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What Is Economic Decision Analysis?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 22 August 2014
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Economic decision analysis is a process that seeks to assess the efficacy of the decision-making models used by a given business, based on how those decisions impact the operational, economic, and strategic well-being of that business. To this end, the process of economic decision analysis will evaluate how certain decisions have enhanced or hampered the ability of the company to function within its industry, the gains or losses in revenue generated by the decision, and both the long-and short-term impact of the decision on the future prospects of the business. Considered one of several key forms of business analysis, this approach can often aid in identifying strategies that have served the company well in certain situations, while also providing important data that can help the company avoid repeating past mistakes.

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The scope of economic decision analysis is extremely broad in the sense that the process will consider a wide range of factors in order to understand the impact of a decision previously made, or one that is pending. This includes looking closely at the prevailing conditions in the market associated with the company, and its future prospects. Economic indicators related to the present and future state of the economy in general will also factor into the process of the analysis. Issues such as the financial stability of the business, the impact of the decision on current cash reserves, and even the effect on future revenue generation will also be considered. Essentially, the idea is to gain a full understanding of all ramifications, positive or negative, that emerge from the decision-making process used by the company officers.

When used as a resource to consider various options prior to making a final business related decision, economic decision analysis can make it possible to evaluate each potential decision in turn, quickly weeding out those that are more likely to product results that are not in the best interests of the company. At the same time, the process can narrow the focus on possible decisions that would overall benefit the business. In this sense, the process may even lead to the creation of a new option for consideration that can in turn be analyzed for its potential. At its best, this type of economic decision analysis enhances the chances of making the best possible decision overall.

As a tool to evaluate past decisions, including the processes used to arrive at those decisions, the economic decision analysis will relay primarily on historical data, while still allowing time to consider the future ramifications of those decisions that have already been implemented. Here, the idea is to determine what, if anything, went wrong as the result of the decision and identify what could have been done to minimize the liabilities while enhancing the benefits. From this perspective, the economic decision analysis may uncover data that can then be used to minimize any damage, avoid repeating some of the same mistakes, and possibly equip the company to move through the crisis and eventually recover from what turned out to be an unwise decision or series of decisions.

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