Scott has been a faculty member in higher education for over 10 years. He holds an MBA in Management, an MA in counseling, and an M.Div. in Academic Biblical Studies.
Options Analysis Definition
Simply put, options analysis refers to the practice of evaluating every possible pathway that leads to a desired outcome. Options analysis is an important aspect of project management because it helps leaders ensure they have considered all possible routes before choosing the best fit for their project.
For example, in an effort to increase value, legislators in the United States approved a program that would provide incentive money for healthcare facilities to eliminate paper medical records and replace them with an electronic health record (EHR). For the healthcare providers, there was no neutral option. If a provider adopted the electronic health record, they received the incentive; if they failed to do so, their Medicare reimbursements would be subject to a 1% penalty.
Options Analysis Steps
There are three major steps in a basic options analysis. Let's now take a few minutes to identify and define the steps used to complete an options analysis.
Step 1: Identify the Choices
In the first stage, the assembled options should be recorded with no consideration (yet) about their feasibility. In the paper-to-electronic example, the comprehensive list of options would include things like:
- Adopt early and maximize the benefit of the incentive money to pay for the project
- Adopt late and use the lessons learned from other organizations as a way of reducing the cost of the conversion by eliminating waste
- Do not adopt an electronic record at all, and simply pay the penalty when it is levied
- Choose to close the practice altogether rather than choosing between adoption and penalty
This initial stage allows an unlimited number of options, but there are a few option types that must always be included. The first is what might be called the ''do-nothing'' option. This is a baseline scenario that's a picture of the future without any positive or negative thought to the project. The second mandatory type is the ''do-minimum'' option. That represents the minimum outlay necessary to achieve the deliverable.
Once these two options have been identified, the remaining options are considered ''do-something'' options. These are the options that vary widely in cost and value. They're generally more complex options because there are more variables and dependencies.
Step 2: The Feasibility Study
In stage two, the feasibility now becomes a consideration. In identifying the options, there was no linear progression, and options were simply tossed onto the table simultaneously. When analyzing feasibility, a more systematic approach is required because the stakes associated with failure have been raised. Failing to properly forecast costs, investment required, or return on investment (ROI) can quickly turn the best option into a nightmare.
At a minimum, a feasibility study must include five components:
- In the first step, a forecast or demand analysis is undertaken for the purpose of ensuring that the numbers of the required investment and its expected return are consistent with each other.
- The second step considers opportunities for technology or automation. In many circumstances, these two factors reduce the costs associated with the project without decreasing the ROI.
- The third and fourth step are closely related because both address the human aspect of the option. By itself, the third step is a forecast of anticipated necessary staffing. It also forecasts the type of labor needed in terms of skill, training, or job descriptions.
- After defining the human elements in step three, step four establishes the reporting structure related to personnel and project managers.
- Finally, in the fifth step, the scope of the work is considered. Although it's far too early to establish a detailed scope, this is the stage at which the wide boundaries of the project should be drawn.
In the medical records conversion project, we can certainly rule out closing the clinic altogether as an option. It would not be feasible to reduce revenue by 100% in order to avoid incurring a 2% penalty. The other three options should survive into the third step.
Step 3: Cost-Benefit and Option Selection
The process transitions from the feasibility study to the selection of an option when all unfeasible ideas have been removed. Selecting one of the remaining alternatives should largely be based on cost-effectiveness. Don't make the mistake of thinking that cost-effective and cheap mean the same thing; the project is being evaluated for value, not just cost. When analyzing the remaining options, although cost is a starting point, a decision should be made only when a matrix has been used to analyze the value proposition and not just the cost.
Of the three remaining options in the conversion project, the cost-benefit analysis will quickly eliminate two. Because incentive money is equal to the cost of purchasing an electronic system, this is the most obvious choice. The value proposition is receiving an electronic record that provides an immediate return on investment without incurring significant costs.
Just before making a selection, it's good practice to assess the financial impact of the option one more time. This is particularly important if parameters or variables have changed during the process. When the most value-adding option has been identified, the project is now ready to begin.
All right, let's now take a moment or two to review. As we learned, an options analysis puts all available options on the table and systematically evaluates them. The process takes place in three steps.
The first step is simply to aggregate all possible options regardless of the likelihood of adoption. At a minimum, the options must include options we can define as:
- ''Do-nothing'', which is a baseline scenario that's a picture of the future without any positive or negative thought to the project
- ''Do-minimum'', which represents the minimum outlay necessary to achieve the deliverable
- ''Do-something'', which are options that vary widely in cost and value
The second step is to conduct a feasibility study and remove any options that are identified as being unfeasible. All feasible options now survive to the third step where a cost-benefit analysis is performed, a value proposition and ROI are identified, and the final decision is made.
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What Is an Options Analysis? Quiz
Instructions: Choose an answer and click 'Next'. You will receive your score and answers at the end.
Once all the options in an options analysis have been identified, the next step is to perform _____ which will look at factors like cost forecasting, available technology, and personnel requirements.
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