QUESTION 75

WHAT IS COST BENEFIT ANALYSIS?

Why it’s important: It is essential that you take into account factors that are difficult to quantify in financial terms when making decisions.

US Secretary of Defense Robert McNamara developed his fallacy theory during the Vietnam War as a way of explaining why for much of the war America thought it was winning. American reports highlighted measurable information, such as the number of Viet Cong killed or captured and weapon stores destroyed. But they failed to take into account such unquantifiable factors as enemy morale and the desire of the Vietnamese to be free of foreign interference in their country. McNamara’s theory consists of four statements. I’ve adapted it to reflect the needs of managers. ...

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