s important to assign accountability for getting things done to an individual, the biggest challenge is to foster an “all-in” culture that encourages everyone to pull together.

Follow the value

There are many keys to better decision making, but in our experience focusing on the three practices discussed here—and on the commitment to implement decisions once taken—can reap early and substantial dividends. This presupposes, of course, that the decisions leaders make at all levels of the organization reflect the company’s strategy and its value-creation agenda. That may seem obvious, but it bears repeating because all too often it simply doesn’t happen. Take the manufacturing company whose operations managers, faced with calls from the sales team to raise production in response to anticipated customer demand, had to consider whether they should spend unbudgeted money on overtime and hiring extra staff. With their bonuses linked exclusively to cost targets, they faced a dilemma. If they took the decision to increase costs and new orders failed to materialize, their remuneration would suffer; if the sales team managed to win new business, the sales representatives would get the kudos, but the operations team would receive no additional credit and no additional reward. Not surprisingly, the operations managers, in their weekly planning meeting, opted not to take the risk, rejected a proposal to set up a new production line, and thereby hindered (albeit inadvertently) the group’s higher growth ambitions. This poor-quality—and in our view avoidable—outcome was the direct result of siloed thinking and a set of narrow incentives in conflict with the group’s broader strategy and value-creation agenda. The underlying management challenge is part of a dynamic we see repeated again and again: when senior executives fail to explore—and then explain—the context and underlying strategic intentions associated with various targets and directives they set, they make unintended consequences inevitable. Worse, the lack of clarity makes it very difficult for colleagues further down in the organization to use their judgment to see past the silos and remedy the situation.

Designing an organization to deliver its strategic objectives—setting a clear mission, aligning incentives—is a big topic and outside the scope of this article. But if different functions and teams do not feel a connection to the bigger picture, the likelihood of executives making good decisions, whether or not they adopt the ideas discussed earlier, is significantly diminished.

Stay current on your favorite topics

Aaron De Smet is a senior partner in McKinsey’s Houston office, Gregor Jost is a partner in the Vienna office, and Leigh Weiss is a senior expert in the Boston office.

The authors wish to thank Iskandar Aminov, Alison Boyd, Elizabeth Foote, Kanika Kakkar, and David Mendelsohn for their contributions to this article.

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  • Business Essentials

Game Theory and Business

Charlene Rhinehart is a CPA , CFE, chair of an Illinois CPA Society committee, and has a degree in accounting and finance from DePaul University.

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Game theory was once hailed as a revolutionary interdisciplinary phenomenon bringing together psychology, mathematics, philosophy and an extensive mix of other academic areas. Some 11 game theorists have been awarded the Nobel Memorial Prize in Economic Sciences for their contributions to the discipline; but beyond the academic level, is game theory actually applicable in today's world?  

Game Theory in the Business World

The classical example of game theory in the business world arises when analyzing an economic environment characterized by an oligopoly . Competing companies have the option to accept the basic pricing structure agreed upon by the other companies or to introduce a lower price schedule. Despite it being in the common interest to cooperate with competitors, following a logical thought process causes the firms to default. As a result, everyone is worse off. Although this is a fairly basic scenario, decision analysis has influenced the general business environment and is a prime factor in the use of compliance contracts.

Game theory has branched out to encompass many other business disciplines. From optimal marketing campaign strategies to waging war decisions, ideal auction tactics, and voting styles, game theory provides a hypothetical framework with material implications. For example, pharmaceutical companies consistently face decisions regarding whether to market a product immediately and gain a competitive edge over rival firms, or prolong the testing period of the drug. If a bankrupt company is being liquidated and its assets auctioned off, what is the ideal approach for the auction? What is the best way to structure proxy voting schedules? Since these decisions involve numerous parties, game theory provides the base for rational decision making.

Nash Equilibrium

The  Nash equilibrium  is an important concept in game theory referring to a stable state in a game where no player can gain an advantage by unilaterally changing his strategy, assuming the other participants also do not change their strategies. The Nash equilibrium provides the solution concept in a noncooperative game. The theory is used in economics and other disciplines. It is named after John Nash who received the Nobel in 1994 for his work.  

One of the more common examples of the Nash equilibrium is the  prisoner’s dilemma . In this game, there are two suspects in separate rooms being interrogated at the same time. Each suspect is offered a reduced sentence if he confesses and gives up the other suspect. The important element is if both confess, they receive a longer sentence than if neither suspect said anything. The mathematical solution, presented as a matrix of possible outcomes, shows that logically both suspects confess to the crime. Given that the suspect in the other room’s best option is to confess, the suspect logically confesses. Thus, this game has a single Nash equilibrium of both suspects confessing to the crime. The prisoner’s dilemma is a noncooperative game since the suspects cannot convey their intentions to each other.  

Another important concept, zero-sum games , also stemmed from the original ideas presented in game theory and the Nash equilibrium. Essentially, any quantifiable gains by one party are equal to the losses of another party. Swaps, forwards, options and other financial instruments are often described as "zero-sum" instruments, taking their roots from a concept that now seems distant.

The Nobel Prize. " All Prizes in Economic Sciences ."

Stanford Encyclopedia of Philosophy. " Prisoner’s Dilemma ."

