rule of thumb

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rule of thumb

an aid to decision-making involving the use of conventions or mechanistic formulas to determine prices, production schedules, advertising budgets etc. Rules of thumb are used as rough guides or approximations when, because of uncertainty, it is impossible to determine optimal solutions. Many firms, for example, use cost-based formulas to set prices, adding a conventional unit profit mark-up to costs, in the absence of totally reliable information about demand. Similarly, firms often set the value of their advertising budget as a fixed percentage of their sales revenue. See COST-BASED PRICING, UNCERTAINTY AND RISK.

rule of thumb

a rough-and-ready decisionmaking aid that provides an acceptably accurate approximate solution to a problem. Where refined decision-making processes are expensive in terms of information-gathering and information-processing, then rules of thumb may be justified. For example, COST-PLUS PRICING may be used in practice by firms in the absence of sufficient knowledge about future demand and cost conditions to permit marginal weighting of revenues and costs to achieve an optimum decision. See RISK AND UNCERTAINTY.
References in periodicals archive ?
In my new book, Signal Integrity: Simplified, I have collected 100 useful rules of thumb.
The bottom line: rules of thumb are acceptable starting points, but a transaction needs to take into consideration the operating characteristics of the practice being valued.
Rather, it used rules of thumb to simplify its analysis.
Lacking quantitative measures for comparing the benefits of insurance against its costs, firms understandably develop and rely upon simple rules of thumb for determining how much risk they should retain.
Rules of Thumb and comparable data are often sufficient to provide immediate answers and to begin the problem solving process.
Factory work was done according to the craft system; jobs were "trades," and their secrets and rules of thumb were passed down, slowly and grudgingly, from master to apprentice.
Some molders select barrel temperatures, screw speeds, and backpressures using rules of thumb that may not provide appropriate or optimal melt quality.
These rules of thumb would need to be tailored to your individual situation by documenting actual results.
Formulas and rules of thumb The most commonly used rules of thumb are revenue multipliers, however, their application may lead to inaccurate results.
of exactly 2,688, rules of thumb," all concise, all selected to
Relying on experience, rules of thumb and intuition, these doctors link the color, shape and surface features of their patients' tongues to specific health disorders.
Rules of Thumb for Chemical Engineers solves process design problems quickly, accurately and safely, with hundreds of common sense techniques, shortcuts and calculations.