Economic analysis is a systematic process in which the organisation, its business approach, and its products and/or services are examined. The potential required investment and actual and expected costs and revenues are analysed so as to enable better understanding of the benefits, costs and overheads associated with the materialisation of investment and revenue in order to support improvement-inducing decisions.
It is really a systematic approach to determining the optimum use of scarce or available resources, involving comparison of possible alternatives in the course of achieving specific objectives under given assumptions and constraints.
Economic analysis takes into account the opportunity costs of resources employed, that is, benefit, profit or value of something that must be given up in order to acquire or achieve something else. Since most, if not every resource, (e.g., land, money, time, etc.), can be put to alternative uses, every action, choice, or decision has an associated opportunity cost. The facts associated with opportunity costs are fundamental, as they are used in the production of cost benefit analysis of projects or other organisational activities. This is further accentuated since such costs are not recorded in the organisation’s account books even though they are essential in the organisational decision making. In this, the economic analysis actually assists in measuring, in monetary (and other) terms, the costs and benefits of a project or another activity to – and thereof their impact on – both the organisation and its operational environment.
The economic analysis is a fixed, step-by-step sequence of activities or course of action (with definite start and end points) that must be followed in the same order to correctly perform the task at hand. It can thus prevent the organisation from falling into the “sunk cost fallacy” which points at such situations whereby once a significant non-recoverable investment has been made, it would entail a psychological tendency to invest more even when the return on the subsequent investment is not worthwhile.
To carry out organisational economic analysis, we have designed dedicated tools and methodologies so that it can be performed in the most efficient manner.