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  • 2.1 Distinguish between Merchandising, Manufacturing, and Service Organizations
  • 2.2 Identify and Apply Basic Cost Behavior Patterns
  • 2.3 Estimate a Variable and Fixed Cost Equation and Predict Future Costs
  • Problem Set A
  • Problem Set B
  • 3.1 Explain Contribution Margin and Calculate Contribution Margin per Unit, Contribution Margin Ratio, and Total Contribution Margin
  • 3.2 Calculate a Break-Even Point in Units and Dollars
  • 3.3 Perform Break-Even Sensitivity Analysis for a Single Product Under Changing Business Situations
  • 3.4 Perform Break-Even Sensitivity Analysis for a Multi-Product Environment Under Changing Business Situations
  • 3.5 Calculate and Interpret a Company’s Margin of Safety and Operating Leverage
  • 4.1 Distinguish between Job Order Costing and Process Costing
  • 4.2 Describe and Identify the Three Major Components of Product Costs under Job Order Costing
  • 4.3 Use the Job Order Costing Method to Trace the Flow of Product Costs through the Inventory Accounts
  • 4.4 Compute a Predetermined Overhead Rate and Apply Overhead to Production
  • 4.5 Compute the Cost of a Job Using Job Order Costing
  • 4.6 Determine and Dispose of Underapplied or Overapplied Overhead
  • 4.7 Prepare Journal Entries for a Job Order Cost System
  • 4.8 Explain How a Job Order Cost System Applies to a Nonmanufacturing Environment
  • 5.1 Compare and Contrast Job Order Costing and Process Costing
  • 5.2 Explain and Identify Conversion Costs
  • 5.3 Explain and Compute Equivalent Units and Total Cost of Production in an Initial Processing Stage
  • 5.4 Explain and Compute Equivalent Units and Total Cost of Production in a Subsequent Processing Stage
  • 5.5 Prepare Journal Entries for a Process Costing System
  • 6.1 Calculate Predetermined Overhead and Total Cost under the Traditional Allocation Method
  • 6.2 Describe and Identify Cost Drivers
  • 6.3 Calculate Activity-Based Product Costs
  • 6.4 Compare and Contrast Traditional and Activity-Based Costing Systems
  • 6.5 Compare and Contrast Variable and Absorption Costing
  • 7.1 Describe How and Why Managers Use Budgets
  • 7.2 Prepare Operating Budgets
  • 7.3 Prepare Financial Budgets
  • 7.4 Prepare Flexible Budgets
  • 7.5 Explain How Budgets Are Used to Evaluate Goals
  • 8.1 Explain How and Why a Standard Cost Is Developed
  • 8.2 Compute and Evaluate Materials Variances
  • 8.3 Compute and Evaluate Labor Variances
  • 8.4 Compute and Evaluate Overhead Variances
  • 8.5 Describe How Companies Use Variance Analysis
  • 9.1 Differentiate between Centralized and Decentralized Management
  • 9.2 Describe How Decision-Making Differs between Centralized and Decentralized Environments
  • 9.3 Describe the Types of Responsibility Centers
  • 9.4 Describe the Effects of Various Decisions on Performance Evaluation of Responsibility Centers
  • 10.2 Evaluate and Determine Whether to Accept or Reject a Special Order
  • 10.3 Evaluate and Determine Whether to Make or Buy a Component
  • 10.4 Evaluate and Determine Whether to Keep or Discontinue a Segment or Product
  • 10.5 Evaluate and Determine Whether to Sell or Process Further
  • 10.6 Evaluate and Determine How to Make Decisions When Resources Are Constrained
  • 11.1 Describe Capital Investment Decisions and How They Are Applied
  • 11.2 Evaluate the Payback and Accounting Rate of Return in Capital Investment Decisions
  • 11.3 Explain the Time Value of Money and Calculate Present and Future Values of Lump Sums and Annuities
  • 11.4 Use Discounted Cash Flow Models to Make Capital Investment Decisions
  • 11.5 Compare and Contrast Non-Time Value-Based Methods and Time Value-Based Methods in Capital Investment Decisions
  • 12.1 Explain the Importance of Performance Measurement
  • 12.2 Identify the Characteristics of an Effective Performance Measure
  • 12.3 Evaluate an Operating Segment or a Project Using Return on Investment, Residual Income, and Economic Value Added
  • 12.4 Describe the Balanced Scorecard and Explain How It Is Used
  • 13.1 Describe Sustainability and the Way It Creates Business Value
  • 13.2 Identify User Needs for Information
  • 13.3 Discuss Examples of Major Sustainability Initiatives
  • 13.4 Future Issues in Sustainability
  • A | Financial Statement Analysis
  • B | Time Value of Money
  • C | Suggested Resources

Almost everything we do in life results from choosing between alternatives, and the choices we make result in different consequences. For example, when choosing whether or not to eat breakfast before going to class, you face two alternatives and two sets of consequences. Eating breakfast means you must get up a little earlier, have food available, and be willing to prepare the food. Not eating means sleeping in longer, not having to plan food, and being hungry during class. Just as our lives are fraught with decisions large and small, the same is true for businesses. Almost every aspect of being in business involves choosing between alternatives, and each alternative typically has one or more consequences. Understanding how businesses make decisions paves the way not only to better decision-making processes but potentially to better outcomes.

Decisions made by businesses can have short-term effects or long-term impacts, or in some situations, both. Short-term decisions often address a temporary circumstance or an immediate need while long-term decisions align more with permanent problem solving and meeting strategic goals. Because these two types of decisions require different types of analyses, we will consider short-term decision-making here and long-term decision-making in Capital Budgeting Decision . Accounting distinguishes between short-term and long-term decisions not only because of the difference in the general nature of these decisions but also because the types of analyses differ significantly between short-term and long-term decision categories. As the time horizon over which the decision will have an impact expands, more costs become relevant to the decision-making process. In addition, when a time element is considered, there will be additional factors such as interest (paid or received) that will have a greater influence on decisions. Table 10.1 provides examples of short-term and long-term business decisions.

Continuing Application

Short-term decision-making.

Considering the business challenges facing Gearhead Outfitters , what short-term decisions might the company encounter? Remember that the retailer sells men’s, women’s and children’s outdoor clothing, footwear, and accessories. Gearhead must carry a certain level and variety of inventory to meet the demands of its customers. The company will have to maintain appropriate accounting records to make proper business decisions to promote sustainability and growth.

How might Gearhead be able to compete with larger chains and remain profitable? Will every sale result in the anticipated profit to the company? Consider what specialized short-term decision-making processes the company may use to meet its goals. Should more of an item than normal be purchased for resale to receive a larger discount from the supplier? What information about cost, volume, and profit is needed to make a sound business decision in this case? Some items may be sold at a loss (or lesser profit) to attract customers to the store. What type of information and accounting system is needed to help in this situation? The company requires relevant, consistent, and reliable data to determine the proper course of action.

Short-term decision-making is vital in any business. Consider this concept in relation to Centralized vs. Decentralized Management and how a company’s approach may affect the decision-making process. Discuss possible short-term issues and decisions, management focuses, and whether or not the centralized versus decentralized style will aid in company flexibility and success. Also, think in terms of how the decision-making process will be evaluated.

Relevant Information for Short-Term Decision-Making

Business decision-making can be outlined as a process that is applied by management with each decision that is made. The process of decision-making in a managerial business environment can be summed up in these steps.

