In any quest to make smarter decisions, cost-effectiveness and cost-effective solutions should not be overlooked. Here are some highlights to consider.
Finding Cost-Effective Solutions
The need for cost-effective solutions is frequently mentioned when discussing any number of problems. This term is a particular favorite in the business and finance world but is often misunderstood when it comes to real-world uses. Most individuals and small business owners would probably make much better use of the cost-effective solutions concept if only they understand what it really involved.
Real estate buyers and borrowers should consider cost-effectiveness when they arrange real estate financing of any kind. This includes the need for a complete understanding of future legal and financial consequences in addition to current costs and fees. Thorough due diligence is required in order to determine if a financial agreement is cost-effective (or not). Small businesses are just getting by in many locations because of reduced sales and increased operating costs — the successful use of cost-effective business solutions can provide a practical helping hand to improve the bottom line.
At a minimum, finding a cost-effective solution requires thinking about the cost (including time and/or money) of an action in comparison to the consequences of choosing that action.
Finding Cost-Effective Solutions
The need for cost-effective solutions is frequently mentioned when discussing any number of problems. This term is a particular favorite in the business and finance world but is often misunderstood when it comes to real-world uses. Most individuals and small business owners would probably make much better use of the cost-effective solutions concept if only they understand what it really involved.
Real estate buyers and borrowers should consider cost-effectiveness when they arrange real estate financing of any kind. This includes the need for a complete understanding of future legal and financial consequences in addition to current costs and fees. Thorough due diligence is required in order to determine if a financial agreement is cost-effective (or not). Small businesses are just getting by in many locations because of reduced sales and increased operating costs — the successful use of cost-effective business solutions can provide a practical helping hand to improve the bottom line.
At a minimum, finding a cost-effective solution requires thinking about the cost (including time and/or money) of an action in comparison to the consequences of choosing that action.
Cost-Benefit Analysis
Whenever an expensive project is under consideration by either a company or government agency, it is likely that someone will suggest that perhaps a cost-benefit study is needed. How does this differ from cost-effectiveness?
The most basic point of distinction between the two concepts is that cost-benefit studies (should) quantify the benefits of doing something so an “apples and apples” comparison can be made. In contrast, cost-effectiveness analyses do not routinely assign a specific value to each element.
A cost-benefit study can be more difficult to prepare accurately than a cost-effectiveness study precisely because of the need to quantify everything. As you can imagine, it is difficult to assign a dollar value to some benefits.
Whenever an expensive project is under consideration by either a company or government agency, it is likely that someone will suggest that perhaps a cost-benefit study is needed. How does this differ from cost-effectiveness?
The most basic point of distinction between the two concepts is that cost-benefit studies (should) quantify the benefits of doing something so an “apples and apples” comparison can be made. In contrast, cost-effectiveness analyses do not routinely assign a specific value to each element.
A cost-benefit study can be more difficult to prepare accurately than a cost-effectiveness study precisely because of the need to quantify everything. As you can imagine, it is difficult to assign a dollar value to some benefits.
How to Find the Right Thing to Do
Both individuals and small business owners are frequently engaged in efforts to make the best decisions. Peter Drucker is usually thought of as the most influential management thinker during the past few decades. Here is his astute observation about making smart decisions:
“Efficiency is doing things right; effectiveness is doing the right things.”
In fact, his primary measure of an executive was the ability to “get the right things done” — he wrote a book to help busy executives become more effective:
The Effective Executive: The Definitive Guide to Getting the Right Things Done
Three Common Themes in Making Smarter Decisions
The Bottom Line:
I consistently see several common themes in successful decision-making processes:
Both individuals and small business owners are frequently engaged in efforts to make the best decisions. Peter Drucker is usually thought of as the most influential management thinker during the past few decades. Here is his astute observation about making smart decisions:
“Efficiency is doing things right; effectiveness is doing the right things.”
In fact, his primary measure of an executive was the ability to “get the right things done” — he wrote a book to help busy executives become more effective:
The Effective Executive: The Definitive Guide to Getting the Right Things Done
Three Common Themes in Making Smarter Decisions
The Bottom Line:
I consistently see several common themes in successful decision-making processes:
- Preventing what I refer to as “Zombie Problems” (recurring challenges)
- Finding the right things to do
- Avoiding common mistakes