Cost-Benefit Table

10-60 min2-5 ideasMake Decisions: Pay-Off

Considering the monetary costs and benefits

The cost-benefit table considers the (monetary) costs of a certain alternative and their probabilities.

  • List Cost and Benefits

    For each alternatives, list the costs and benefits and the probability an alternative will cost a certain value and reap a certain benefit.

  • Multiply and Sum

    For each alternative, multiple the probabilities per cost and benefit, and sum these values to calculate the expected payoff.

  • Select Alternative

    The alternative with the highest pay-off is usually most attractive.

In this example, there is a 30% change idea 1 will cost 1000, a 40% change it will cost 2000 and a 30% change it will cost 3000. This results in an expected pay-off of (0.30*1000+0.40*3000_0.30*4000)-(0.30*1000+0.40*2000+0.30*3000) = 700. Please note, to use this technique, enough quantitative data should be already available.