Planning is a significant aspect of allocating financial resources, and appropriate techniques and approaches can be valuable concepts for minimizing risks in decision-making. One of such concepts is cost estimation, which, as Blocher et al. (2019) state, helps make an accurate forecast regarding the expenses required for performing specific tasks. This technique is designed to address a number of strategically important functions, for instance, improving performance management, facilitating pricing, and simplifying planning (Blocher et al., 2019). By putting this concept into practice, business leaders can ensure a safe investment through a thorough analysis of all expenses. According to Blocher et al. (2019), the optimal cost estimation algorithm includes six steps: identifying the cost object, determining factors affecting costs, collecting data, displaying data, choosing an estimation mechanism, and assessing the accuracy of the estimate. Moreover, Kadir et al. (2020) provide a list of common cost estimation models, such as intuitive, analytical, and some others. By choosing a suitable approach, responsible managers can allocate financial resources without the threat of unexpected costs.
Another concept associated with planning and decision-making is cost-volume-profit analysis, or CVP analysis, which includes a wide range of procedures to perform. Blocher et al. (2019) describe it as “a method for analyzing how various operating and marketing decisions affect short-term profit based on an understanding of the relationship between variable costs, fixed costs, unit selling price, and the output level” (p. 315). By following this concept, business owners and responsible managers can ensure the safe distribution of finances because a large number of variables are evaluated. In addition, according to Okpala and Osanebi (2020), profit planning is enhanced significantly through CVP analysis since relevant statistical data is involved, and risks are minimal in such conditions. The more variables are involved, the higher is the probability of the accuracy of the estimate. Therefore, this concept finds its application in different operating environments because, regardless of the specifics of the work process, analyzing the key parameters is suitable for distinctive business areas. Thus, resources are allocated strategically wisely, which confirms the value and benefits of CVP analysis.
The assessment of the aforementioned concepts shows that any costs require careful analysis, and the more factors are included in this assessment, the safer such an analysis is. As Le et al. (2020) remark, a comprehensive decision-making process is based on identifying the maximum number of potential outcomes in view of specific decisions. From a financial perspective, these techniques are crucial because they help identify risks and overcome them through strategically wise steps. Moreover, Le et al. (2020) note the value of adequate cost analysis in the educational environment, which indicates the universality of such approaches. However, their most frequent use is observed in businesses since the allocation of budgetary funds is one of the main strategic tasks in entrepreneurship. Thus, these concepts are relevant practices minimizing financial risks.
The value of planning and decision-making can be described from a biblical perspective. Keller and Alsdorf (2012) note as follows: “if we know God and self, then time deepens our understanding of human nature, of the times we live in, of the power and use of words, of how human relationships work” (p. 159). This means that the knowledge gained through prior preparation reveals the full picture of the situation and simplifies the achievement of the final goal.
References
Blocher, E. J., Stout, D. E., Juras, P. E., & Smith, S. (2019). Cost management: A strategic emphasis (8th ed.). McGraw-Hill Education.
Kadir, A. Z. A., Yusof, Y., & Wahab, M. S. (2020). Additive manufacturing cost estimation models – A classification review.The International Journal of Advanced Manufacturing Technology, 107(9), 4033-4053.
Keller, T., & Alsdorf, K. L. (2012). Every good endeavor: Connecting your work to God’s work. Penguin.
Le, O. T. T., Tran, P. T. T., Tran, T. V., & Nguyen, C. V. (2020). Application of cost-volume-profit analysis in decision-making by public universities in Vietnam.The Journal of Asian Finance, Economics and Business, 7(6), 305-316.
Okpala, K. E., & Osanebi, C. O. (2020). Cost volume profit analysis and profit planning in manufacturing SMEs in Nigeria. Asia-Pacific Management Accounting Journal, 15(2), 207-240. Web.