Economic analysis for managers

  1. John
    Define the problem: The problem is I have 46 vehicles that needs to be Smog inspected by the end of
    December so that I can report the pass/fail data to the Bureau of Automotive Repair agency by 31 December
    Determine the objective: Figure out a way to conduct a mass inspection process where it’s also cost beneficial
    to the agency, considering all vehicles are scattered in different states.

Explore alternatives: some alternative actives to be able to meet the inspection deadlines are:
Establish a contract with an automotive repair shop with an already established multiple locations in order to
conduct the smog test inspections on all the vehicles scattered at different regions. The contract can also help
the agency save on additional expense cost since there will be an opportunity for negotiations.
Reach out to local fleet managers individual and have them go through local servicing providers to conduct the
inspection, knowing that each state may have different pricing on the services being rendered.
Predict the consequences: Vehicles not reported within the reporting deadline will place the agency in a noncomplaint status and therefore will impact the daily operations. Vehicles that do not pass the inspection and are
still being used will also contribute to greenhouse emissions.
Make a choice: In this case, establishing a service contract with a known vehicle service provider with multiple
locations is more beneficial for the agency in terms of profit and value maximization. I will use the benefit/cost
analysis to show that this route is the best choice.
According to Samuelson (2015) Benefit cost analysis can be calculated using the formula:
Net benefit= Total benefit – Total cost > 0.
In this instance:
Contract work for all 46 vehicles will cost the agency $2000.00 in services provided. Whereas, going through
different local providers for the smog test can range between $50-80 dollars as an example. For calculation
purposes will use the average of $65 for each smog test performed.
$65 x 46 (vehicles) = $2990.00
Contract work will only the agency $2000.00
The net benefit for the agency utilizing the contract work method will save the agency $990 in labor cost. In
terms of profit and value maximization, this route is the most effective route as this is a compelling prescription
concerning how managerial decisions should be made (Samuelson, 2015 p. 12

Sample Solution