Short Description:The Cost Benefit Analysis - Pleasure versus Pain
Anthony Robbins says that all of life boils down to one simple motivator: If the pain outweighs the pleasure of some action, the person will not take that action. In business terms, the weighing of pain against pleasure takes the form of a cost-benefit analysis. It is wise for every business owner to perform one of these.
A cost-benefit analysis tells you whether the benefits of a proposed action are worth the costs. In other words, the analysis tells business owners if the "pleasure" outweighs the "pain." This simple tool of financial analysis may be used for many things in a business and in life (such as a pros and cons list).
A cost-benefit analysis is a forecast in a business plan that shows the benefits of taking a certain action and weighs them against not taking the action. It can be an important part of your business plan's financial section if you need to show how proposed actions and expenditures will benefit your business.
For example, say you operate a silk-screening shop that services various associations when they want matching T-shirts for the Little League teams or charity events they sponsor. You are thinking of purchasing two new four-station silk-screening machines to replace your old two-station ones that are depreciating in value.
You list the benefits of purchasing the new machines by noting how much faster and more accurate production will be. The store will be able to service more orders, more quickly, increasing sales. Then, you calculate a number that represents the monetary value of all these benefits on a monthly basis. Now it's time for the costs.
You calculate the monthly cost of the machines, including payment for the machines themselves and any other related expenses such as increased electrical usage or increased training for staff to be able to use them properly. Since you will have the new machines for at least five years, you can come up with a cost figure. Finally, you divide that figure by 70 (12 months by five) to come up with your monthly costs.
You can learn more in the LeadersBench curriculum.