Decision Analysis

Decision Analysis
Cost-Benefit Analysis
Cost-benefit analysis is a technique that is used to compare the strengths and weaknesses of the strategies used in doing a project. It is used to determine the best approach that will yield the maximum benefit and is also used to compare the cost and benefits of a given decision policy in a project. The major aim of this approach is to determine if an investment is sound by analyzing whether the benefits outweigh the costs and also comparing projects through comparing the total expected cost of each of the total expected cost of each option against its total expected benefits (Brent, 2007).
Strengths of Cost-Benefit Analysis
The strength of this approach is that when performing the cost-benefit analysis, it gives a chance for one to get into the specifics about the expected payouts of each decision depending on the payoff of each strategy. This shows that the method will be able to compare the benefit of the strategies even before its implementation.
Another strength of the strategy is that it is some rational decision criteria in that the decision maker can get all rational and relevant information required. Therefore the decision maker has an opportunity to gather all the relevant information to make a rational decision about the strategies, and they can select the most rational strategy that will be able to maximize their benefits (Brent, 2007).
Weaknesses of Cost-Benefit Analysis
The weakness of this approach is that it has a limitation of clarity in that the value obtained is just an illusion of the expected prevailing market conditions given holds and therefore if there is an alteration of this conditions then there is a likelihood that the decision made might not yield the maximum benefit as expected (Brent, 2007).

Cost-Effectiveness Analysis
Cost-effectiveness analysis is used to compare the cost and outcomes effects of different approaches. This approach is used to assign a monetary value to measure the effect of the effectiveness of the strategy it is expressed interims of the ratio of the gain of a given input compared to the output, it is widely used in the health sector (Levin & McEwan, 2000).
The Strength and Weakness of Cost-Effectiveness Analysis
The strength of this approach is that it focuses on the cost of the strategy used and this will enable the decision maker to select the strategy that has the most cost-efficient. The major weakness of this approach is that it is not rational and it does not utilize a lot of information concerning the subject under study (Levin & McEwan, 2000).
Cost-Utility Analysis
In this approach the cost of a project is expressed regarding utilities especially when the evaluation being used is based on data that is not quantitative but qualitative, this could be a measure of the quality of life. The analysis is controversial since it is difficult to put a value on health status or an improvement in the health status of an individual. Therefore, the monetary value associated with a project is expressed regarding the quality of work and the level of satisfaction or fulfilment achieved by the decision making. It is measured in a Likert scale to determine the level of satisfaction. It is widely applied in the health sector (Levin & McEwan, 2000).
Strengths and Limitations of Cost-Utility Analysis
The major strength of the cost-utility analysis is that it allows different health programs to be compared and various policies to be implemented. It is because it helps to analyze the total benefits that will be deduced from a given policy or program. Also, societal benefits are taken into consideration when the economist is carrying out the analysis on the programs that the government want to implement in a given social setting.
The major limitation is the fact that it has a limited scope of application in that it can only be applied where there is an analysis of qualitative data. Also, the approach is not rational, i.e. since it is based on opinion, it is not possible to determine the true rationality of the program and its benefits (Levin & McEwan, 2000).
My Choice
I would recommend organization to adopt the cost-benefit analysis approach since its more rational and has more benefits that the cost-effective approach.
312420015176500395287519050Rain -$ 2
00Rain -$ 2
39624009525
28003509525 P = 0.6
00 P = 0.6

2295525271145
419100013970No rain – $ 2
00No rain – $ 2
3114675257810P =0.4
00P =0.4
4086225743585Rain -$ 30
00Rain -$ 30
40767001572260No rain $0
00No rain $0
3248025924560P = 0.6
00P = 0.6
32289751686560P= 0.4
00P= 0.4
center1324610904875314960Carry an umbrella 0Carry an umbrella 33337501524635003324224905510004124325742950040862251600835314325086360001676400219710001676399106743500600075734060
968991116832Don’t carry an umbrella
00Don’t carry an umbrella

Expected payout (carry)= (0.6* – 2) + (0.4* -2)
= – $ 2
Expected payout (don’t carry) = (0.6*-30) + (0.4*0)
= -$ 18
Assuming that the following holds
That the given probability for raining holds
She incurs a cost of $2 whenever she carries an umbrella
That if she does not carry an umbrella, she will incur a cost of $ 30 for her ruined clothes.
From the above calculations of the expected payout if she carries an umbrella is that she is likely to lose only $ 2 and if she doesn’t carry it she is likely to lose $ 18. Therefore, the recommended decision is to carry an umbrella.

References
Brent, R. J. (2007). Applied cost-benefit analysis. Edward Elgar Publishing.
Levin, H. M., & McEwan, P. J. (2000). Cost-effectiveness analysis: Methods and applications (Vol. 4). Sage.