Break-even analysis allow managers to better determine what their goals should be, but it can cause them to not consider other factors. It is a core component of making business decisions. However, it must be used cautiously.Continue Reading
Break-even analysis is crucial for people considering launching new products. Used correctly, it can help companies determine which products to develop and which to table. Performing a break-even analysis forces people to calculate their costs as accurately as possible, which can lead to helpful insights.
However, break-even analysis only measures a few factors involved in the sale of a product, and these numbers need to be estimated. In some cases, people might underestimate fixed costs or fail to account for factors that can affect the variable cost. Critically, break-even analysis requires companies to determine which price will work best, which is inherently difficult.
A break-even analysis can also stop companies from taking chances. Losses are a part of business, and companies might fail to realize certain benefits that putting a particular product on the market can generate. For example, a product that is likely to generate word-of-mouth buzz might sell better than analyses suggest, and products that get a brand's name and logo out might be worth absorbing some small losses.Learn more about Economics
Market opportunity analysis is a form of business planning that incorporates market forecasting techniques and development of a plan that assesses the organization’s financial capability and identifies future opportunities. It gives the company competitive and technological preparedness in exploiting future opportunities, and includes identifying underserved client needs and assessing the company’s resources. It also analyzes the competitive advantages of the business and identifies target markets.Full Answer >
In a book entitled "Scanning the Business Environment" published in 1967, Harvard professor Francis Aguilar included a scanning tool called ETPS, the forerunner of PEST analysis. PEST analysis is an acronym for Political, Economic, Social and Technological analysis.Full Answer >
Some methods for conducting root cause analysis include the five whys, the fishbone diagram and the causal tree. All three methods provide a systematic process for determining the root cause of a problem or event.Full Answer >
The limitation of cardinal utility analysis is the difficulty in assigning numerical value to a concept of utility. Utility is comparable on a scale, but not easily quantifiable. In other words, the utility of a good or service cannot simply be measured in numbers in order to determine its economic value.Full Answer >