Cost-Benefit Analysis of Organizational Interventions: The Case of Downsizing |
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Authors: | Assa Birati Aharon Tziner |
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Institution: | (1) School of Business Administration, Bar-Ilan University, 52900 Ramat-Gan, Israel;(2) Netanya Academic College, Israel |
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Abstract: | This article advocates a new approach to assessing the desirability of downsizing. The model treats downsizing programs the same as any other projected investment by a firm. The steps involved in reaching a decision include: (a) Estimation of cash outflows at the initial stage of the process regarded in this paper as the investment in the downsizing project; (b) Assessment of the net inflow from downsizing; (c) Estimation, on the basis of (a) and (b), the real, post-tax rate of return on the downsizing plan and comparison with the real, post-tax cost of capital to the firm; (d) Ranking and comparing the downsizing project to all other potential investments. The final decision of whether to accept or reject a downsizing plan will then depend on the relative desirability of the project (when all other non-quantitative considerations are also evaluated) to other investment alternatives, taking into consideration the limited resources of the firm for capital spending. |
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