Business & Finance Finance

How to Analyze Costs & Benefits in Financial Reporting Problems

By Business & Finance Last updated Sunday, June/23/2024

1). Identify the problem. Ask the manager what decision she needs to make. Write down the alternative actions she is contemplating on individual sheets of paper.
2). Take one sheet of paper. Write down each financial benefit the company would enjoy if that action were chosen. These include revenue increases or cost reductions.
3). Write down each cost the company would incur if that action were chosen. These include increased professional fees or additional labor expense.
4). Subtract the costs from the benefits. This calculates the net benefit of that action.
5). Repeat steps 2 through 4 for each alternative action.
6). Compare the net benefit from each action. Choose the action with the highest net benefit.