  • Identify the objective or goal. For a business, typically the goal is to maximize revenues or minimize costs.
  • Identify alternative courses of action that can achieve the goal or address an obstacle that is hindering goal achievement.
  • Perform a comprehensive analysis of potential solutions. This includes identifying revenues, costs, benefits, and other financial and qualitative variables.
  • Decide, based upon the analysis, the best course of action.
  • Review, analyze, and evaluate the results of the decision.

The first step of the decision-making process is to identify the goal. In the decisions discussed in this course, the quantitative goal will either be to maximize revenues or to minimize costs. The second step is to identify the alternative courses of action to achieve the goal. (In the real world, steps one and two may require more thought and research that you will learn about in advanced cost accounting and management courses.). This chapter focuses on steps three and four, which involve short-term decision analysis : determining the appropriate information necessary for making a decision that will impact the company in the short term, usually 12 months or fewer, and using that information in a proper analysis in order to reach an informed decision among alternatives. Step five, which involves reviewing and evaluating the decision, is briefly addressed with each type of decision analyzed.

Though these same general steps could be used in long-term decision analyses, the nature of long-term decisions is different. Short-term decisions are typically operational in nature: making versus buying a component of a product, using scarce resources, selling a product as-is or processing it further into a different product. It is relatively easy to change a short-term decision with minimal impact on the company. Long-term decisions are strategic in nature and typically involve large sums of money. The effects of a long-term decision can have significant financial impact on a company for years. Examples of long-term decisions include replacing manufacturing equipment, building a new factory, or deciding to eliminate a product line. While you’ve learned how managerial accounting classifies, tracks, monitors, and controls costs, managerial accountants also closely analyze revenues, which are less controllable than costs, but are important in these decisions. As stated in the first step of the decision-making process, maximizing revenues is usually one of the goals of an organization. Therefore, making some short-term decisions requires analysis of both costs and revenues.

In carrying out step three of the managerial decision-making process, a differential analysis compares the relevant costs and revenues of potential solutions. What does this involve? First, it is important to understand that there are many types of short-term decisions that a business may face, but these decisions always involve choosing between alternatives. Examples of these types of decisions include determining whether to accept a special order; making a product or component versus buying the product or component; performing additional processing on a product; keeping versus eliminating a product or segment; or determining whether to take on a new project. In each of these situations, the business should compare the relevant costs and the relevant revenues of one alternative to the relevant costs and relevant revenues of the other alternative(s). Therefore, an important step in the differential analysis of potential solutions is to identify the relevant costs and relevant revenues of the decision.

What does it mean for something to be relevant? In the context of decision-making, something is relevant if it will influence the decision being made. For example, suppose you have two options for a summer job—either flagging traffic for a road crew or working for a landscaping company doing lawn care. For either job, you will be required to have industrial grade sound protectors (plugs or headphones) for your ears. This cost would not be relevant because it is the same under either alternative, so it will not influence your decision between the two jobs; it would be considered an irrelevant cost . You also believe your transportation costs will be the same for either job; thus this would also be an irrelevant cost.

However, if you are required to have steel-toed boots for the road work job but can wear any type of work boot for the landscaping job, you would need to consider the difference between the costs, or the differential cost , of these two types of boots. This difference in cost between the two pairs of boots would be designated as a relevant cost because it influences your decision.

The two jobs also may have differences in revenues, called a differential revenue . Because the differential revenue influences the decision, it is also a relevant revenue . If both jobs pay the same hourly wage, it would have an irrelevant revenue , but if the road crew job offers overtime for any time worked over 40 hours, then this overtime wage has the potential to be a relevant revenue if overtime is a likely occurrence. Looking only at these differences—of both costs and revenues—between the alternatives, is known as differential analysis .

In conducting these types of analyses between alternatives, the initial focus will be on each quantitative factor of the analysis—in other words, the component that can be measured numerically. Examples of quantitative factors in business include sales growth, number of defective parts produced, or number of labor hours worked. However, in decision-making, it is important also to consider each qualitative factor , which is one that cannot be measured numerically. For example, using the same summer job scenario, qualitative factors may include the environment in which you would be working (road dust and tar odors versus pollen and mower exhaust fumes), the amount of time exposed to the sun, the people with whom you will be working (working with friends versus making new friends), and weather-related issues (both jobs are outdoors, but could one job send you home for the day due to weather?). Examples of qualitative factors in business include employee morale, customer satisfaction, and company or brand image. In making short-term decisions, a business will want to analyze both qualitative and quantitative factors.

In short-term decision-making, revenues are often easier to evaluate than costs. In addition, each alternative typically only has one possible one revenue outcome even though there are many costs to consider for each alternative. How do we know if a cost will have an impact on the decision? The starting point is to understand the various labels that are attached to costs in these decision-making environments.

Avoidable versus Unavoidable Costs

Management must determine if a cost is avoidable or unavoidable because in the short run, only avoidable costs are relevant for decision-making purposes. An avoidable cost is one that can be eliminated (in whole or in part) by choosing one alternative over another. For example, assume that a bike shop offers their customers custom paint jobs for bikes that the customers already own. If they eliminate the service, the cost of the bike paint could be eliminated. Also assume that they had been employing a part-time painter to do the work. The painter’s compensation would also be an avoidable cost.

An unavoidable cost is one that does not change or go away in the short-run by choosing one alternative over another. For example, a company might sign a long-term lease on equipment or a production facility. These types of leases typically don’t allow for cancellation, so if this one does not, then their required payments are unavoidable costs for the duration of the lease.

Variable costs are avoidable costs, since variable costs do not exist if the product is no longer made, or if the portion of the business (such as a segment or division) that generated the variable costs ceases to operate. Fixed costs , on the other hand, may be unavoidable, partially unavoidable, or avoidable only in certain circumstances. Remember that fixed costs tend to remain constant for a period of time and within a relevant range of production and are not easily eliminated in the short-run. Therefore, most fixed costs also are unavoidable. If a fixed cost is specific only to one of the alternatives, then that fixed cost also may be avoidable. Avoidable costs are future costs that are relevant to decision-making. Past costs are never an avoidable cost.

Recall that we are using a short-term viewpoint to determine whether or not costs are avoidable. In the long run, virtually all costs are avoidable. For example, assume that a company has a long-term, ten-year lease on a production facility that cannot be cancelled. For the first ten years it would be noncancelable and thus unavoidable. But after ten years it would become avoidable.

