Decision Making and Cost-Benefit Analysis: Why They Matter
This post looks into the importance behind decision making in an economy and examines the impact that factors such as the cost-benefit analysis have with respect to decisions and their success
Everyone is familiar with decision making. You make decisions every day. From choosing what shirt you’re going to wear to deciding what route you are going to take to work, you take into account different factors and ultimately make a decision. Within our economy, decision making and cost-benefit analysis happen everyday and make a huge impact on our standard of living.
Why is decision making important?
Decision-making is the act of making a choice among available alternatives. There are innumerable decisions that are taken by human beings in day-to-day life. In business undertakings, decisions are taken at every step. It is also regarded as one of the important functions of management. Managerial functions like planning, organizing, staffing, directing, coordinating and controlling are carried through decisions. Decision making is possible when there are two or more alternatives to solve a single problem or difficulty. If there is only one alternative then there is no question of decision making. It is believed that management without a decision is a man without a backbone. Therefore, decision making is a problem-solving approach by choosing a specific course of action among various alternatives.
Economists must make decisions everyday to assure balance and organization within global markets
Good decision making can result in long-lasting optimal benefits for everyone
According to the Concise Encyclopedia of Economics, whenever people decide whether the advantages of a particular action are likely to outweigh its drawbacks, they engage in a form of benefit-cost analysis
Cost-Benefit analysis takes into account the benefits and drawbacks associated with a situation.
A good business leader ensures that when engaging in these forms of cost-benefit analysis, the benefits ultimately outweigh the drawbacks
Applying the economist’s concept of cost can also be incredibly useful for much of our everyday thinking. A sound understanding of the interrelated ideas of opportunity cost, marginal cost, and sunk costs can provide important guidance in navigating almost any situation of choice. Even those that we don’t think of as economic.
Decision making is a part of our everyday lives; understanding the importance of decision making within our lives as well as the economic and societal sectors that surround us, not only results in advantageous outcomes but also aids us in becoming more excellent business leaders.
The following video gives a more in depth discussion of cost-benefit analysis: https://www.investopedia.com/terms/c/cost-benefitanalysis.asp