S1 ITO

2011 IBM Corporation IBM Confidential

Basic Economics

Core Problem Cost Benefit Analysis
Cost Benefit Example
Cost-benefit analysis is a weighing-scale approach to making business decisions. all the
pluses (the benefits) are put on one side of the balance and all the minuses (the costs) are
put on the other. Whichever weighs the heavier wins. A company considering whether to buy
new computer systems, for example, might put on the cost side things like:

the price of the computers themselves
the cost of hiring people to install them
the cost of training staff to use them

On the benefits side would be things like:

greater speed in carrying out the company's operations
greater efficiency in organizing data
a boost to staff morale from using the latest equipment

All of us do intuitive cost-benefit analyses every day of our lives, at such times as when we
ask, Shall I take a taxi to my next meeting or will I not save enough time for it to be worth
my while?