AlexCo’s Wagons

AlexCo produces collapsible wagons that are popular with beachgoers, shoppers, gardeners, parents, and tailgaters. Annual sales have been 100,000 wagons per year. The retail selling price of each wagon is $67.00. To date, AlexCo has produced each of the components used in making the wagons but has been approached by DAL, Inc. with an offer to provide the axle and wheel assembly for $18.75 per assembly. AlexCo’s costs to produce the axle and wheel assembly are $9.00 in direct materials, $6.50 in direct labor, $3.57 in variable overhead, and $2.50 in fixed overhead. Twenty-five percent of the fixed overhead is avoidable if the assembly is produced by DAL. Should AlexCo continue to make the axle and wheel assembly or should it buy the assembly from DAL, Inc.?

Ignoring qualitative factors, it would be more cost effective for AlexCo to buy the axle and wheel assembly from DAL, Inc. However, AlexCo should be certain of any qualitative issues and not solely base their decision on the quantitative analysis.

A sunk cost is one that cannot be avoided because it has already occurred. A sunk cost will not change regardless of the alternative that management chooses; therefore, sunk costs have no bearing on future events and are not relevant in decision-making. The basic premise sounds simple enough, but sunk costs are difficult to ignore due to human nature and are sometimes incorrectly included in the decision-making process. For example, suppose you have an old car, a hand-me-down from your grandmother, and last year you spent $1,600 on repairs and new tires and were just told by your mechanic that the car needs $1,200 in repairs to operate safely. Your goal is to have a safe and reliable car. Your alternatives are to get the repairs completed or trade in the car for a newer used car.

From a quantitative perspective, you have gathered the following information to help with your decision. The trade-in value of your old car will be the minimum given by the dealer, or $200. The newer used car will require you to make monthly payments of $150 for two years. In analyzing your two alternatives, what costs do you consider? Remember, the $1,600 you have already spent (note the past tense) is a sunk cost; it is a consequence of a past decision. In this example, the relevant costs for each alternative are the following: $1,200 in current repair costs to keep your current car or $3,400 (from the 24 payments of $150 minus $200 for the trade in) to buy a newer used car. Obviously, you also would consider qualitative factors, such as the sentimental value of your grandmother’s car or the excitement of having a newer car.

Sunk costs are most problematic for business decisions when they pertain to existing equipment. The book value of an asset (historical cost – accumulated depreciation) is a sunk cost regardless of whether a business keeps the asset or disposes of it in some manner. The cost of the asset occurred in the past and therefore is sunk and irrelevant to the decision at hand. Mangers may be reluctant to ignore sunk costs when making decisions, especially if the prior decision to purchase the asset was an unwise one. Often, when management takes a path of action that is not achieving the desired results, managers may continue the same path in the hope that the effect of prior decisions will improve the results. The use of the word prior is a key indicator that information is nonrelevant to a current decision. Holding on to old decisions or old commitments is common because letting them go forces management to admit they made a bad decision.

Future Costs That Do Not Differ

Any future cost that does not differ between the alternatives is not a relevant cost for the decision. For example, if a company is considering baking either bagels or doughnuts and both baked goods require $0.30 worth of flour, then the cost of flour would not be a relevant cost in determining which of the two had the highest production cost. As relevant information for short-term decision-making, the cost of sound protectors for your summer job would not be relevant to your decision because that cost exists in both scenarios. Another irrelevant cost would be your transportation cost, since that cost is also the same regardless of the job you choose. In another example, if a company is planning to produce either red widgets or blue wingdings and will need to hire 10 additional employees to produce either of the goods, the cost of those 10 employees is irrelevant because it does not differ between the alternatives.

Ethical Considerations

Johnson & johnson’s 1982 recall and replacement of all tylenol in the world.

In 1982, Johnson & Johnson was faced with a large-scale business and ethical dilemma. During the course of several days beginning on September 29, 1982, seven deaths occurred in the Chicago area that were attributed to consuming capsules of Extra-Strength Tylenol. The painkiller was, at the time, Johnson & Johnson ’s best-selling product. The company had to decide if the short-term cost of replacing the Tylenol was worth the future cost to their reputation and their customer’s health and safety. At tremendous expense, Johnson & Johnson “placed consumers first by recalling 31 million bottles of Tylenol capsules from store shelves and offering replacement product in the safer tablet form free of charge.” 1

As it was later discovered, someone was lacing Tylenol capsules with cyanide and returning the pills in the original packages to store shelves. However, Johnson & Johnson ’s decision to incur short-term costs by recalling all of their pills ultimately paid off, as in the long run, the company’s stock value increased and Tylenol sales recovered. One could look at the decision as an opportunity cost: Johnson & Johnson had to choose between two alternatives. The company could have chosen a short-term solution with reduced short-term losses, but by making an ethical business decision, the long-term rewards were greater than the short-term savings.

Opportunity Costs

When choosing between two alternatives, usually only one of the two choices can be selected. When this is the case, you may be faced with opportunity costs , which are the costs associated with not choosing the other alternative. For example, if you are trying to choose between going to work immediately after completing your undergraduate degree or continuing to graduate school, you will have an opportunity cost. If you choose to go to work immediately, your opportunity cost is forgoing a graduate degree and any potential job limitations or advancements that result from that decision. If you choose instead to go directly into graduate school, your opportunity cost is the income that you could have been earning by going to work immediately upon graduation.

Costs and Revenue at Carolina Clusters

Carolina Clusters, Inc., a candy manufacturer in a resort town, just bought a new taffy pulling machine for $27,000 and is planning to increase the production of salt-water taffy. Due to the increased production, Carolina is deciding between hiring two part-time college students or one full-time employee. Each college student would work half days totaling 20 hours per week, and would earn $12 per hour. The full-time employee would work full days 40 hours per week and would earn $12 per hour plus the equivalent of $2 per hour in benefits. Each employee is given two t-shirts to wear as their uniform. The t-shirts cost Carolina $8 each. In addition, Carolina provides disposable hair coverings and gloves for the employees. Each employee uses, on average, six sets of gloves per eight-hour shift or four sets per four-hour shift. One hair covering per shift per person is typical. The cost of the hair covering is $0.05 per covering and the cost of a pair of gloves is $0.02 per pair. Identify any relevant costs, relevant revenues, sunk costs, and opportunity costs that Carolina Clusters needs to consider in making the decision whether to hire two part-time employees or one full-time employee.

