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Qualitative Factors
When financial information is prepared to help to
identify the relevant financially quantifiable consequences of alternative
courses of action it is always important to consider carefully whether
a particular decision would have important consequences that are difficult
to present in financially quantifiable terms. Industrial relations,
customer service, quality or environmental considerations may be affected
by a decision, and may have significant implications for cash flow in
the longer-term. Factors like these that are difficult to evaluate objectively
in financial terms are usually called qualitative or non-financial factors
(see Relevant Costs and Revenues). The importance of such factors must
be subjectively evaluated in the light of the financial analysis.
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Where changes in the production schedule
are being considered, where a product is to be dropped from production
(dropping as segment), or where limiting factors necessitate a reduction
in planned production levels, the effect on customers must be considered.
If customers rely on the company for supplies of a particular product,
or where they expect to be able to purchase a full product range from
one supplier it may be more important to retain customer loyalty and goodwill
despite making sub-optimal short-run decisions in quantifiable financial
terms. In a make or buy decision, the quality and reliability of supply
from an outside supplier, and considerations of technology development
and trade secrets will influence the decision whether to obtain components
from an outside supplier.
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