Flow charts are an important element of functional economic analysis.
In today's business environment, with competition on a global scale, companies are always looking for new ways to reduce costs and operate more efficiently. Changes in company procedures and operations can result in savings, but managers should take time to closely investigate the costs and benefits of new business practices before implementing them. Functional economic analysis represents one approach to comparing new business practices.
Identification
Functional economic analysis uses flow charts, data analysis and analytical models to study and compare a set of alternatives for management practices, investments and business procedures, write Thomas Gulledge of George Mason University and Henry Neimeier of the MITRE Corporation. The two wrote a case study paper on functional economic analysis at MITRE. The Virginia-based company used the process to re-engineer its purchasing process.
Features
Gulledge and Neimeier write that a functional economic analysis must begin by defining the functional boundaries; that is, determining what to include in the organization or process being studied. When setting functional boundaries, it is important to include all systems that affect performance. The next step in the analysis involves specifying appropriate metrics, or measures of performance. Analysts then construct a flow chart that illustrates the company's existing process for the function being analyzed, and also projects the costs and outcomes for one or more alternative processes.
Effects
After review and comparison of the risks, costs and benefits associated with each approach, managers can select the most beneficial and efficient procedure for improving operations in the function being studied.
Benefits
Often, the flow charting process will reveal potential improvements in the existing, or baseline, process, such as duplication of efforts or wasteful activities. Gulledge and Neimeier write that the functional economic analysis conducted at MITRE reduced purchasing delays and created opportunities for discounts, saving the company $37 million over 10 years.
Function
Functional economic analysis is not limited in its use to re-engineering corporate procedures. Other organizations, including government agencies, can use this type of analysis. The Institute for Defense Analyses in Alexandria, Virginia, points out that the U.S. Department of Defense has used functional economic analysis to compare cost-saving alternatives in information management.
