Business choices
- Created by: noe
- Created on: 22-09-20 17:11
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- Business choices
- Opportunity cost
- When choosing between different alternatives, the benefit lost from the next best alternative to the one that has been chosen.
- E.g. if a business chose to spend €100,000 in an advertising campaign instead of retraining workers, the benefit lost by not retraining the workforce would be the opportunity cost
- Difficult to quantify as such costs are incurred in the future which is difficult to predict
- When choosing between different alternatives, the benefit lost from the next best alternative to the one that has been chosen.
- Non-monetary opportunity cost
- Other non-monetary benefits lost from the second best alternative. E.g. improving workers' motivation
- Trade-offs
- Where a decision maker faces a compromise between two different alternatives
- E.g. paying dividends to shareholders or reinvesting profits in the business
- E.g. Higher profit margins or higher turnover
- Weighing up trade-offs
- Obtain information: listing benefits and drawbacks of each choice to determine which carries the heaviest weight
- Balance short with long term
- Measure support: thinking about which key staff will support a particular idea and who will oppose it
- Where a decision maker faces a compromise between two different alternatives
- Opportunity cost
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