Cost-Benefit Analysis

Cost-Benefit Analysis for commercial construction contractors

Cost-Benefit Analysis and numbers

The cost-benefit analysis allows commercial construction subcontractors to compare expected potential revenues to likely potential costs.

In effect, a cost-benefit analysis allows you to minimize risk and proceed only when there is more certainty than uncertainty.

While the essence of decision making in the construction industry often calls for quick reasoning and decisive action, an adept cost-benefit analysis takes time to gather information from trusted sources before a decision is made. Simply put, it is a technique used to bring greater objectivity into the decision-making process.

Keep in mind; this method works best when you consider the possibility of unforeseen events or circumstances.

Prioritizing through analysis

Whether the question concerns projects, new hires, or acquisitions, using the principals involved in the cost-benefit analysis also allows you to prioritize through added clarity.

Using a cost-benefit analysis helps make the implications and impact of potential decisions, something that can be visualized.

For example, you determine you need a new piece of construction equipment. Your choices are:

  • Purchase the big, shiny, new one
  • Buy the used, well maintained one
  • Lease or rent one

The purchase or rental price of the equipment is not the only cost to consider. For example, expected maintenance and upkeep costs, downtime, as well as potential resale value, need to be examined in the process.

Then throw this bit of difficult information into the mix – would your long-term equipment operator prefer something with all the new bells and whistles, or would he prefer equipment more in line with what he is used to using?

Or, if you don’t already have someone in your employ who operates equipment, will finding that new employee be easier because of the equipment offered?

Cost-Benefit Analysis and people

It is important to note that cost-benefit analysis may include intangible benefits and costs or effects. For instance, many decisions have the potential of affecting employee morale or customer satisfaction.

Is it worth it?

The principles concerning this process have been true since humans began making choices. In its purest form, the question being asked is, “Is it worth it?”

Using the data at your disposal and common sense concerning those parts which are more difficult to quantify (for instance, customer satisfaction) allows you to get to the bottom line and determine the values involved.

 

We desire to familiarize you with business concepts, which will make it easier for you to be a better commercial construction subcontractor through our blog posts. Some are new ways of looking at things, and others are refreshers. 

The Profit Constructors Provide Contract Document Management and Advisory Board Level counsel for small to medium commercial construction subcontractors.

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