What Is an Options Analysis?

Lesson Transcript
Instructor: Scott Tuning

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.

The best business decisions are the most informed ones. This lesson outlines how leaders can perform a systematic options analysis to better inform their decisions. Updated: 11/08/2021

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.

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  • 0:04 Options Analysis Definition
  • 0:50 Step 1: ID Choices
  • 2:20 Step 2: Feasibility
  • 4:14 Step 3: Select Option
  • 5:30 Lesson Summary
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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:

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Practice:
What Is an Options Analysis? Quiz

Instructions: Choose an answer and click 'Next'. You will receive your score and answers at the end.

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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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