Utility analysis

Also known as: Point value method, point evaluation method, scoring model

The utility value analysis is a special non-monetary evaluation method in the field of accounting.

Definition / explanation

The utility value analysis in accounting is a special procedure with which several target values are evaluated according to alternatives. This also applies if possible alternatives cannot be expressed in monetary units.

Evaluation criteria that are taken into account are, for example, technical, social or psychological evaluation criteria that are based on qualitative and quantitative characteristics.

sequence

The benefit analysis is carried out in the following steps:

  1. Determination of the alternatives or decision options
  2. Definition of evaluation criteria
  3. Weighting of the evaluation criteria
  4. Determination of the evaluation standard
  5. Evaluation of the alternatives
  6. Summation and selection

Benefits and advantages

A utility analysis provides a simple method that uses the heuristic system to make decisions. The entire process is traceable and verifiable. The utility analysis can generally be viewed as an additional system which, together with other methods, can make complex or complicated decisions much easier.

In addition, the cost-benefit analysis is often the only system that can be used even if the financial value of a project cannot be determined or if a variety of goals must be taken into account. The fact that this method does not require any monetary value is at the same time the greatest advantage of the utility value analysis.

Common mistakes and disadvantages

The greatest disadvantages of the utility value analysis are the very subjective weighting of the criteria to be assessed and the associated selection of criteria. Especially when several decision-makers with different points of view are involved in a decision, discrepancies and large differences in the evaluations and their criteria can arise.

This also shows that it cannot be guaranteed that the alternatives will always be compared in the same way.

When using the utility analysis, the following errors should also be observed:

For example, it is often not ensured that the various usage criteria must be independent of one another. Criteria are used that are dependent on another criterion. In this way, the success of the utility value analysis may have a lasting negative impact.

Another common mistake is scoring the wrong criteria. A value or volume is often rated according to its size, but not whether the value in itself is sufficient. In addition, with regard to transparency, only the really important criteria should be evaluated, as otherwise wrong or inaccurate results can occur.

Summary

  • a non-monetary valuation process
  • is particularly suitable for evaluating various alternative courses of action
  • High error rate possible if wrong criteria are selected or if there is a lack of independence
  • The cost-benefit analysis is a further development of the benefit analysis
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