Digital White Papers

30 WWW.ILTANET.ORG | ILTA WHITE PAPER FINANCIAL MANAGEMENT The Cost-Benefit Analysis Process: Making an Educated Decision Finally, the organization must always consider the extent of the integration requirements between the proposed system and other systems currently running, and any dependencies between it and any other existing or planned systems. Issues with the "Traditional" CBA Standard CBAs tend to give undue weight to purely financial criteria and have occasionally come into disrepute. An example is the Ford Pinto gas tank placement scandal in 1978. According to a Popular Mechanics article, the car was designed in 1970 with the gas tank behind the rear axle. Aer it was already in production, Ford undertook rear-end collision tests. Out of 11 carefully coordinated crashes, the gas tank ruptured eight times and oen burst into flames. Ford considered redesigning the car but then did a CBA. Experts calculated the value of a human life at around $200,000 with a serious burn injury being valued at $67,000. Using an estimate of 180 deaths and 180 serious burns, possible liability costs worked out to around $49.5 million. Meanwhile, they calculated the cost to redesign and rework the Pinto's gas tank at close to $137 million. Tweny-seven people were determined to have been killed in rear- end-crash explosions involving Pintos. In one of the few cases brought to trial, a California jury awarded a severely burned boy $650,000 in ordinary damages and another $125 million in punitive damages, registering their disgust at Ford memos introduced in evidence that betrayed the company's cold-hearted CBA calculations. Even aer a judge reduced the amount to $3.5 million on appeal, this was far more than the company had ever counted on paying. It was a real wake-up call for Ford, whose legal teams went to work seling many pending cases out of court. Other Issues with CBA Sometimes a project needs to go ahead irrespective of the economics; it might be vital to the continued existence of the business, further some fundamental business objective or be a business or technical prerequisite to some other vital new system.

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