Question

Relevant qualitative factors include any nonquantitative issues that managers should consider before taking a decision. Give examples of questions managers could ask to help them identify relevant qualitative factors?

Answer 1

Qualitative factors that manager should consider before taking a decision are as follows:

Labour Relations

Nearly any quantitative analysis will demonstrate that spending less money on employees increases profits. However, this may be shortsighted. Quantitative analysis usually does not take into account the importance of healthy relations with your labor force. For example, a company may decide that to save costs it will discontinue an annual holiday bonus that has been offered for the last 20 years. While there is no doubt that this will reduce costs, it could be perceived by employees as antagonistic or heartless. Small business owners may consider other ways to cut costs. In this case, it might be better to reduce annual pay increases by a fraction of a percent or to reduce the bonus rather than eliminate it.

Creditor Effects

While most managerial accounting figures are not released to the public, qualitative information about a company's operations may be inadvertently revealed to creditors. This includes the opening and closing of plants and retail stores, management turnover information and rumors about new products. In many cases, it is difficult to predict the effect that qualitative information has on a creditor's perception of the company. An owner's best bet may be to recognize that some effect will occur and be upfront with third parties if damaging qualitative information is revealed.

Quality

In most cases, quantitative information neglects to provide information on quality. Businesses, smartly looking to reduce costs, must be cautious to avoid sacrificing the long-term benefit of being associated with quality products and services for the short-term quantitative benefit of cutting costs. For example, a clothing manufacturer may source thinner and lower cost denim for use in making jeans. Even if the company is able to pass some of these cost savings on to consumers, the association with lower quality products may be detrimental to the company.