Using Utility in Business Decision Making

An error occurred trying to load this video.

Try refreshing the page, or contact customer support.

Coming up next: PERT Analysis & Project Completion

You're on a roll. Keep up the good work!

Take Quiz Watch Next Lesson
Your next lesson will play in 10 seconds
  • 0:00 Driven by Utility
  • 1:03 What Is Utility?
  • 1:41 Upgrading Efficiency
  • 2:30 Real-Life Examples of…
  • 3:47 Lesson Summary
Save Save Save

Want to watch this again later?

Log in or sign up to add this lesson to a Custom Course.

Log in or Sign up

Speed Speed Audio mode
Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught history, and has an MA in Islamic law/finance. He has since founded his own financial advice firm, Newton Analytical.

A company should always work to maximize profits, right? Well, yes and no. In this lesson, we look at the idea of utility and see how profits can sometimes come second if something with greater utility is needed.

Driven by Utility

Let's say that you run a widget factory. One day, someone comes into your office and offers a brand new way of manufacturing widgets. You'll have the full rights to the process, if you choose to buy it, and it will definitely make your profits go up. However, there's a catch. The new process has a price equivalent to how much your factory makes in three months! Also, you'd have to slow down production for the new equipment to be installed, meaning that your company wouldn't make as much money in the two months to install it as it would otherwise. So what do you do? Do you thank the inventor for his time and show him the door? Or, do you call the Chief Financial Officer and have her start crunching some numbers?

If you want your business to stay competitive, then chances are that you're already on the phone with the CFO! Utility is the idea that the real value of something is in its usefulness, not anything implicit. In this lesson, we'll take a look at what utility means for business decision making.

What Is Utility?

Let's back this up for a second just to make sure you get the idea of utility. Suddenly, you go from being in your office to being stranded on a deserted island. A genie appears and offers you a choice. You can either have all the money in the world and never be rescued, or a fully charged satellite phone and GPS beacon. Chances are you take the phone and beacon. After all, that money doesn't do you any good if you can't spend it! That is the core concept of utility - what is most useful to the organization. In the above example, using the new manufacturing process had great utility because it upgraded efficiency.

Upgrading Efficiency

Still, utility has to be balanced properly to find out the real cost. By real cost, I mean how much you're actually going to spend making that happen. Let's go back to our widget manufacturing plant. Let's say that your widgets are timeless and always in demand. Before you think that I've lost my mind, that could mean anything from a pencil to a toilet seat. You'll have to take a short-term loss to make the necessary upgrades, but you'll have so much more to gain later. However, let's say that the new process actually wasn't such a great deal. Whereas everyone is currently trained on how to use the current manufacturing system, the new version requires yearly training of a month at a time! That's a massive loss of productivity. In that case, it may not be so worthwhile.

To unlock this lesson you must be a Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use

Become a member and start learning now.
Become a Member  Back
What teachers are saying about
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account