Cost/Benefit Analysis Decision Making

878 words - 4 pages

Cost/Benefit Analysis Decision-MakingWorking in a business for profit environment making decisions and more importantly making good solid decisions is not only required to be part of a team in a successful organization making goods decisions is a necessary part of the path to gaining respect, promotions and overall success in the organization.Cost versus benefit analysis is a decision-making model that is relative easy to use but at the same time provides the methods and analysis to make decisions that are in the best financial interest of the organization.The first step is to identify the problem, what needs to be done and why. In my position as materials manager in an electrical connector company one of our departments which molds plastics parts was constantly behind schedule. The production management for the area kept expressing their frustration with not being able to meet demand no matter what they did. The management with all, their hard work failed to identify the essential problem. The first course of action was to identify the capacity of the department and the demand for product. With the capacity review it became quite obvious that more work was scheduled per day than could be than could be completed. This lack of capacity understanding was causing $5,000 per day in lost revenue and $1000 per day in expedited freight costs.With the problem identified the next task was to evaluate alternative solutions both short and long-term. Because of the financial magnitude of the problem short-term solution were evaluated first. This particular department requires highly skilled labor and is difficult to staff and is currently running on two 8 hour shifts. The quickest way to increase output is to increase the number of hours worked. By simple increasing the shifts from two eight hour shifts to two 10 hour shifts output was increased by 25%. Appling a cost/benefit analysis to the decision-making process demonstrated that the overtime cost was less than a $1000 per day. The decision was made to expand the shift to increase capacity .The increased shift times provided the capacity so that within 10 weeks the lost revenue and expedited freight costs were eliminated. In this case the cost/benefit model helped determine the decision to authorize overtime was well justified and necessary.With the short-term plan in place to correct the immediate problem our focus turned to a long-term solution. The employees could not be expected work overtime forever, the long-term problem of capacity needed to be addressed. At this point we examined alternative solutions.There was insufficient space on the factory floor to add more equipment and the company had just completed our plant in Mexico and was in no position to start...

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