West End Boutique sells fashionable ladies’ clothing and accessories. The owner is concerned about how much inventory customers have shoplifted, and wants to implement some additional controls. If no controls are implemented, the company will lose $120,000 each year.
They are considering two options:
- Hire 6 guards at a cost of $240,000 which would reduce theft to $0.
- Implement security cameras and 1 guard at a cost of $60,000 which would reduce theft to $30,000.
To illustrate a cost-benefit analysis, let’s look at an example.
Qs: What option would you select?
Option 1: We spend 240K to reduce loss by 120K. Total cost = 120K
Option 2: We spend 60K to reduce loss 90K. Total gain = 30K
Qs: Any questions as to how we did this analysis?