Question

What is cost-benefit analysis? Summarize the concept. bring 3 situations from your own life with explicit and implicit costs and benefits.

Answer 1

Cost benefit analysis (CBA) is a procedure for estimating all costs involved and possible profits to be derived from a business opportunity or proposal.

Summarizing the concept :

Organizations rely on cost benefit analysis to support decision making because it provides evidence-based view of the issue being evaluated—without the influences of opinion, politics, or bias.

Steps of performing CBA :

1. Establish a framework to outline the parameters of the analysis.
2. Identify costs and benefits so they can be categorized by type, and intent.
3. Calculate costs and benefits across the assumed life of a project.
4. Compare cost and benefits using whole information.
5. Analyze results and make an informed, final recommendation.

The primary categories that costs and benefits fall into are direct/indirect, tangible/intangible, and real.

3 situations from own life with explicit and implicit costs and benefits :

(If iam a business owner )

Explicit cost :

1.payments for wages

2. salaries

3. rent

Implicit cost :

1. Building used for business operations

2. Depreciation of assets or goods, materials

3. Equipment needed for the business's operations

Benefits :

1. Cost benefit :

a) Less staff needed dedicated to cash register.

b) Eliminates cost of old systems (if replaced)

2. Customer benefits :

a) More customers :

i) seamless shopping to purchase, and sorter wait leads to fewer lost customer.

ii) Innovation creates word of mouth.

b) Higher loyalty :

i) Improved fast & convinient checkout.

ii) Better email capture for marketing.

c) Higher spend per customer :

Improved service levels with ability to walk with customers to cross-sell & upsell them on other merchandise.