Cost Benefit Analysis Steps
While running a business, it is the primary goal of every industry, irrespective of its size, to ascertain a decent profit margin compared to the investment done on the business infrastructure. To determine the feasibility of revenue generation, the industry must possess certain sets of tools and expertise, which can help in making appropriate financial decisions to drive profitability. One of the most followed ways is to conduct a cost benefit analysis. Technically, cost benefit analysis steps involve comparing the possible expenditure of a business to its potential to generate profit. This empowers the critical decision-making process while establishing a business. Efficient organization of cost benefit analysis steps can result in numerous quantitative and monetary benefits. Some of the critical cost benefit analysis steps are enlisted as follows:
- Categorization of cost and benefits
- It is advisable to follow cost benefit analysis steps to decide which business aspect should be considered to determine its cost benefits. It is important to determine the geographic scope of the analysis in order to limit the groups impacted by the policy
- One of the key cost benefit analysis steps is to convert any future costs and benefits into present value. The social discount rate is considered as the rate at which tradeoffs are made over a period of time. This discount rate is dynamic across agencies and varies between 2% to 7%
- Cost benefit analysis steps involve analyzing the accuracy of estimates and assumptions made regarding the profitability of a business undertaking. This is generally done by changing the social discount rates that are being used. A positive result assures the feasibility of the business undertaking while a negative number should necessitate re-calculation where the balancing point is zero
Consumer Electronics Industry Overview
There is no denying the fact that rapid urbanization coupled with the rising buying power of the consumers is positively impacting the growth and demand of the consumer electronics industry. Introduction of innovative products has made the consumer electronics industry permeate into every aspect of human life. A penchant for bigger and better appliances by the urbane population is also providing an opportunity for exponential growth. However, in the recent times, scores of factors have been affecting the steady market growth of the consumer electronics industry.
- Bad product investment: Consumer expectations are the major force propelling the growth of the consumer electronics industry. In a bid to be on par with the dynamic consumer expectations, there are incidents when the consumer electronics manufacturers end up investing a huge some on a product that fails to make a mark in the market.
- Product management: In a dynamic consumer electronics industry, it is imperative for all the consumer electronics manufacturers to adopt an effective New Product Introduction (NPI) processes. In order to fulfill the timely launch, quantity, and quality targets of the product, companies must ensure closed-loop communication between sales, manufacturing, and engineering teams.
- Depleting operating margins: The consumer electronics industry is a busy marketplace with numerous brands promising to fulfill the customer’s appliances dream. This has resulted in a fierce global competition and new innovations, which are also promising to deliver low-cost but efficient products. This has created an immense challenge for the leading players in the consumer electronics industry in terms of maintaining a cost-effective manufacturing strategy while maintaining a steady EBITDA margin.
Continue reading to gain better insights on how our cost benefit analysis steps helped a client develop a low cost and manufacturing strategy.
The client is one of the leading players in the consumer electronics industry.
The client was unable to determine the key cost driver, which was impacting their cost forecasting and negotiation strategies. To survive in the competitive consumer electronics industry, the client needed step-by-step guidance to develop a low cost manufacturing strategy that can reduce their overall cost and help predict profitability.
SpendEdge’s experts adopted critical cost benefit analysis steps which helped the client to compare the possible costs and benefits of the sourcing strategy and select the options, which show promise for the offers that have the greatest net benefit. Incorporating the cost benefit analysis steps in the research approach helped the consumer electronics industry firm identify both short-term and long-term business goals and simplify complex business decisions.