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Cost-Benefit Analysis – Starbucks

To do a cost-benefit analysis, you must find, quantify, and add up all the positive factors or the benefits. Then, to find the costs, you must identify, quantify, and subtract all the negative factors or limitations, including missed opportunity costs. The difference between the two indicates whether the planned action is advisable or worth pursuing. The real challenge is to be able to not only determine the real benefits and the real costs, but also to properly quantify them. When managing people, that has and will continue to be a particular challenge for HR professionals.

Some calculations can be fairly straightforward. For example, should we hire an additional salesperson? If the total compensation of a salesperson is $100,000 per year, but the average sales of our current sales staff is only $80,000 on a good month, it may not be worth the cost at the present time. This seems fairly straightforward until the picture is complicated. Suppose there is a performance driver to build a more qualified sales department, and suppose that the marketing staff is projecting business to increase in the last 6 months of the year. Taking time in March through May to find highly talented salespeople might then make sense from a strategic perspective.

In this paper, you will consider cost-benefit analysis and how it can contribute to strategic decision making.

Write a cohesive and scholarly response based on course reading and research that addresses the following:

• Do you think it is necessary for HR professionals to have financial competency? Explain why or why not.
• Discuss the benefits and limitations of conducting a cost-benefit analysis for an HR initiative in general.
• Determine how a cost-benefit analysis and HR Scorecard might complement each other in strategic planning.
• Explain the organizational costs and benefits that are most critical for HR professionals to be familiar with, and why.
• Be specific, and provide examples with references to the literature.

Book: Becker, B., Huselid, M., & Ulrich, D. (2001). The HR scorecard: Linking people, strategy, and performance. Boston, MA: Harvard Business School Press

Chapter: 4