MGT672 – Pros and Cons and Cost Benefits Analysis Decision Making Techniques

Decision Making

The two most important decision-making tools are the pros and cons and the cost-benefits analysis. The two methods help individuals or business make a decision based on concrete information that can help in making important and critical decisions (Anderson et al., 2015). As such, the cost-benefits analysis is an important undertaking that helps in making a decision like choosing whether to outsource work to a company or not using future projected flows. The individual or corporation can use the cost-benefits analysis or the pros and cons approach to making an appropriate key decision that has a significant effect on the business. Therefore, the company will not rush to carry out any options without first thinking through it and making an informative choice. The two techniques are further discussed below.

The pros and cons approach is a basic decision-making technique used by many companies. The decision-making technique is not complex, and the company just has to weigh the various options it has based on the advantages and disadvantages of the alternatives. The alternative, which has the highest advantages, is adopted (Clemen & Reilly, 2013).  The decision for the location of the business focuses on whether to open a computer shop in the suburban area or downtown. The advantages and disadvantages of the opening in the town area will be looked into especially in dealing with leasing and market for the product. The location is very important in determining the success of the business.

The choice of a location for the supermarket is a key decision that will determine the success of the branch in particular and the business in general (Adair, 2013). Locating the business downtown provides more advantages than disadvantages as there is more traffic associated with the town centers. There is more traffic regarding customers and, therefore, more market for the products of the computer company. The cost of leasing space downtown is high though it cannot prevent the business from setting up base downtown. The suburban is cheaper regarding leasing but it does not provide enough market for the business especially its products. If the business wants to grow it, should embrace the downtown option, which has a higher potential customer base.

The cost benefits analysis is another important approach used in making major decisions in organizations. The cost-benefits analysis is important for the choice of a branch of a computer firm. The cost benefits analysis for the location of the branch in town or the suburban area is important. The approach uses the net present value to ensure that the choice is made based on the various future cash flows using a discounted rate and the highest net present value was chosen (Covello et al., 2013). Therefore, the decision is based on the net present value being high. The cash flows provide a vivid picture on the various projected and thus estimated values that the business opts to get in future should it adopt one of the two options. For the suburban option, it is important for the business to consider the various alternatives by the projected cash flows.

For the suburban option, the leasing prices are projected to increase slightly because the business climate does not rapidly change. The business will have fewer cash flows when compared to the downtown location due to having a smaller customer turnout. The urban option consists of an increase in leasing costs. The company can increase the prices of the products while at the same time maintaining the customer base. The leasing prices may increase because of the increasing value of buildings and costs of maintaining the buildings. The traffic does not reduce and, therefore, provides an ever constant and increasing market. Since there is more traffic and the computer company is centrally located in town, there is a higher likelihood of more sales as compared to the suburban option. An increase in sales helps the business get more profit while at the same time offsetting its expenses (Xu, 2015).

Therefore, the most important technique to use in coming up with a better alternative is the cost benefits analysis. The cost benefits analysis gives a clear picture on the running of the business about the cash flows and, in particular, the net present value. As such, the business will be able to determine the profitability of its venture in future. Furthermore, the company can get to know whether the downtown or suburban option is appropriate by using the projected cash flows. Therefore, the cost-benefits analysis provides a clear picture that leads one to choose the downtown option in town as a location for the business due to the high probability of increased sales and conspicuous location (Hammond, 2015). The business will, therefore, benefit and eventually help the company build a larger customer base while at the same time aiming to keep the customers loyal to the business by making other important decisions to increase customer relations with the company.  The resulting decision is made informatively and hence it is based on knowledge. The business, therefore, has clarity on forecasted future and the success of the business.

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