Relevant costs:

  • $2 per hour for benefits
  • $16 for two t-shirts: Hiring one full-time person will result in a $16 expenditure for t-shirts. Hiring two college students would result in $32 in t-shirt expenditures, thus the relevant t-shirts costs is the $16 difference.
  • $0.05 for a hair covering: Hiring one full-time person will result in $0.05 per day in hair covering costs but hiring two college students would result in $0.10 per day in hair covering costs thus the relevant hair covering cost is the $0.05 difference.
  • $0.04 for a pair of gloves: Hiring one full-time person will result in $0.12 (6 × $0.02) per day in glove costs, but hiring two college students would result in $0.16 (8 × $0.02) per day in glove costs. Thus, the relevant glove cost is the $0.04 difference.

Relevant revenues: None

Sunk costs: $27,000 for the taffy machine

Opportunity costs: None

  • 1 Judith Rehak. “Tylenol Made a Hero of Johnson & Johnson: The Recall That Started Them All.” New York Times . Mar. 23, 2002. https://www.nytimes.com/2002/03/23/your-money/IHT-tylenol-made-a-hero-of-johnson-johnson-the-recall-that-started.html

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  • Authors: Mitchell Franklin, Patty Graybeal, Dixon Cooper
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  • International

Judge orders Trump and companies to pay nearly $355 million in civil fraud trial

By Lauren del Valle , Kara Scannell , Jeremy Herb , Dan Berman and Elise Hammond , CNN

Does Trump have to pay the nearly $355 million judgment immediately? What we know

From CNN's Fredreka Schouten

Legal experts say former President Donald Trump is likely to use a bond, secured with his assets as collateral, as the first step in satisfying the judgment in the New York civil fraud case brought by New York Attorney General Letitia James.

On Friday, Judge Arthur Engoron ordered Trump and his companies to pay nearly $355 million, which Trump has vowed to appeal.

Under a so-called appeal bond, Trump would put up a percentage of the judgment and a third-party company that is the guarantor “is on the hook for the full amount,” said Joshua Naftalis, a former federal prosecutor now in private practice in New York.

“It’s not just the president: Anybody faced with this size of a judgment would probably go the appeal-bond route, because to put up that kind of money is enormous,” Naftalis said. “That could be his entire cash position.”

What Trump has available: It’s difficult to determine the full assets available to Trump, because his business is a privately held concern and does not regularly file reports with regulators. In a deposition taken last year as part of the case brought by James, the former president said his company had more than $400 million in available cash.

Adam Leitman Bailey, a real estate attorney in New York, said Trump likely would have to put up 10% of the judgment in cash, plus an additional fee. 

In January, a jury in a civil defamation case  ordered Trump to pay $83.3 million  to former magazine columnist E. Jean Carroll, on top of the $5 million verdict she had already won against him last year.

2-year ban on Trump’s adult sons leaves Trump Org leadership in question

From CNN’s Lauren del Valle

Eric Trump, left, and Donald Trump Jr. wait for their father to speak at the White House in 2020.

Donald Trump’s eldest sons — who’ve essentially run the Trump Organization since 2017 — are barred from serving as executives in New York for two years, according to Judge Arthur Engoron's order.

The Trumps will have to navigate the two-year penalty as they sort out the future of the family-run real estate company that also hasn’t filled the chief financial officer or controller positions vacated by former Trump Org. execs Allen Weisselberg and Jeff McConney.  

During closing arguments last month, Engoron questioned whether the attorney general presented any evidence that Trump’s eldest sons knew that there was fraud going on at the company — but ultimately found them liable for issuing false financial statements, falsifying business records, and conspiracy claims. 

The judge knocked Eric Trump’s credibility in his ruling, pointing out inconsistent testimony he gave at trial.  He “begrudgingly” conceded at trial that he actually knew about his father’s statements as early as 2013 “upon being confronted with copious documentary evidence conclusively demonstrating otherwise,” the judge wrote. 

Engoron also said Eric Trump unconvincingly tried to distance himself from some appraisals of Trump Org properties that offered a much lower valuation than reported on Donald Trump’s financial statements. 

More on the ruling: Eric and Donald Trump Jr. were both ordered to pay more than $4 million in disgorgement, or “ill-gotten” profits, they personally received from the 2022 sale of Trump’s hotel at the Old Post Office building in Washington DC. 

Ivanka Trump gets to keep her profits on the building sale because she was dismissed as a defendant in the case by an appeals court ahead of trial. But that didn’t stop Engoron from weighing in on her trial testimony, calling it “suspect.” 

Trump has been ordered to pay $438 million this year in fraud and defamation cases

From CNN's Jeremy Herb

President Donald Trump speaks during a press conference held at Mar-a-Lago on February 8, in Palm Beach, Florida.

Judge Arthur Engoron hit Donald Trump with his biggest punishment to date Friday, in a ruling that fined the former president nearly $355 million for fraudulently inflating the values of his properties.

The dollar amount dwarfed the verdict against Trump issued last month in the defamation case brought by E. Jean Carroll — an $83 million judgment — hitting home just how much the New York attorney general’s civil fraud case threatens Trump’s business empire.

Engoron found Trump liable for fraud, conspiracy, issuing false financial statements, and falsifying business records, barring him from serving as director of a company in New York for three years.

While the judge pulled back from trying to dissolve the Trump Organization altogether, Engoron issued a blistering 93-page opinion that painted the former president as unremorseful and highly likely to commit fraud again.

"This Court finds that defendants are likely to continue their fraudulent ways unless the Court grants significant injunctive relief,” Engoron wrote. 

The judge also ruled that Trump will have to pay millions in interest on the judgement amount.

Trump's attorneys are planning to appeal the New York civil fraud ruling. Here's what to expect next

Former President Donald Trump and his lawyers Christopher Kise and Alina Habba attend closing arguments in the civil fraud trial in January.

Donald Trump’s attorneys have already appealed Judge Arthur Engoron’s 2023 summary judgment that found the former president liable for fraud — and the former president's attorneys are already planning to appeal Friday's decision , too.

Trump attorney Christopher Kise responded to Engoron's ruling in a statement Friday, saying the court "ignored the law, ignored the facts.”

