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# Cost Benefits Analysis

490 words - 2 pages

University of Phoenix |
Cost Benefits Analysis |
BSA310/Paula Billups |
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10/27/2014 |

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Cost Benefits Analysis

Evaluating quantitatively whether to follow a course of action

Basic cost-benefit analysis is a moderately easy and extensively used method for determining whether to make a change. As it is named suggests using the technique simply add up the value of the benefits of a course of action, and subtract the costs associated with it.
Cost are either one-off or may be continuous. Benefits are most often received over time. We create this effect of time into our analysis by calculating a payback period. This is the time it takes for the benefits of a change to repay its costs. Many businesses look ...view middle of the document...

A more sophisticated approach to cost/benefit measurement modes is to try to put a financial value on intangible costs and benefits. This can be highly subjective, is, for example, a historic water meadow worth \$25, 000, of is it worth \$500, 000 because of its environment importance?

Example:

A sales director is deciding whether to implement a new computer-based contact management and sales processing system. His department has only a few computers, and his sales people are not computer literate. He is aware that computerized sales forces can reach more customers and gave a higher quality of reliability and service to those customers. They are more able to meet commitments, and can work more efficiently with fulfillment and delivery staff.
Cost/Benefits Analysis is a powerful, widely used and relatively easy tool for deciding whether to make a change. To use the tool, the first work out how much the change will cost to make. Then calculate the benefits you will from it. Where costs or benefits are paid or received over time, work out the time it will take for the benefits to repay the cost.
Cost/Benefits Analysis can be carried out using only financial cost and financial benefits. You may, however, decide to include intangible items within the analysis. As you must estimate the value for these, this inevitably brings an element of subjectively into the process.

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