Optimal Purchasing Decision Analysis

 

Chapter 2 - Optimal Purchase Decision Criteria for Information Technology
Managing IT in Government, Business & Communities
by Gerry Gingrich (ed)
Idea Group Publishing 2003

	Brought to you by Team-Fly

The result in Table 3 can be analyzed in many ways. We will only look at the total benefit point, the cost per benefit point, and graphical analysis here. Depending on the level of sophistication needed, decision makers may devise other means that are deemed useful. The importance is that a relatively subjective decision is now quantified, and many quantitative tools may be applied to make the final decision. These three methods are discussed below, with a special elaboration on the graphical analysis in Section 5.

Total Benefit Points

The result shows that System 1, even with its more advanced features, did not receive the highest benefit points. System 2 will be the choice, with its total of 100 benefit points. Supposing there is a tie in the total benefit score, the less costly one will be the choice. Since this method places emphasis on individual needs, it should not be a surprise that two different individuals will have different results as to what the "best" system is. When money is not the primary concern, this approach should yield the most satisfying result.

Cost Per Benefit Point

This figure is obtained by dividing the cost of the system by the total benefit points. From our example, System 3 actually wins out at $11.52 because of its much lower total cost. We can take one step further and look at the incremental cost per benefit point to improve our decision. For example, a decision maker may decide that the incremental 48 cents per point is worth the moving up to System 2 instead. These data provide a starting point for the decision-making process, and decision makers can always take other attributes into consideration.

From another angle, the inverse of this cost per benefit point measurement is the number of benefit points per dollar, and some may find it more fitting under certain circumstances. However, please note that in our example hidden costs such as training and user comfort to the brand are not taken into consideration. Again, it will be important to note any "overriding factors" when using this method. However, from experience, when these numbers are obtained and consumers are faced with decisions at this point, they tend to notice other factors they previous ignored, thus improve their final purchasing decisions.

Graphical Analysis

If the number of systems to be considered is large, an x-y chart will be extremely useful. By using price for the x-axis and benefit points for the y-axis, we can develop a benefit-cost diagram. Fundamentally, we will be looking at the northwest corner (highest benefit with the lowest cost) for our better choices. A more elaborative analysis of this method will be given in the next section.

	Brought to you by Team-Fly