Analyzing the Investment Decision in Modular Manufacturing Systems Within a Critical-Thinking Framework

The absence of the reasoning stage in the analysis of long-term investment decision creates a serious gap in this classic topic in management accounting literature. The purpose of this paper is to fill this gap. The traditional analysis focuses on the evaluation stage using capital budgeting tools to rank alternative investment proposals. It tacitly assumes that the decision is to be made, thereby bypassing the reasoning stage. However, the reasoning stage may reveal that there is no sufficient justification (reasoning) to consider searching for and evaluating alternative proposals for this decision. Focusing on the reasoning component, the paper combines Fritz's (1989, 1990) “creative tension” and Janis and Mann's (1977) “challenges” as the driving forces for the problem-finding step. To demonstrate the significance of filling the reasoning gap in the long-term investment decision, the paper selects the modular manufacturing system and the complex investment decision required for its adoption. Using hypothetical data, the paper employs the Dempster-Shafer Theory of Evidence and Omer, et al's (1995) algorithm to compute the belief and plausibility values of the three reasoned actions: (1) maintain the status quo, (2) adopt Level 2 (assembly) modularity or (3) adopt Level 2 (design) modularity.

The contributions of the paper include (1) highlighting a critical gap currently existing in one of the classical decisions in the management accounting literature; (2) developing a framework for filling this gap and (3) applying this framework to the intricate nature of the modular manufacturing system and its complex investment decision.