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Answer Upon - Cost Benefit Analysis-How It Helps You Make Better Financial Decisions-9 Ways
It is finally here! After all these months of working to open your business you finally made it. You have not slept much these last few days, wondering how everything would turn out. You are a bit nervous. You wonder if everything is in place, what if I forgot something that needs to be done, will anyone show up, do I have enough workers. These questions will keep going through your mind.Keeping money in your cash register is a necessity that many owners forget. You should start out with a certain amount of money in your cash register. Many small business owners begin the day with $100. You also need to keep extra money somewhere where you can make change if your cash register runs out
Some costs that are commonly missed are: - installation costs - initial transport costs - tender preparation costs - de-commissioning of old plant - de-commissioning of this plant at the end of its life - extra administrative effort - labor on-costs
5.Clearly shows assumptions
Cost Benefit Analysis offers the ability to clearly outline all assumptions and how they were arrived at. This is especially important when discussing the merits, or otherwise
I would like to say that, the biggest room in the world is the room for improvement. I believe everyone wants to constantly improve. I believe each one of us is created as perfection; however, the results we create are excellent, so there is lots of room for improvement in what we do. The associates I hired in my bicycle and lawnmower shop like myself, were never perfect; however, they were excellent. Working with them as they improved taught me new ways to show forgiveness, understanding, and patience.My first employee was in a wheelchair from an auto accident that happened when he was sixteen. I hired him to answer the telephone and talk to customers who came into the store. My second emplo
1.Forces more options
It is pointless doing this analysis if you do not investigate ALL the available options. More options will mean a better outcome. What is the use of just hoping that your decision is best if you haven't spent the time to ensure you have canvassed ALL the feasible ways of solving your problem?
Maybe the 'Do Nothing' option is the best way. Unless you test it out you won't know.
There are resources to assist in thinking more creatively thereby allowing you to generate more ideas and options. Search the Internet under "creative thinking", you will find many to choose from.
Thinking through all the options lays a good foundation for the analysis that follows.
2.Puts $s to costs and benefits
Placing a $ figure against all the costs and benefits provides a standardized way of looking at the answer. The answer is termed the Benefit Cost Ratio. There are certain costs and benefits that must be included and there are some that must be excluded.
Follow the proven guidelines and you can't go wrong.
Some costs and benefits that must be included are: - purchase price - set up costs - on-going maintenance costs - resale price - savings in labor, input resources, increased safety,
Some costs and benefits that must be excluded are: - sunk costs - depreciation and other accounting arbitrary allocations - loan interest and repayments - price changes due to inflation
This method provides a clear analysis of the option so that the best option stands out.
3.Takes account of inflation/time value of money
Typically the life of the assets or the decisions being made, have an impact over more than 1 year. This is usually 3–5 years (computers, software, factory machinery), 20 years for some large electrical equipment and even up to 100 years for underground pipes as used in water and sewer reticulation.
As you would know, inflation, year by year, reduces the buying power of the dollar, causing us to spend more each year to purchase the same item. So it is with projects whose life span is more than one year. Costs and benefits that occur in year 3 or 4 of the project would not have the same impact as if they occurred in year 1. Agreed?
This is a very important aspect of Cost Benefit Analysis-one you cannot discard. If you want to make the best decision this needs to be taken into account.
Cost Benefit Analysis models clearly outline the assumptions, the costs, benefits and the method of adjusting for changes in purchasing power over time.
4.“Cradle to Grave view of assets
When making decisions regarding asset purchases it is critical that ALL the costs relating to the asset are included in the proposal. How can you make a valid comparisons between competing proposals unless all the costs are thought through and included?
Some costs that are commonly missed are: - installation costs - initial transport costs - tender preparation costs - de-commissioning of old plant - de-commissioning of this plant at the end of its life - extra administrative effort - labor on-costs
5.Clearly shows assumptions
Cost Benefit Analysis offers the ability to clearly outline all assumptions and how they were arrived at. This is especially important when discussing the merits, or otherwise,
This week is National Customer Service Week. As we celebrate the people who pay our bills, I want to give a few low-cost and no-cost ideas to WOW Customers so that they come back again and again and tell everyone they know. 1. Have a live person answer the phone – with no wait time. 2. Southwest Airlines sends out birthday cards to their most valued customers. Consider sending your best customers birthday cards. 3. Myra Golden Seminars sends all meeting planners a box of Death by Chocolate cookies to thank them for their business. 4. Be Gumby. The Container Store has adopted Gumby as their unofficial mascot. Gumby symbolizes be
Thinking through all the options lays a good foundation for the analysis that follows.
