Question

1) How do managers use the concept of cost-benefit for short-run decisions during each of the following four phases of the management process - planning phase, performing phase, evaluating phase, communicating phase?

Answer 1

Cost benefit concept- This concept says that there are two important elements of any business, i.e. Cost and profit. If cost is minimized, profit automatically increases so for any business, cost should be as reduced as possible so that profit can increase. This concept tells the strength and weakness of the projects.

Cost - benefit concept for the following four phases-

Planning phase- Planning process is the beginning of new project, before starting a new project or assignment, forecast is done and goals are set to achieve the final target. Cost is estimated by making budget and estimated profit is calculated. As per this concept, further steps are taken to control the cost.

Performing phase- This phase is the time when product or service is sold in the market and performance for the same is seen. In this phase, it is analyzed whether the cost is increasing or not and if it is increasing then how much? How much benefit company is getting for sacrificing the cost?

Evaluating phase- In this phase, project performance is evaluated 360 degree. If different alternatives are available, these are evaluated and best alternative is chosen that provides more benefits over cost. Opportunity cost is also taken into consideration in this phase. In this process, cost is critically examined.

Communication phase- This process involves the information system, accounting information system etc. Communicating phase is to communicate the valuable information within the organization through means of information technology. It need computers, phones, systems, wires, software and hardware. These all incur heavy cost so company has to see the cost incurred in this process and analyzes the benefits from those means.