COST BENEFIT ANALYSIS

CBA i.e., Cost Benefit Analysis is a management tool helps in utilizing the maximum potential and opportunities by spending more or, reducing the expenses on the basis of future analysis. It fulfills the purpose of being a successful entrepreneur by peeping into the future and getting the best out of it by spending the minimum with the help of reducing unnecessary costs. It analyses both tangible and intangible benefits that affect the functioning and thereon the final results of an organization.

Any industry or organization needs an all time assessment and evaluation of its resources involved in production and profits, for this an organization needs to be in line with the latest technologies and continuously upgrading and innovating itself to cope up and survive in this competitive business world. CBA helps an organization in fulfilling the above stated objective by introducing the necessities and replacing or removing the unneeded. CBA deals both with the quantitative and qualitative analysis with the help of its three tools: Hard Dollar savings dealing with the quantitative aspects, Soft Dollar savings dealing with the qualitative aspects and lastly Cost Avoidance reducing or eliminating the future cost.

It is difficult to say that every time this technique will work because ultimately business is a risk game and taking risk does not always account for a rational approach towards the things. Moreover it is easy to analyze the monetary things but, analyzing and working on the non monetary aspects are a bit difficult to achieve. I also think this is a very conventional approach as all the time you cannot do the mathematics of being right or wrong as sometimes you have to bear losses for a huge profit lying ahead.

One thing I liked about CBA is that it helps in cutting down the unnecessary costs by replacing the old technologies that are not viable anymore and also cutting down the costs by removing the extra and unneeded. But, looking from the other side sometimes companies need to spend more in order to improve the quality so CBA should not act as a barrier for just reducing the present costs and ignoring the future. Sometimes companies even need to take quick decisions and CBA being a time taking process cannot be applied all the time.

It is good to measure and quantify the opportunities and reduce the risk factors and the cost involvement. But, businesses should not be bound by this kind of analysis all the times as this gives you defined vicinity to work on and narrow downs your approach. CBA should not be a constraint for businesses in making strategies.