Proposal Final Project
COST BENEFIT ANALYSIS PROPOSAL 2
November 1, 2020
Cost Benefit Analysis
Cost benefit analysis is a decision-making process. The process involves the computation of all the costs associated with making a given decision, measured against the benefits that will result from the decision business. The process can be extended in analysis of a whole company. Cost calculation for a business is complex as the costs of some of the intangible assets is not easy. However, there are models used in the assignment of value to intangible assets. Benefits are computed in dollar value, as the revenue that will be generated when a given path is followed in decision-making. The results of the cost benefit analysis are utilised in the assessment of the feasibility of making the decision, or of the business operations. The model can be improved through the addition of the opportunity cost. Opportunity costs are the foregone benefits, which would have been realized in choosing one alternative over another. This facilitates the comparison of alternatives, without singling out the costs and benefits of a single alternative.
At Williams Trucking, the opportunity costs will be incorporated in the computation of the costs benefit analysis. This will build a capacity for a thorough analysis and consequently informed decisions at the business. It will therefore be necessary to monetize nonmarket impacts the environments impact on transport logistics, the standardization value for the time of travel, as well as monetization of the crash damages. I will employ monetization of all the necessary assets and services. The decision that faces the Williams Trucking is whether to initially invest in short distance, or to start the business with long distance trucking services. The choice of either will be premised on the following cost benefit analysis.
The direct costs that will be incurred will include the costs of labour, the costs of inventory, the fuel costs and the vehicle maintenance cost. The total number of trucks is five and hence the same number of drivers. The labour costs of the drivers, the fuel costs and the vehicle repair and maintenance costs will vary depending on the selected choice. The indirect costs will include the recurring bills of premise, such as electricity bills, overhead costs of management, the costs of renting the business premise and the utility costs. The costs of potential risk will hike in longer distance trucking compared to shorter distance trucking. The intangible costs assessed in this valuation include the impact on customers, the drivers and other employees, and the time on delivery, based on either decision. The opportunity costs of either decision will be the foregone benefits of alternate decisions.
The benefits will largely vary in the decision made. Longer distance trucking translates to increased profits of the business. As well, shorter distances mean lesser revenue generations. Shorter distance trucking will improve the employee morale compared to longer distance trucking. Also, in shorter distances, the drivers will less likely be harmed, compared to when the driver is using shorter routes. As well, the benefits of longer distances are the creation of additional insurance. Intangible benefits will be monetized to better make a comparison between the two options. Projected incomes of both choices will also be included in the benefits section. The below analysis includes only the benefits and costs that will vary for each option. This creates a clear depiction of both cases. It provides for a better comparison between the two options under considerations
Long distance cost benefit analysis
| Costs | Benefits | ||
| Labour costs per unit | $1000000 | Increased revenues per unit | $10000000 |
| Fuel costs per unit | $ 20000 | Employee satisfaction | $908000 |
| Repair and maintenance | $ 5000 | ||
| Insurance costs | $450400 | ||
| Driver morale | $ 20000 | ||
| Customer satisfaction | $ 454000 | ||
The shorter distances will cut the cost down to a minimum of $10,000. So, when starting the business, I will choose shorter distances to help build and promote my business. Since the aim of every organization is to maximize profits, the cost involved should always be as low as possible. I have to also take into consideration the amount I have to pay my drivers. I have to be fair and show that I appreciate them and pay them an amount that they deserve. My intent is to have drivers who want to help build teamwork and make deliveries on time. When you have employees who love their job and their pay, they will stay motivated to help promote the business. The more customers I receive, the more business I will have, and then I can look forward to expanding with the extra funds.
References
Achim, I. M., Dragolea, L., & Balan, G. (2013). The importance of employee motivation to increase organizational performance. Annales universitatis apulensis: Series oeconomica, 15(2), 685.
Gonzalez-Feliu, J. (2016, June). Viability and potential demand capitation of urban freight tramway systemss via demand-supply modelling and cost benefit analysis. In Proceedings of the 6th International Conference on Information Systems, Logistics and Supply Chain (ILS 2016), Bordeaux, France (pp. 1-4).
Varma, C. (2017). Importance of employee motivation & job satisfaction for organizational performance. International Journal of Social Science & Interdisciplinary Research, 6(2).
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