2.Puts $s to costs and benefits
Placing a $ figure against all the costs and benefits provides a standardized way of looking at the answer. The answer is termed the Benefit Cost Ratio. There are certain costs and benefits that must be included and there are some that must be excluded.
Follow the proven guidelines and you can't go wrong.
Some costs and benefits that must be included are: - purchase price - set up costs - on-going maintenance costs - resale price - savings in labor, input resources, increased safety,
Some costs and benefits that must be excluded are: - sunk costs - depreciation and other accounting arbitrary allocations - loan interest and repayments - price changes due to inflation
This method provides a clear analysis of the option so that the best option stands out.
3.Takes account of inflation/time value of money
Typically the life of the assets or the decisions being made, have an impact over more than 1 year. This is usually 3–5 years (computers, software, factory machinery), 20 years for some large electrical equipment and even up to 100 years for underground pipes as used in water and sewer reticulation.
As you would know, inflation, year by year, reduces the buying power of the dollar, causing us to spend more each year to purchase the same item. So it is with projects whose life span is more than one year. Costs and benefits that occur in year 3 or 4 of the project would not have the same impact as if they occurred in year 1. Agreed?
This is a very important aspect of Cost Benefit Analysis-one you cannot discard. If you want to make the best decision this needs to be taken into account.
Cost Benefit Analysis models clearly outline the assumptions, the costs, benefits and the method of adjusting for changes in purchasing power over time.
4.“Cradle to Grave view of assets
When making decisions regarding asset purchases it is critical that ALL the costs relating to the asset are included in the proposal. How can you make a valid comparisons between competing proposals unless all the costs are thought through and included?
Some costs that are commonly missed are: - installation costs - initial transport costs - tender preparation costs - de-commissioning of old plant - de-commissioning of this plant at the end of its life - extra administrative effort - labor on-costs
5.Clearly shows assumptions
Cost Benefit Analysis offers the ability to clearly outline all assumptions and how they were arrived at. This is especially important when discussing the merits, or otherwise
Your business will need to belong to certain fields in order to qualify for government finance. Moreover, you’ll need to present a business plan with market analysis and other provisions. Some government agencies offer loans but also grants which you won’t have to repay. You can contact the different agencies for more information or search the net to find out about the different programs.Starting Business Loans If you don’t fall into the categories required to obtain government funds, you will need to resort to private funding. This also has its tricks, there are different kinds of business loans and not all of them will provide a solution to your funding needs. Moreover, there
Some costs and benefits that must be excluded are: - sunk costs - depreciation and other accounting arbitrary allocations - loan interest and repayments - price changes due to inflation
This method provides a clear analysis of the option so that the best option stands out.
3.Takes account of inflation/time value of money
Typically the life of the assets or the decisions being made, have an impact over more than 1 year. This is usually 3–5 years (computers, software, factory machinery), 20 years for some large electrical equipment and even up to 100 years for underground pipes as used in water and sewer reticulation.
As you would know, inflation, year by year, reduces the buying power of the dollar, causing us to spend more each year to purchase the same item. So it is with projects whose life span is more than one year. Costs and benefits that occur in year 3 or 4 of the project would not have the same impact as if they occurred in year 1. Agreed?
This is a very important aspect of Cost Benefit Analysis-one you cannot discard. If you want to make the best decision this needs to be taken into account.
Cost Benefit Analysis models clearly outline the assumptions, the costs, benefits and the method of adjusting for changes in purchasing power over time.
4.“Cradle to Grave view of assets
When making decisions regarding asset purchases it is critical that ALL the costs relating to the asset are included in the proposal. How can you make a valid comparisons between competing proposals unless all the costs are thought through and included?
