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CostBenefitEthics.pdf
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BA 301
Research & Analysis of Business Problems
97
Problem Solving Framework 98
Context & Background
Problem Analysis & Description
Solution Development
Evaluation & Decision- Making
Communication & Implementation
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Problem Solving Framework 99
Context & Background
Problem Analysis & Description
Solution Development
Evaluation & Decision- Making
Communication & Implementation
Cost Benefit Analysis 100
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Cost Benefit Analysis Details
A Cost Benefit Analysis (CBA) is a technique for
assessing the monetary costs and benefits of an
investment project over a given period of time.
It can be used as a decision tool if comparing the net
benefit of a number of different options.
It can be used to help sell the project after a decision has
been made.
101
How Do You Do It?
What are the costs?
What are the benefits?
Is there a net benefit?
What’s the timeframe?
Tangible versus intangible?
102
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Tangible Versus Intangible
In the simplest form, you only use financial costs and
financial benefits.
A more sophisticated approach attempts to include
intangible costs and benefits:
Stress free travel
Aesthetics
Environmental impact
Intangibles are subjective, and sometimes more art
than science.
103
Other Issues
Costs can be one-off, or ongoing.
Benefits are often received over time.
Build this in by considering payback time.
We often look for payback over a fixed period of
time.
Discounting the future value of benefits.
104
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Small Business Decision 105
What’s The Decision?
He’d like to close at 9 PM on Monday through Friday.
Should he do it?
What data & information does he need to do a Cost
Benefit Analysis?
106
Operational
costs for that
last hour
Revenue for
that last hour
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Tangible Costs & Benefits 107
Tangible Benefits
TOTAL
Tangible Fixed Costs
TOTAL
NET
Tangible Costs & Benefits 108
Tangible Benefits
Profit (460 * $0.05) $25.00
TOTAL $25.00
Tangible Costs
TOTAL
NET
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Tangible Costs & Benefits 109
Tangible Benefits
Profit (460 * $0.05) $25.00
TOTAL $25.00
Tangible Costs
Power $3.00
Wages $20.00
TOTAL $23.00
NET
Tangible Costs & Benefits 110
Tangible Benefits
Profit (460 * $0.05) $25.00
TOTAL $25.00
Tangible Costs
Power $3.00
Wages $20.00
TOTAL $23.00
NET BENEFIT +$2.00
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What Are Some Intangibles?
Employee satisfaction – Assistant Manager can be
with family at night.
Employee safety – higher crime at night.
Customer satisfaction – occasionally a key customer
needs copies at night.
111
Another Example
Scenario:
A sales director is deciding whether to implement a new
computer-based contact management system.
He doesn’t have many computers and his salespeople
are not that computer literate.
He knows that he can increase contact numbers and
give better customer service with the system. Efficiency
will be improved.
What should he do?
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Tangible Costs 113
Computer Equipment
Computers $10,000
Printers $2,500
Cabling/Installation $3,000
Software $10,000
TOTAL COSTS
Tangible Costs 114
Computer Equipment
Computers $10,000
Printers $2,500
Cabling/Installation $3,000
Software $10,000
Training
Computers (8 @ $400) $3,200
Keyboards (8 @ $400) $3,200
Software (12 @ $700) $8,400
TOTAL COSTS
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Tangible Costs 115
Computer Equipment
Computers $10,000
Printers $2,500
Cabling/Installation $3,000
Software $10,000
Training
Computers (8 @ $400) $3,200
Keyboards (8 @ $400) $3,200
Software (12 @ $700) $8,400
Other Costs
Lost Time (40 @ $200) $8,000
Lost Sales $20,000
Lost from inefficiency $20,000
TOTAL COSTS
Tangible Costs 116
Computer Equipment
Computers $10,000
Printers $2,500
Cabling/Installation $3,000
Software $10,000
Training
Computers (8 @ $400) $3,200
Keyboards (8 @ $400) $3,200
Software (12 @ $700) $8,400
Other Costs
Lost Time (40 @ $200) $8,000
Lost Sales $20,000
Lost from inefficiency $20,000
TOTAL COSTS $88,300
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Tangible Benefits 117
Benefits
TOTAL BENEFIT
Tangible Benefits 118
Benefits
More Mail Campaigns $40,000 per year
Sustain Telesales Campaigns $20,000 per year
Better Follow-Up $30,000 per year
Improved Customer Service $20,000 per year
Better Customer Information $10,000 per year
Better Sales Management $20,000 per year
TOTAL BENEFIT
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Tangible Benefits 119
Benefits
More Mail Campaigns $40,000 per year
Sustain Telesales Campaigns $20,000 per year
Better Follow-Up $30,000 per year
Improved Customer Service $20,000 per year
Better Customer Information $10,000 per year
Better Sales Management $20,000 per year
TOTAL BENEFIT $140,000 per year
Payback Time: $88,300/$140,000 = 0.62 (about 8 months)
What Are The Intangibles?
