Business decision analysis can be divided into regulatory, social, and commercial areas, with economic factors often influencing regulatory action. Stakeholders play a significant role, and cost-benefit analysis is used to measure profitability and efficiency. Social patterns of behavior can also be analyzed for their economic impact. Overlap between areas is common, making unbiased analysis difficult.
The different types of business decision analysis can generally be divided into regulatory, social, and commercial arenas. Economic decision analysis can also be applied to publicly funded projects. Some overlap between the four areas is often unavoidable, as economic activity in these different areas is often intertwined. Stakeholders often play a significant role in using economic data to support a particular decision to be made. The impact of resource abundance or depletion can also be measured through a cost-benefit analysis.
Analyzing economic decisions includes setting a boundary on what will be analyzed and ranking options based on economic impact. Without an analysis, people won’t understand the true cost of taking action versus maintaining the status quo. This field is also referred to as applied economics.
In the commercial realm, business decision analysis is typically used to measure profitability and efficiency. This type of analysis has typically proven useful for improving profit margins when areas of inefficiency are discovered through the analysis. Subsequently, costs can be reduced through such efficiency improvements.
Economic factors often influence regulatory action. Police agencies can make and enforce laws in an effort to balance the benefits with the expected costs. The weighting of economic factors may justify the regulation of a previously unregulated activity.
For example, cost-benefit analysis of studded tires may reveal that damage to public infrastructure outweighs accident prevention in terms of overall costs. Often, social, commercial and regulatory factors are intertwined in complex ways. This may be one reason why obtaining pure economic analysis untainted by social and political factors is often difficult.
Social patterns of behavior can also be analyzed in relation to their economic impact. For example, when large numbers of people adopt new behaviors, public health can either improve or decline. The popularity of cigarettes, which many believed was boosted by limited regulation and widespread advertising, has come under intense scrutiny of economic decisions. One result has often been an increase in regulations being adopted, in many cases, in an attempt to mitigate a society’s healthcare costs.
Often, there are areas of overlap between different types of economic decision analysis, since virtually every economic decision is difficult to isolate into a well-defined area of influence. This is why stakeholders are often consulted and may even be actively involved in an analysis of business decisions. Calculating the costs and benefits of complex investments such as transport infrastructure is often very difficult. As a result, there is often significant public discourse about the economic impacts of large-scale public investment. Accurate and unbiased analysis of business decisions can be an elusive goal when all factors are considered.
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