Blog entry by Orji Anyianuka

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by Orji Anyianuka - Saturday, 10 April 2021, 9:04 AM
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Without options, there is really no decision to make. So an important question in decision making is how to choose one option over another. In systematic decision making, you first frame your decision question, clarify your objectives, list your criteria, come up with options and then evaluate your options based on your criteria. 

This process is akin to cost-benefit analysis because after reaching a decision, you draw up an action plan to implement your decision. These actions are investments(costs), and the outcomes you hope to achieve are the benefits. 

You want to know if your expected results are worth your efforts. In cost-benefit analysis, therefore, you tally up all costs and subtract that amount from the total projected benefits of the project or decision. This process has many advantages but its limitations can make it unworkable in many situations.

The limitations of Cost-Benefit Analysis include 1. It is impossible to predict all the factors in a business situation that may impact an outcome - e.g. changes in demand, costs, e.t.c. 2. Your analysis is only as good as the data used - this creates a problem because estimates rely on guesses,  3. Cost-Benefits Analysis works better for short- and mid-length projects - for longer time frames, your guesses will not be as good as they will be for the short term. 4. Cost-Benefits analysis is too focused on profit and leaves out non-monetary reasons like morality and “human” perspectives on business issues.

[ Modified: Friday, 11 June 2021, 10:08 AM ]