What Is an Options Analysis?

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.

What Are My Options?

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.

Steps to Complete an Options Analysis

Step 1: Identify the Choices

There are three major steps in a basic options analysis. 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 baseline scenario is a picture of the future without any positive or negative thought to the project. The second mandatory type is the ''do-minimum'' option. This option 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 are generally more complex options because there are more variables and dependencies.

Step 2: The Feasibility Study

In stage 2, 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:

  1. 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.
  2. 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.
  3. 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.
  4. After defining the human elements in step three, step four establishes the reporting structure related to personnel and project managers.
  5. Finally, in the fifth step, the scope of the work is considered. Although it is far too early to establish a detailed scope, this is the stage at which the wide boundaries of the project should be drawn.

In most instances, technology and automation can increase ROI.
Fig1

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 third step.

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