Kise added Trump will appeal and “remains confident the Appellate Division will ultimately correct the innumerable and catastrophic errors made.”

During the 11-week trial, Trump’s attorneys repeatedly criticized Engoron��s handling of the case and raised objections “for the record” and a potential appeal. 

Engoron often acknowledged the likelihood of an appeal during the trial.

The ruling is likely to be tied up in the courts on appeal for a long time, and Engoron’s ruling Friday was written with an eye toward surviving an appellate challenge.

Judge rules Trump will also have to pay millions in interest on the $355 million judgment

From CNN's Jeremy Herb, Lauren del Valle, Kara Scannell and Laura Dolan

In his ruling that orders Donald Trump to pay nearly $355 million in profits from his fraud, Judge Arthur Engoron also ruled that the former president will have to pay interest on that money, dating back several years.

The interest could add close to $100 million to the amount Trump is liable for.

The judge broke down the $354,868,678 in disgorgement into three parts:

  • He wrote that the defendants’ fraud saved them about $168 million in interest, fining Trump and his companies that amount. The former president will have to pay interest dating to March 2019 for those ill-gotten gains. 
  • Engoron also ruled that Trump and his companies were liable for over $126 million in ill-gotten profits from the sale of the Old Post Office in Washington, DC, a contract the judge says “was obtained through the use of false SFC (statements of financial condition).” On those profits, Trump will have to pay interest dating to May 2022.
  • And the judge ruled that Trump and his companies were liable for $60 million in profits from the sale of Ferry Point in the Bronx. On this part of the verdict, Trump will have to pay interest dating to June 2023.

All of the prejudgment interest owed “shall be at the rate of nine percent per annum, except where otherwise provided by statute,” the judge wrote.  

In a statement on X, New York Attorney General Letitia James cited a higher total amount by including the interest as well as the money owed by Trump's two adult sons and former CFO.

"In a massive victory, we won our case against Donald Trump for engaging in years of incredible financial fraud to enrich himself," she wrote. "Trump, Donald Trump, Jr., Eric Trump, and his former executives must pay over $450 million in disgorgement and interest."

Trump blasts judge’s ruling ordering him to pay nearly $355 million

From CNN's Kate Sullivan

Former President Donald Trump sits in the courtroom during his civil fraud trial in January.

Former President Donald Trump on Friday blasted a ruling by a judge ordering him and his companies to pay nearly $355 million in the New York civil fraud case and continued claiming, without evidence, he had been politically targeted because he’s running for president.  

“This ‘decision’ is a Complete and Total SHAM,”  Trump posted  on Truth Social in his first public comments following the ruling.  

Trump said in a separate post, “The Democrat Club-controlled Judge Engoron has already been reversed four times on this case, a shameful record, and he will be reversed again. We cannot let injustice stand, and will fight Crooked Joe Biden’s weaponized persecution at every step.”

“The Justice System in New York State, and America as a whole, is under assault by partisan, deluded, biased Judges and Prosecutors. Racist, Corrupt A.G. Tish James has been obsessed with “Getting Trump” for years, and used Crooked New York State Judge Engoron to get an illegal, unAmerican judgment against me, my family, and my tremendous business."

Attorney General Letitia James celebrates ruling and calls it a "massive victory"

From CNN's Dan Berman, Kara Scannell and Samantha Beech

New York Attorney General Letitia James exits the courtroom during the civil fraud trial in November.

New York Attorney General Letitia James celebrated Friday's ruling against the Trumps.

In a separate statement, she referred to the order against Trump and his companies as a “tremendous victory.” The attorney general said the ruling proves “no one is above the law."

James is expected to speak to reporters this afternoon.

Monitor is a retired federal judge who could spell more trouble or rehabilitation for the Trump Organization

From CNN's Elise Hammond

While Judge Arthur Engoron did not dissolve the business certificates for the Trump Organization, as he had initially laid out, he did order several restrictions and stipulations to be enacted for the next few years.

Engoron wrote that a monitor he put in place for the company was to stay in place for at least three years.

The monitor, who has access to records and the internal workings of the business, is a retired federal judge who specialized in high-stakes, high-profile matters, according to Elie Honig, a former federal prosecutor and CNN senior legal analyst.

The monitor issued a report a few weeks ago that said she found inconsistencies in her initial review of the company. That could lead to more trouble for the Trump Organization, Honig said.

“But if the goal is to rehabilitate the company, then this is the right person for it,” Honig said.

CNN's Jeremy Herb contributed reporting to this post.

Judge knocks Trump for valuation of Mar-a-Lago

From CNN's Jeremy Herb, Nicki Brown and Luciana Lopez

An aerial view of Donald Trump's Mar-a-Lago estate in Palm Beach, Florida, in August 2022.

Judge Arthur Engoron cited Donald Trump’s valuation of Mar-a-Lago on his financial statements as one of the properties where the former president committed fraud — while also chiding the former president for claiming his Florida resort was worth more than $1 billion. 

Engoron wrote that Trump’s 2002 deed gave away the right to use Mar-a-Lago as a single-family residence, meaning that Trump paid significantly lower property taxes and that it could not be valued as highly as he claimed.

In a footnote, Engoron noted of Trump and the deed: "A fact of which he is well aware, having signed the deed himself."

“There is no legal gray area surrounding the permanent nature of the deed restrictions,” Engoron later wrote in his ruling. "Accordingly, there can be no mistake that Donald Trump’s valuation of Mar-a-Lago from 2011-2021 was fraudulent.”

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MoSCoW Prioritization

What is moscow prioritization.

MoSCoW prioritization, also known as the MoSCoW method or MoSCoW analysis, is a popular prioritization technique for managing requirements. 

  The acronym MoSCoW represents four categories of initiatives: must-have, should-have, could-have, and won’t-have, or will not have right now. Some companies also use the “W” in MoSCoW to mean “wish.”

What is the History of the MoSCoW Method?

Software development expert Dai Clegg created the MoSCoW method while working at Oracle. He designed the framework to help his team prioritize tasks during development work on product releases.

You can find a detailed account of using MoSCoW prioritization in the Dynamic System Development Method (DSDM) handbook . But because MoSCoW can prioritize tasks within any time-boxed project, teams have adapted the method for a broad range of uses.

How Does MoSCoW Prioritization Work?

Before running a MoSCoW analysis, a few things need to happen. First, key stakeholders and the product team need to get aligned on objectives and prioritization factors. Then, all participants must agree on which initiatives to prioritize.

