What is the limitation of cost based data in decision making?

The major limitation of using cost-based data in decision making is that most cost-based data is backwards looking or historical and decisions are made for future actions. If there is a possibility that future costs would be different (e.g., a commodity like oil is used in the production process), there is a likelihood that the decision may be different as well.

One way to minimize the limitation is to perform sensitivities on each cost basis to better understand how risky a future change in costs may be. From there, define three or four scenariOS (many companies look at the worst case, expected case, target case and best case) and determine if a decision would be different in any of those cases. Finally, weight the likelihood of each case to determine what decision will be best for the company.