Page #131 (20.2 High Benefits)

20.3 Good Benefit/Cost Ratio

A good benefit/cost ratio (B/CR) consists of comparing the benefits of a SPI method to its cost. In other words, a good B/CR begins to take into consideration some of the ideas that have been discussed here. A good B/CR is a ratio of benefits to cost for a particular SPI method. For instance, a B/CR of 1:1 means that for every dollar a SPI method costs, one dollar is returned. That's pretty good. Look for SPI methods with a good B/CR.

What does a good B/CR mean? Is 0.1:1, 0.5:1, or 0.9:1 a good B/CR? Perhaps a return of 10, 50, or 90 cents on the dollar is a good B/CR. However, why use a SPI method with a B/CR in single digits? There are SPI methods with a double- and even triple-digit B/CR. It is the fundamental objective of commercial firms to look for a good B/CR, and it is the fundamental responsibility of large, nonprofit organizations to use SPI methods with a very good B/CR.

Attempt to achieve a high B/CR by design. Estimate the costs of using the various SPI methods. Estimate their benefits, and then calculate the simple ratio of benefits to costs. It is an intuitive model that anyone can use. Also, begin to gravitate or steward your SPI resources and investments toward SPI methods with at least a double-digit B/CR. Remember that a promising B/CR may never justify SPI methods with high costs for commercial or nonprofit organizations. This holds true for organizations of any type, size , or kind.

Don't believe the myth that economic analysis is only for high-maturity organizations. Use of economic analysis is why high-maturity organizations have reached that plateau ” and ignorance of economic analysis is why low-maturity organizations stay low.