 In this contemporary era that we find ourselves in, businesses are faced with the inevitable task of making decisions day in, day out. This is why modern decision in business is very crucial.
These decisions will either be beneficial or detrimental to the organization, therefore critical and rational thinking must take place.
Table of Contents
Some modern decision-making techniques you are definitely interested in include:
Cost-Benefit Analysis (C.B.A):
This is one of the modern decision techniques in business. It is a process of comparing the projected cost with the anticipated benefits (opportunities) associated with a business plan or project in order to determine if it makes sense from a business perspective or not.
On a general basis, Cost-Benefit Analysis involves tallying up all costs of a decision and subtracting that amount from the total projected benefits.
If the benefits out-weigh the costs you could argue that the decision is a good one to make, if on the other hand the costs out-weigh the benefits, then the answer is clear.
How to do a Cost-Benefits Analysis
1. Establish a framework for your analysis:
for your analysis to be as accurate as possible you must first establish the framework within which you are conducting it. What exactly this framework looks like will depend on the specific of your organization.
You simply need to identify the goals and objectives you are trying to address with the decision. Ask yourself, what do you need to accomplish to consider the endeavor a success?
This will help you identify and understand your cost and benefit and will be critical in interpreting the result of your analysis
Recommendation: Financial Statements: A Comprehensive Information You Need To Know
Similarly, decide what metric you will be using to measure and compare the benefit and the cost the benefit and the cost to accurately compare the two,but your cost and benefit should be measured in the same common currency. these don’t need to be an actual currency but it’s done frequently a signing monetary value to each potential cost and benefit.
2. Identify your costs and benefits
Your next step is to sit down and compile two separate lists. One should be for all the projected costs and the other for all the projected benefits of the decision to be made.
3) Assign a monetary value to each cost and benefit
Once you have compiled an exhaustive list of all costs and benefits you must assign a monetary amount to each one, if you don’t then it will be difficult to compare them accurately.
 4) Tally the total cost and benefit and compare
Once every cost and benefit has a monetary value next to it you can tally up each list and compare the two.
In a case where total benefits outnumber total costs, then there is a business sense for you to implement the decision, but, if the reverse is the case, then you may want to reconsider or rethink the decision to be made.
2. Cost-Effectiveness Analysis (C.E.A)
This is a form of economic analysis that compares the relative costs and outcomes (effects) of different courses of action. Cost-Effectiveness is applied to the planning and management of many types of organized activity. It is simply picking a less expensive and easier course of action as more cost-effective than the other.
Step one: describe the present position. The purpose of this first stage is to establish the present situation and collect information that will enable the benefits from possible improvements to be estimated. We want to be able to estimate the difference between the situation with an improvement and a situation without an improvement.
The analysis of the present position is vital in order to assess the costs of alternative improvements and the benefits likely to arise from these improvements.
Step two: identify the feasible improvements. The second stage (after identifying and mapping the existing situation) is to identify the feasible ways of improvement.
Step three:The third stage is to estimate the costs of each of the feasible improvements.
Step four: estimate the benefits, then decide which overrides the other to make your decision.
Recommendation: How to Build a Successful Brand For Your Business
3. Zero-Based Budgeting (ZBB)
Is a methodology to help align company spending with strategic goals. Its approach requires organizations to build their annual budget from zero each year to verify all components of the annual budget are cost-effective, relevant, and drive improved savings.
Just imagine that you are planning a budget for a holiday trip abroad, you may begin by compiling a list of all your expenses and estimating how much you spend on each one. Then, you prioritize the necessities, such as air ticket payments, lodging fee, means of transportation, feeding allowance, but you also want to plan for other costs, like dining out, new clothes, and gifts.
You can use the same principle when you prepare a budget for your team, department, or organization, and guess what? you are doing “zero-based budgeting.” as it is the process of compiling all your expenditure from scratch, rather than looking at what you can cut from or add to your previous year’s budget.
If implemented effectively,Zero-Based Budget is a cost discipline enabling businesses to improve resource planning, employee engagement, and organizational collaboration.
Basically, Zero-Based Budgeting can definitely translate into cost savings that fund future strategic initiatives and drive the growth of the organization.
How to do Zero-Based Budgeting
Your businesses can follow these steps as a baseline for implementation:
Start: begin at ground zero, that is, create a new annual budget from scratch without using last year’s actuals as a baseline.
Evaluate: evaluate every cost area by eliminating and reducing unnecessary activities or services.
Justify account for all components of the budget by identifying cost-effective, relevant, and cost-saving areas.
Streamline:determine what activities should be performed, when, and how.
Execute:roll out comprehensive planning and execution processes by communicating clear plans, roles, and responsibilities. You may also need to think differently. Rather than accepting past expenditures, you must question all of your expenses and then, make a thorough case for what you need. For instance, you might ask yourself, “What are the benefits and consequences of this?”,”How else can this task be carried out?”
Conclusion
Conclusively, these techniques can be employed in businesses, established companies, and start-ups. These techniques can be applied virtually in any decision-making process whether business-related or otherwise.