84 Understanding Rational Decision Making
- How convenient is their location?
- What customer service and ambiance do they provide?
- What payment terms and delivery options do they offer?
- What return policy and after-sales service do they offer?
In addition to answers to these questions, buyers may also require benchmark information about
the supplier’s historical price levels and performance, well as competing vendors’ prices, delivery
schedules, and service levels.
Budgetary Decisions: Responses to Requests for Resources
Audience members who have the power to allocate an organization’s resources make budgetary
decisions. Such decisions grant other professionals the right to spend the organization’s money
on projects, equipment, new personnel, and so on. Examples of budgetary decisions by upper
management include decisions to allow middle managers to upgrade the fi rm’s computer sys-
tem, to add a requested line item to next year’s budget, and to reject an employee’s request for
a raise.
Despite their apparent similarities, budgetary decisions differ from oversight decisions.Whereas oversight decisions focus on the organization’s objectives and the strategies necessary
to achieve them, budgetary decisions focus on allocating resources appropriately and keeping
costs under control. Professionals seek budgetary decisions when they want funding from
sources within their own organization. Documents and presentations professionals produce
in order to elicit budgetary decisions from those in charge of the purse strings include pur-
chase proposals , capital projects proposals , staffing proposals , salary requests , and departmental budget
proposals.
Budgetary decisions are often political. Both internal and external politics play a big role in uni-versity CFOs’ choice of budget decision criteria, especially in the budgetary decisions of younger
CFOs and those with less seniority.^105 To a large extent, top managers are able to control the
outcome of budgetary decisions by selecting the people who are included in the budget-making
process.^106
Decision criteria for budgetary decisions vary somewhat depending on the audience and theorganization. A study comparing how corporate CEOs and Chief Information Offi cers (CIOs)
allocate existing funds in their IT budgets fi nds that CEOs base their decisions on only three cri-
teria: capital budgeting calculations, cost-benefi t calculations, and return on investment. CIOs, on
the other hand, base their decisions on the same three criteria used by CEOs as well as an additional
four: the proposed expenditure’s strategic and operational alignment, its risks, fi t with the social
subsystem, and technical benefi ts.^107 Unlike managers in small fi rms, managers in large fi rms tend
to employ sophisticated techniques such as discounted cash fl ow analysis when making capital
budgeting decisions^108 and use different decision criteria when budgeting for existing as opposed
to new capabilities.^109
Organizations in the health care sector use a different but parallel set of criteria when mak-ing budgetary decisions. When times are tough, state health agencies commonly use fi ve key
criteria for deciding which programs get funding: whether the program is “mission critical,”
the consequences of not funding the program, the availability of fi nancing, external directives
and mandates, and the magnitude of the problem the program addresses.^110 Criteria used by