An advantage of the benefit-cost framework is that it leads to a positive or negative (or zero) number for each program or practice evaluated and, therefore, does not require knowledge of a cost-effectiveness cutoff level to decide whether a particular practice should be undertaken. Finally, a limitation of both approaches is that the benefits and costs to individual members of society need to be aggregated. If the equitable distribution benefits and costs across individuals or groups are of concern, a single cost-effectiveness measure will not do. However, as economists are wont to argue, over large numbers of programs and practices the inequities are likely to even themselves out and, with some exceptions, may reasonably be ignored.
The main steps in this model include (1) identification of main problems and possible solutions to these problems, (2) analysis of financial costs and financial benefits of proposed programs, (3) selection of the best decision.
The first step is a search for alternative solution. The first solution is to buy computers for the training classroom. The second solution is to use company's computers located in different department. The third alternative is to rent a training classroom (in college or university) for the training program.
When generating alternative methods for solving the problem, decision makers must determine whether the decision problem should be solved by a single individual or by a group of individuals. Groups usually take more time to make decisions than do individuals; however, group decision methods allow for the pooling of information from many difference sources, which can be particularly beneficial when dealing with ill-structured problems requiring the synthesis of novel solutions. In this case, the decision to find the best solution will involve employees and management. In many situations, members of a group tend to develop an illusion of invulnerability that may encourage excessive optimism and risk taking. Another result of groupthink is that members of a group who express opposing views may be pressured by other group members and ostracized if they resist (Stacey, 1996).
The second step is analysis of financial costs and financial benefits of both programs. If we assume that one computer costs $1,250 and the training room needs 10 computers, the company should invest $12,500 in new equipment. Also, installation and cabling will cost $2,500, and support software - $6,500, and 1 server - $2,000.
The second solution is to use company's computers located in different department will help to save money spent on new equipment but will cost company the value of time lost from work. It is important to note that to value life years and quality of life in dollars, the traditional approach is to use the annual earnings of a worker as a measure of the value of a productive year of life. The rationale is that society, including the individual in question, would lose potential consumption of goods and services in proportion to lost productivity. Once benefits and costs have been somehow expressed in dollar terms, net benefits are derived as the difference between the two. If the company follows the second approach it will save some money during the first training period. If we assume that the training on software tools takes 10 weeks (2 hours per day (5 working