What are the benefits and shortcoming of only using qualitative techniques to make long term financial decisions?
Qualitative techniques are used to make long-term financial decisions among small and medium enterprises (SMEs) with great consistency. The qualitative based decisions are made on experiential knowledge of the various factors involved rather than on monetary measurements, yet they have significant impact on profitability. Techniques used for long-term decision-making are interpretive and seek to achieve in-depth understanding of the company's overall situation. Companies use techniques such as SWOT, PESTLEI, human resource management, and Stakeholder analysis to guide their decisions. These techniques are considerate of …show more content…
Quantitative techniques while placing emphasis on passionate or gut decisions by managers, do not have one hundred percent accuracy in making a financial decision. Assessing the strengths and weaknesses, opportunities and threats will give a clear picture of the organization but can not be a stand alone decision process. A company will be putting itself at risk by making a financial decision devoid of actual financial analysis.
Quantitative techniques such as behavioral observation are at a disadvantage for companies who are interested in generalizing data analysis and predicting new trends for the company. The subjectivity of qualitative decision-making reduces the accuracy of fore-casting. Decisions such as capital budgeting must include actual quantitative tools because qualitative analysis falls short in reliability when a company attempts to predict the future trends of the company
The nature of the business will determine the level of utility that can be gained from qualitative techniques. Businesses that rely heavily on customer preference and market trends such as the case in the fashion industry, will reap the benefits of qualitative tools. Finance based companies that need to make number-based decisions can not solely rely on those techniques.
The total reliance on qualitative decision making is not a typical feature for SMEs as it is usually