An In-Depth Report on Decision Support Tools for Business Analysis

This report provides an overview of various decision support tools utilized in business decision-making processes. It covers key concepts such as decision analysis, highlighting the roles of optimist, pessimist, and regret criterion in investment choices. The report also discusses the value of information, emphasizing the importance of past experiences, prevailing conditions, and expert analysis in determining probabilities for investment outcomes. Furthermore, it delves into Monte Carlo simulation, regression analysis, and CVP analysis, explaining how these tools aid in projecting sales, establishing relationships between variables, and evaluating the impact of cost and volume changes on company profitability. The report underscores the significance of these tools in minimizing costs, maximizing profits, and making informed business decisions.

REPORT ON DECISION SUPPORT TOOLS
Introduction
Making loses is not any business agenda, therefore the business engage in long processes in
making proper decision for the prosperity of the business and no one can chose to invest in
business which will result in loses or environment which will result in loses.
Decision is critical in day to day activities in the business field. These decisions are essential
since they affect every aspect of the business mainly to minimize cost and maximize profit.
These decision can cover things such as number of employees, number of different types of a
certain commodity to produce, location of the business to effect the delivery of service etc has to
be done to ensure the main objective.
The report cover different aspects of decision making in business. These include Decision
analysis, value of information, Monte Carlo Simulation, Regression analysis and CVP analysis.
These are covered by some questions in the real business situation.
Decision analysis
This analysis mostly covers the personality of different investors. Some develop these
personalities after the past experience and knowledge of the market while some have them
naturally. Some of them include being optimist, pessimist and choosing to compromise from
either being optimist or pessimist and choose regret criterion to make some crucial decision.
Being optimist means that an investor always believe that all will be well. They believe that the
projected outcome will be the way it is and nothing will affect it and therefore choose to invest in
the investment with highest the outcome. On the other hand pessimist believe that even though

they don’t see the future, all will not be well. They may not know the reasons for things not
going well, but they will chose to invest in the best outcome among the worst outcome. They
believe that even though things might go well, they choose to prepare for the worst outcome.
When both optimist choose to compromise their personality, they choose to go the regret way of
making decision for business. Here either of them choose “minimax” or “maximini”
Another way they can make decision is to choose best outcome from expected monetary value.
Here after devising the probabilities, they evaluate and make the best outcome from it.
Value of information
This mainly covers mainly the decision made by the decision makers based mainly from the past
experience, prevailing conditions and sometimes the analysis the market by the experts. It mainly
based on the probabilities. The decision maker may decide evaluate the past experience to come
up with probabilities of a given condition can affect the market. Experiences on the customer
taste and demand on a certain product can prompt an investor to estimate some probabilities to
help him project the outcome in case he or she invest.
Prevailing conditions such as favorable and unfavorable market for a certain product may be
evaluated in terms of probabilities to determine whether an investor will invest or will choose not
invest or to take another type of business altogether. The probabilities will help to evaluate the
outcome will one choose to invest.
There are some market experts whom the investors can rely on due to their expertise and the
experience they have on the market. They help the investor to either invest or not to invest by

providing appropriate probabilities for the evaluation of the possible outcome will one choose to
invest.
Sometimes, the investor may choose to evaluate the outcome using his past experience on the
market and that of the market researcher or expert to come with posterior probabilities helping in
boosting confidence in whether to invest or not.
Monte Carlo simulation
This is a way the data experts use to come up with a series of data generated randomly by the
computer. These data are used for the projection of sales and the outcome. Here, the experts use
past experience such as the sales, the profit they have been getting to project the future demand
and even sales. This this can be used for making business decisions
Regression analysis
Regression analysis is used in making decision by developing a regression model using the past
data for future projection. The data is fed into an appropriate statistical software this enable to
get some statistical characteristic of data. These characteristics; p-value, F value correlation
coefficient and many others help us to determine some statistical significant elements in the
business can help in decision making. This will help in determining the right kinds of products
and in right environment to trade in and the kind of products not worth investing in.
Regression analysis help to establish the relationship between the variables. These variables can
include sales and profit. It also help to establish the strength of a relationship between two
variables.

CVP Analysis
Cost-volume-profit (CVP) analysis is used to evaluate how changes in cost and volume affects
company operating income and net income. Some factors like sales per unit must be constant,
variable cost and total fixed cost must also be constant for this analysis to hold. For Cost volume
profit to hold; everything produced must be sold, costs can only be affected by activity changes
and if the company sells more than one product they are put in the same mix then sold. The main
things evaluated in CVP is the contribution margin, the amount of income or the profit made by
the company before deducting the fixed costs and the contribution margin ratio which is the
contribution margin by sales or revenue amount. These two are used to make informed decision
about the services and products they deal in. CVP mostly make informed decision on managerial
accounting than financial accounting which help managers make smart and cost effective
decision while financial accounting mainly focuses on improving the economic image of the
company.
CVP involves cost, expenses involved in production and selling of products and services,
volume-number of units of products produced and the amount of services offered and profit the
difference between selling and the cost.