Some costs that are commonly missed are: - installation costs - initial transport costs - tender preparation costs - de-commissioning of old plant - de-commissioning of this plant at the end of its life - extra administrative effort - labor on-costs
5.Clearly shows assumptions
Cost Benefit Analysis offers the ability to clearly outline all assumptions and how they were arrived at. This is especially important when discussing the merits, or otherwise
Generally when a business gets a complaint, only one, they can look the other way unless it is a very large client. Yet when they get two about the same perceived problem, then the businessperson ought to stop and consider the source of both complaints. Why is that you say; two complaints is not a lot really? True enough indeed, let me tell you why two complaints might actually be 40-60 complaints instead of the two that you actually heard about.You see regarding the "only 2nd person to ever complain theory” that is somewhat irrelevant as I am sure you as a businessperson have thought of this issue yourself at one time. After all it is your business and you probably know most everything going
This is a very important aspect of Cost Benefit Analysis-one you cannot discard. If you want to make the best decision this needs to be taken into account.
Cost Benefit Analysis models clearly outline the assumptions, the costs, benefits and the method of adjusting for changes in purchasing power over time.
4.“Cradle to Grave view of assets
When making decisions regarding asset purchases it is critical that ALL the costs relating to the asset are included in the proposal. How can you make a valid comparisons between competing proposals unless all the costs are thought through and included?
Some costs that are commonly missed are: - installation costs - initial transport costs - tender preparation costs - de-commissioning of old plant - de-commissioning of this plant at the end of its life - extra administrative effort - labor on-costs
5.Clearly shows assumptions
Cost Benefit Analysis offers the ability to clearly outline all assumptions and how they were arrived at. This is especially important when discussing the merits, or otherwise
Who doesn’t love a sale? Grand Opening sales, Clearance sales, and others that I’ve never taken advantage of -- Midnight sales! We all love to get quality for a lesser price. Bargains have become part of the American lifestyle and with it the added bonus of bragging rights… “I bought the exact same car but I paid less than you did”.Sales are good for the business owner too. It brings in needed cash flow while clearing the shelves for new merchandise, but what about the Going-Out-Of-Business sale? You will find bargains hard to pass up because these sales mean the business has dried up and the owner can no longer keep his door open. Sadly, this owner will not be generating any more revenu
Some costs that are commonly missed are: - installation costs - initial transport costs - tender preparation costs - de-commissioning of old plant - de-commissioning of this plant at the end of its life - extra administrative effort - labor on-costs
5.Clearly shows assumptions
Cost Benefit Analysis offers the ability to clearly outline all assumptions and how they were arrived at. This is especially important when discussing the merits, or otherwise, of each competing proposal. It also provides a firm foundation for discussing the lessons learnt once the successful proposal has been implemented.
6.Clearly shows which projects are VIABLE and which are UNVIABLE
The Cost Benefit Analysis model clearly shows which option is worthwhile adopting and which is not. If the Benefit Cost Ratio is 1 or greater, that project is viable, less than 1 means it is unviable (all other things being equal). Once this has been calculated for all competing feasible options you can then choose the option with the highest Benefit Cost Ratio from those that are classed as viable.
The option with the highest Benefit Cost Ratio will also add the most shareholder value as well.
7.Provides basis for sensitivity analysis
No doubt, when you build your assumptions some elements are more sensitive to change and produce a greater impact on the overall result than others. The process to test these elements is called Sensitivity Analysis. Since the assumptions are clearly laid out, it is usually quite easy to create a Sensitivity Table. This can add a lot of weight to your proposal.
8.Makes post completion review a breeze
Once the correct option has been chosen, funded and implemented and has been operating for about a year it is a good time to go back and assess the quality of your original assumptions. You can check on the cost and benefits elements-compare assumed prices with actual. and see how close they were.
What lessons can be learned here? Mostly costs are underestimated and benefits overestimated. Were there any mistakes made?
This analysis can help you ensure that any mistakes made are not transferred to the next project.
9.Proven framework–makes selling easier
If you need to 'sell' your project to various stakeholders, be they employees, shareholders, the press, unions, politicians or the Board of Directors, the fact that you have used the proven, tested process will make the selling easier.
These are just a few of the ways Cost Benefit Analysis can help you make better decisions.
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