At this point, your team should also discuss how they will settle any disagreements in prioritization. If you can establish how to resolve disputes before they come up, you can help prevent those disagreements from holding up progress.

Finally, you’ll also want to reach a consensus on what percentage of resources you’d like to allocate to each category.

With the groundwork complete, you may begin determining which category is most appropriate for each initiative. But, first, let’s further break down each category in the MoSCoW method.

Start prioritizing your roadmap

Moscow prioritization categories.


1. Must-have initiatives

As the name suggests, this category consists of initiatives that are “musts” for your team. They represent non-negotiable needs for the project, product, or release in question. For example, if you’re releasing a healthcare application, a must-have initiative may be security functionalities that help maintain compliance.

The “must-have” category requires the team to complete a mandatory task. If you’re unsure about whether something belongs in this category, ask yourself the following.


If the product won’t work without an initiative, or the release becomes useless without it, the initiative is most likely a “must-have.”

2. Should-have initiatives

Should-have initiatives are just a step below must-haves. They are essential to the product, project, or release, but they are not vital. If left out, the product or project still functions. However, the initiatives may add significant value.

“Should-have” initiatives are different from “must-have” initiatives in that they can get scheduled for a future release without impacting the current one. For example, performance improvements, minor bug fixes, or new functionality may be “should-have” initiatives. Without them, the product still works.

3. Could-have initiatives

Another way of describing “could-have” initiatives is nice-to-haves. “Could-have” initiatives are not necessary to the core function of the product. However, compared with “should-have” initiatives, they have a much smaller impact on the outcome if left out.

So, initiatives placed in the “could-have” category are often the first to be deprioritized if a project in the “should-have” or “must-have” category ends up larger than expected.

4. Will not have (this time)

One benefit of the MoSCoW method is that it places several initiatives in the “will-not-have” category. The category can manage expectations about what the team will not include in a specific release (or another timeframe you’re prioritizing).

Placing initiatives in the “will-not-have” category is one way to help prevent scope creep . If initiatives are in this category, the team knows they are not a priority for this specific time frame. 

Some initiatives in the “will-not-have” group will be prioritized in the future, while others are not likely to happen. Some teams decide to differentiate between those by creating a subcategory within this group.

How Can Development Teams Use MoSCoW?

  Although Dai Clegg developed the approach to help prioritize tasks around his team’s limited time, the MoSCoW method also works when a development team faces limitations other than time. For example: 

Prioritize based on budgetary constraints.

What if a development team’s limiting factor is not a deadline but a tight budget imposed by the company? Working with the product managers, the team can use MoSCoW first to decide on the initiatives that represent must-haves and the should-haves. Then, using the development department’s budget as the guide, the team can figure out which items they can complete. 

Prioritize based on the team’s skillsets.

A cross-functional product team might also find itself constrained by the experience and expertise of its developers. If the product roadmap calls for functionality the team does not have the skills to build, this limiting factor will play into scoring those items in their MoSCoW analysis.

Prioritize based on competing needs at the company.

Cross-functional teams can also find themselves constrained by other company priorities. The team wants to make progress on a new product release, but the executive staff has created tight deadlines for further releases in the same timeframe. In this case, the team can use MoSCoW to determine which aspects of their desired release represent must-haves and temporarily backlog everything else.

What Are the Drawbacks of MoSCoW Prioritization?

  Although many product and development teams have prioritized MoSCoW, the approach has potential pitfalls. Here are a few examples.

1. An inconsistent scoring process can lead to tasks placed in the wrong categories.

  One common criticism against MoSCoW is that it does not include an objective methodology for ranking initiatives against each other. Your team will need to bring this methodology to your analysis. The MoSCoW approach works only to ensure that your team applies a consistent scoring system for all initiatives.

Pro tip: One proven method is weighted scoring, where your team measures each initiative on your backlog against a standard set of cost and benefit criteria. You can use the weighted scoring approach in ProductPlan’s roadmap app .

2. Not including all relevant stakeholders can lead to items placed in the wrong categories.

To know which of your team’s initiatives represent must-haves for your product and which are merely should-haves, you will need as much context as possible.

For example, you might need someone from your sales team to let you know how important (or unimportant) prospective buyers view a proposed new feature.

One pitfall of the MoSCoW method is that you could make poor decisions about where to slot each initiative unless your team receives input from all relevant stakeholders. 

3. Team bias for (or against) initiatives can undermine MoSCoW’s effectiveness.

Because MoSCoW does not include an objective scoring method, your team members can fall victim to their own opinions about certain initiatives. 

One risk of using MoSCoW prioritization is that a team can mistakenly think MoSCoW itself represents an objective way of measuring the items on their list. They discuss an initiative, agree that it is a “should have,” and move on to the next.

But your team will also need an objective and consistent framework for ranking all initiatives. That is the only way to minimize your team’s biases in favor of items or against them.

When Do You Use the MoSCoW Method for Prioritization?

MoSCoW prioritization is effective for teams that want to include representatives from the whole organization in their process. You can capture a broader perspective by involving participants from various functional departments.

Another reason you may want to use MoSCoW prioritization is it allows your team to determine how much effort goes into each category. Therefore, you can ensure you’re delivering a good variety of initiatives in each release.

What Are Best Practices for Using MoSCoW Prioritization?

If you’re considering giving MoSCoW prioritization a try, here are a few steps to keep in mind. Incorporating these into your process will help your team gain more value from the MoSCoW method.

1. Choose an objective ranking or scoring system.

Remember, MoSCoW helps your team group items into the appropriate buckets—from must-have items down to your longer-term wish list. But MoSCoW itself doesn’t help you determine which item belongs in which category.

You will need a separate ranking methodology. You can choose from many, such as:

  • Weighted scoring
  • Value vs. complexity
  • Buy-a-feature
  • Opportunity scoring

For help finding the best scoring methodology for your team, check out ProductPlan’s article: 7 strategies to choose the best features for your product .

2. Seek input from all key stakeholders.

To make sure you’re placing each initiative into the right bucket—must-have, should-have, could-have, or won’t-have—your team needs context. 

At the beginning of your MoSCoW method, your team should consider which stakeholders can provide valuable context and insights. Sales? Customer success? The executive staff? Product managers in another area of your business? Include them in your initiative scoring process if you think they can help you see opportunities or threats your team might miss. 

