Question

What is incremental analysis? How is the concept used in decision making?

Answer 1

Solution. When an organization decides to do business in today's competitive market, it lay plans to achieve organizational goals of profit making along with social impact in society. Incremental analysis encompasses the process of determining cost of a decision under the light of different alternatives and revenues generated from the same which are relevant in differentiating future profits from the same. It does not take into account sunk costs which are already incurred by the organization.

This concept is used in decision making to evaluate and select decision alternatives in scenarios of make or buy, accept or reject special given offers, continue or stop, etcetera in business. It provides with the tool for short-term decisions to determine and select the decision with the least relevant cost or with the maximum relevant revenue and allocating scarce resources to maximum use.