Once appropriate alternatives have been found, the next step in planning is to evaluate them and select the one that will best contribute to the goal. This is the point of ultimate decision making although decisions must also be made in the other steps of planning in selecting goals, in choosing critical premises and even in selecting alternatives.
In comparing alternative plans for achieving an objective people are likely to think exclusively of quantitative factors. These are factors that can be measured in numerical terms, such as time or various fixed and operating costs. No one would question the importance of this type of analysts but the success of the venture would be endangered if intangible or qualitative factors were ignored. Qualitative or intangible factors are factors that are difficult to measure numerically such as the quality of labour relations, the risk of technological change, or the international political climate. There are all too many instances in which an excellent quantitative plan was destroyed by an unforeseen war, a fine marketing plan was made inoperable by a long transportation strike, or a rational borrowing plan was hampered by an economic recession. These illustrations point out the importance of giving attention to both quantitative and qualitative factors when comparing alternatives.
To evaluate and compare the intangible factors in a planning problem and make decisions, managers must first recognize these factors and then determine whether a reasonable quantitative measurement can be given to them. If not, they should find out as much as possible about the factors, perhaps rate them in terms of their importance, compare their probable influence on the outcome with that of the quantitative factors, and then come to a decision. This decision may give predominant weight to a single intangible.
Evaluating alternatives may involve utilizing the techniques of marginal analysis to compare additional revenues arising from additional costs. Where the objective is to maximize profits this goal will be reached, as elementary economies teach when the additional revenues and additional costs are equal. In other words if the additional revenues of a larger quantity are greater than its additional costs, more profits can be made by producing more. However, if the additional revenues of the larger quantity are less than its additional costs, a larger profit can be made by producing less.
Marginal analysis can be used in comparing factors other than costs and revenues. For example, to find the best output of machine, inputs could be varied against outputs until the additional input equals the additional output. This would then be the point of maximum efficiency of the machine. Or the number of subordinates reporting to a manager might conceivably be increased to the point at which additional savings in costs, better communication and morale, and other factors equal additional losses in effectiveness of control, leadership and similar factors.
An improvement on, or variation of traditional marginal analysis is cost effectiveness or cost benefit analysis. Cost effectiveness analysis seeks the best ratio of benefits and costs, this means for example, finding the least costly way of reaching an objective or getting the greatest value for given expenditures.
Cost Benefit Analysis:
The US Congress like businesses faces the decisions of allocating resources. What are the governments’ priorities? Increased airport security? Pesticide residue regulation? Protecting the public from nuclear power plant radiation? Managing health risks from smoking? Some suggest using cost benefit analysis for ranking the risks to health, safety and environment. But policies and the question of values also affect decisions. Too often decisions are made by public officials without the participation of the stake holders affected by the regulation. But this does not need to be so.
In Florida, a decision had to be made where to locate a needed coal fired power plant. Through public participation criteria for an ideal site were identified. During the discussion between the power company and a committee consisting of community leaders, a site away from the populated area was identified a site the company had not even considered.
In the San Francisco Bay area, a citizen task force developed a long term plan for dealing with solid waste disposal, air pollution and water pollution and to ensure adequate water supply. The citizen task force collected data from experts and citizens and developed a plan that resulted in what is considered now – after more than 18 years – one of the best managed environmental areas in the country.