3. Share your MoSCoW process across your organization.

MoSCoW gives your team a tangible way to show your organization prioritizing initiatives for your products or projects. 

The method can help you build company-wide consensus for your work, or at least help you show stakeholders why you made the decisions you did.

Communicating your team’s prioritization strategy also helps you set expectations across the business. When they see your methodology for choosing one initiative over another, stakeholders in other departments will understand that your team has thought through and weighed all decisions you’ve made. 

If any stakeholders have an issue with one of your decisions, they will understand that they can’t simply complain—they’ll need to present you with evidence to alter your course of action.  

Related Terms

2×2 prioritization matrix / Eisenhower matrix / DACI decision-making framework / ICE scoring model / RICE scoring model

Prioritizing your roadmap using our guide

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Explainer: How will Trump pay his $355 million civil fraud judgment?

  • Trump Media & Technology Group Corp Follow


How will the decision impact trump's real estate empire, is trump financially able to pay the full judgment.

Former U.S. President Trump attends a hearing on a criminal case linked to a hush money payment, in New York City


When will trump have to pay, what happens if trump fails to pay.

Reporting by Jack Queen; additional reporting by Greg Roumeliotis; Editing by Will Dunham, Noeleen Walder, Amy Stevens and Daniel Wallis

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4 ambitious buildings in Moscow that took forever to build (and they’re still not ready!)

Like every huge capital, Moscow has some buildings that seem (or seemed) to remain unfinished forever.

Like every huge capital, Moscow has some buildings that seem (or seemed) to remain unfinished forever.

1. Underground mall near Paveletsky railway station

A foundation pit surely looks impressive - by now, however, it's all you can see on this ambitious construction site.

A foundation pit surely looks impressive - by now, however, it's all you can see on this ambitious construction site.

Construction began : 2007

Current status (March 2019): awaiting reconstruction

In 2018, Muscovites were quite surprised to find a new reservoir, basically a small lake, in the city center – at least according to Yandex.Maps app. The algorithm mistook a giant water-filled foundation pit near Paveletsky railway station for a lake, which after heavy rains, had turned into a muddy reservoir. The wannabe-lake had been around for a while.

Ten years before, Kazakh businessman, Mukhtar Ablyazov, started an ambitious project, buying land near the railway station to build a giant underground mall. The scheme swiftly ran into problems when Ablyazov faced a criminal prosecution and lay dormant for a decade.

“It’s a big issue that one of the city’s main squares is in such pitiful condition,” said Moscow’s chief architect Sergei Kuznetsov, speaking in 2017. Now, after all legal questions have been resolved, new owners of the project are expected to finish the mall by late 2020. Perhaps Lake Paveletskaya will disappear from the city’s map for good.

2. Oceanarium on Poklonnaya Hill

Not much fish here so far...

Not much fish here so far...

Construction began : 2006

Current status : awaiting reconstruction (a modified version)

Another of Mukhtar Ablyazov’s gigantic and ambitious projects involved constructing Eastern Europe’s biggest aquarium (plus a hotel) on Poklonnaya Hill in western Moscow. This also went down the drain after Ablyazov faced criminal charges, leaving only around 10 percent of the project completed.

At the same time, the financial crisis of 2008 hit, so it was too expensive for developers to buy the project out. After a decade of legal battles, a new developer acquired the project and in late 2018 city authorities approved construction of the oceanarium, but the hotel will be replaced with a residential complex. The most important thing is that there will still be plenty of sharks and other fish in the public aquarium.

3. Zenith business center

The Zenith business center before the reconstruction began. It was quite a landmark, though an ugly one.

The Zenith business center before the reconstruction began. It was quite a landmark, though an ugly one.

Construction began : 1991

Current status : under reconstruction

A giant blue crystal that dominates a whole south-western Moscow neighborhood, the 22-storey building of the Zenith business center is as old as the modern, post-Soviet, Russian state. According to the original 1989 project, the center was the property of the Academy of National Economy: its president Abel Aganbegyan launched a joint venture with an Italian company, Valany International.

As often happens, the original plan didn’t work out: in 1994, when the building was 80 percent ready, the Italian government arrested Valany International’s entire senior management team and put them behind bars on corruption and mafia-related charges. The Zenith project hit the pause button – for 25 years.

Ever since, the ugly unfinished skyscraper, its interior full of piles of rusting garbage, has been a Moscow landmark. It has also been subject to endless legal and financial battles; both finishing construction or demolishing it being deemed too expensive. Meanwhile, adventure-seekers spared no effort trying to get in to the “Blue Tooth”, (its popular nickname); in 2008 a young man died after falling down an elevator shaft. Slowly, the retro-reflective mirrors that form the building’s façade were fracturing, and with it the “Blue Tooth”  grew less and less picturesque, a symbol of glorious decay .

Reconstruction goes on (March 2019).

Reconstruction goes on (March 2019).

Finally , in 2016 Moscow city government decided to finish the project by 2021, investing 8.7 billion rubles ($132 million). As of now, the building - with almost all its mirrors removed - looks like a skeleton, but there’s hope it will get better.

4. TV center building on Shabolovka

That's how that almost ancient building on the Shabolovka street looks like.

That's how that almost ancient building on the Shabolovka street looks like.

Construction began : 1986

Current status : unclear

The record-breaking champion of Moscow’s unfinished construction projects in terms of time – only the infamous Khovrino hospital, where ground was broken in 1980 and its uncompleted shell torn down in 2018, was older – Shabolovka Street’s TV Center in southern Moscow is a 14-storey high, gloomy Soviet style building. Begun in the 1980s, it was almost finished when the government ran out of money and construction stopped.

At first, the Soviet state meant to give the building to the Military Space Force but in the 1990s decided to turn it into a TV center as it sits adjacent to an earlier television center. That did nothing to solve all the money and property issues, though. Legally the building now belongs to the All-Russia State Television and Radio Broadcasting Company (VGTRK) but it remains unfinished.

“There’s nothing to do here, except for the roof – the view is spectacular!” users used to write on squatters forums – they loved getting inside and exploring the garbage-filled, empty floors. Today security is stricter, so it’s hard to get in. Otherwise, the situation has not changed much. Construction can be renewed after VGTRK solves all the questions with the property, but it remains unclear when that will happen.   

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