Personnel discomfort with a new system.
General organizational disarray with new
procedures and processes.
Happier, more organized salespeople.
Employee attitudes about management investment
in personnel.
Others?
120
BA 301 Fall 2013 - Build
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Cost/Benefit Summary
Cost/Benefit analysis is a powerful, widely used
and relatively easy tool for deciding to implement
a decision.
First, work out how much the decision will cost (don’t
forget opportunity costs).
Where costs or benefits will be received over time –
work out the time it will take for the benefits to
outweigh the costs.
121
BA 301 Fall 2013 - Build
Measuring Intangibles 122
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Measuring Intangibles 123
Measuring Intangibles 124
Option 1 – Fix the problem
12.5 million cars at $11/car $137.5 million
Option 2 – Pay for the injuries/deaths
180 deaths @ $200,000/death $36 million
180 injuries @ $67,000/serious injury $12.1 million
2100 burned out vehicles @ $700/vehicle $1.5 million
TOTAL $49.6 million
Intangibles?
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Feasibility Analysis 125
Feasibility Analysis 126
Economic
Organizational
Legal
Technological
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BA 301
Research & Analysis of Business Problems
127
Term Paper Hints
Follow the format and watch your grammar, spelling and “neatness”
Connect one section to another – support your conclusions and
recommendations
Have enough research sources and make sure they are “good”
Use the tools reviewed in class – decision matrix, decision criteria, etc.
Brainstorm and present more than one solution, and present a clear
rationale for your choice
Don’t forget to explicitly state the problem
Lastly, make sure there is a specific, single recommendation, and that it is
stated clearly!
128
BA 301 Spring 2014 - Data Analysis
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Term Paper Grading 129
Group Presentation Outline
Title Slide/Agenda
Group number and members
Background Information (1 to 3 slides)
Problem Definition(1 or 2 slides)
The GAP (desired and actual)
The Cause or Causes
A concise problem statement
Alternative Solutions (multiple slides)
Recommendation
With solution and justification
Conclusion
130
BA 301 Spring 2014 Problem Definition
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BA 301
Research & Analysis of Business Problems
131
Problem Solving Framework 133
Context & Background
Problem Analysis & Description
Solution Development
Evaluation & Decision- Making
Communication & Implementation
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Trust In Organizations 134
Not business!
How Did We Get Here? 135
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Define Ethics 136
Ethics 137
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Business Ethics
The principles, values and standards that guide behavior
in the world of business
Principles – specific and pervasive boundaries for
behavior that are universal and absolute.
Standards are measures or norms.
Values are qualities considered worthwhile. Values
help develop norms that are enforced.
138
Name Some Values 139
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Corporate Values
Are the values real or published?
Enron valued:
Communications
Respect
Integrity
Excellence
What did they really value (at least some of the senior
management)?
Money and profit – at the expense of customers,
shareholders and employees.
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It’s Easy, Right? 141
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It’s Easy, Right? 142
It’s Easy, Right? 143
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It’s Easy, Right? 144
Making Ethical Decisions
Ethics discussions should play a part “before” you make the final decision. Do an ethical screen.
Ethical issues are not “soft”.
Encourage team-members to speak up about concerns.
Assign an ethical watchdog – an “ombudsman”.
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At A Minimum…
Do the legal test:
Is it against the law, or against company regulations?
Do the “stakeholder” test:
Is the decision in the best interest of key corporate
stakeholders?
146
Or…
The Wall Street Journal test.
The Platinum Rule test.
The Mom test.
The personal gain test.
The Cost-Benefit test.
147
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Ethical Traps
If it’s legal, it’s ethical.
Everyone else does it.
I was only trying to help.
It’s owed to me.
As long as I don’t gain.
148
Encouraging Ethical Behavior
How can you encourage ethical behavior?
Define and communicate ethical standards
Educate and train
Case discussions and exercises
Is unethical behavior always conscious and explicit?
Bounded ethicality – people sometimes act in ways that are
inconsistent with their ethical standards
Identify and understand psychological tendencies in order
to better guarantee ethical behavior
149
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Many Are Doing It Right 150
