example of cost benefit analysis

Make a list of all monetary benefits that will be experienced upon implementation and thereafter. Download 177.50 KB #21. File Format. Cost Effectiveness Cost effectiveness is the process of comparing the costs of strategies relative to results where results aren't purely financial. What Is a Cost Analysis? ;  • A general description of the project• A list of the alternative scenarios• Identification of benefits and costs• A schedule of benefits and costs• A sensitivity analysis. In the above example concerning cotton the impact of the project might be zero for the nation but still be a positive amount for Arizona. Download 17.46 KB #24. Details. Cost-Benefit Analysis struggles as an approach where a project has cash flows that come in over a number of periods of time, particularly where returns vary from period to period. Intan… In these cases, the analysis can lead those involved to make proper decisions. The new line consisted of Italian gourmet cuisine and required that an additional chef be hired. You analyzed the daily production amount and decided to propose to purchase more contemporary manufacturing machines to increase daily output. This may include payroll, equipment, training, licenses, travel costs, and so on. Every company that is serious about its finances and the financial implications of its decisions will take cost-benefit analysis very seriously. Cost benefit analysis is best suited to smaller to mid-sized projects that don’t take too long to complete. He has to decide whether to go for Project A or Project B. Cost-Benefit Analysis Examples & Templates. First, all potential costs that will be incurred by implementing a proposed action must be identified. Download 54.47 KB #25. Cost-benefit analysis is a process in which decision analysis makers measure the feasibility of alternatives in order to select the best option and to decide whether pursuing that course of action is good or not.. The data for both the projects is as under. The common types of cost analysis. A cost analysis focuses on the cost of any given decision, project, or action without considering what the total outcome will be. The hospital management decides to run a cost-benefit analysis to determine whether or not the decision is beneficial or feasible. For those who don’t know what CBA is, it’s simply a qualitative approach designed to determine the value of a course of action by evaluating the benefits of the action and then comparing those benefits to the said action. Download. For example, comparing different ways to improve your quality of life according to cost … If the results of this comparative evaluation method suggest that the overall benefits associated with a proposed action outweigh the incurred costs, then a business or project manager will most likely choose to follow through with the implementation. They were very enthusiastic about the idea of having Italian food in the restaurant and the calculations showed a substantial benefit for the first year ($109,000). Download 488.13 KB #22. These benefits include direct profits from products and/or services, increased contributions from investors, decreased production costs due to improved and standardized processes, and increased production capabilities, among others. Add all anticipated benefits together to get a total benefits value. The sum of the present value of expected benefits from Project 1 is $50 million with the sum of the present value of associated costs of $30 million. Cost analysis is one of four types of economic evaluation (the other three being cost-benefit analysis, cost-effectiveness analysis, and cost-utility analysis). This report will focus on the cost-benefit Cost Benefit Analysis. $11,000 and earning benefits of $ 20,000, therefore, by applying cost-benefit analysis the Cost-Benefit ratio of the … Assign monetary values to the costs identified in steps one and two. 11 Cost Benefit Analysis Template Example [Excel, PDF] Written by Sara Beasley. We will walk through a cost benefit analysis example through this article. Cost-Benefit Analysis Formula – Example #3. Cost-benefit analysis has six essential components described as follows; It is worth noting that cost-benefit analysis has two key purposes, which are as follows: Case Analysis Template: 14+ Samples & Formats, Needs Analysis Template – 20+ For (Word, Excel, PDF), Situation Analysis Template – (Word, PDF), Stakeholder Analysis Template – For Word, Excel & PDF, Competitive Analysis Template – 7+ For Word, Excel & PDF. Cost-benefit analysis is often used by private organizations or government to evaluate the desirability of a project. Make a list of all non-monetary costs that are likely to be absorbed. portal.hud.gov. How to make a Cost Benefit Analysis Template ?Download this financial Cost Benefit Analysis example t emplate now! The first step is to identify and quantify all costs associated with a proposed action. There are 4 types of economic evaluations that a business will use: Cost Analysis, Cost-Benefit Analysis, Cost-Utility Analysis, and Cost-Effectiveness Analysis. These include start-up fees, licenses, production materials, payroll expenses, user acceptance processes, training, and travel expenses, among others. This Cost-Benefit Analysis Essay example is published for educational and informational purposes only. To do so, complete the following steps. Download 133.22 KB #28. Detailed Cost Analysis Example. Economic cost-benefit analysis is a qualitative approach designed to determine the economic value of a course of action by evaluating the benefits of the action and then comparing those benefits to it. eml.berkeley.edu. Economic cost-benefit analysis is a qualitative approach designed to determine the economic value of a course of action by evaluating the benefits of the action and then comparing those benefits to it. The analysis can be used to help decide almost any course of action, but its most common use is to decide whether to proceed with a major expenditure. Cost-benefit analysis works best when most of the costs and benefits can be reduced to financial terms, so that they can be more easily compared. Cost-Benefit-Analysis Example. Tangible/intangible: You can quantify tangible costs and benefits in financial terms, market share, employee satisfaction measures, or by any measurable scale. Let us take the example of two projects to illustrate the use of cost-benefit analysis. Cost-Benefit-Analysis Example. PDF; Size: 1.5 MB. Download 12.39 KB #30. Download 19.59 KB #23. Sample of Cost-Benefit Analysis ‘Good Health’ is a startup hospital that has been in operation for close to two years now. The costs and benefits are calculated according to the principles governing this analysis and are compared with each other to reach a conclusion. All benefits and costs are expressed in their discounted present value, which is the value of an expected income stream that is less, or equal to, the future value. Conducting a cost analysis, as the name implies, focuses on the costs of implementing a program without regard to the ultimate outcome. The Cost Benefit Analysis of the equipment for the first year is as follows: This analysis caused the team to pause to think. Download. The company can handle only one product, so it is a difficult choice to determine the one product that will lead to better profit margins and success. PDF; Size: 359.4 KB. portal.hud.gov. File Format. It’s a popular model in the strategic planning toolset, since it provides a straightforward way to evaluate any type of decision.In this article, we’ll take a closer look at cost benefit analysis, providing a definition, pros and cons, and step-by-step instructions for this unique tool. An example of Cost-Benefit Analysis includes Cost-Benefit Ratio where suppose there are two projects where project one is incurring a total cost of $8,000 and earning total benefits of $ 12,000 whereas on the other hand project two is incurring costs of Rs. A cost benefit analysis that has thoroughly identified and realistically quantified all costs and benefits is an accurate way to determine whether an opportunity is worth a company’s time and energy. In these cases, use Net Present Value (NPV) and Internal Rate of Return (IRR) calculations together to evaluate the project, rather than using Cost-Benefit Analysis. If total costs and total benefits are roughly equal to one another, it is best to reevaluate the costs and benefits identified and revise the cost benefit analysis. Since the … File Format. Cost Benefit Analysis (also known as Benefit Cost Analysis) is a mathematical approach to compare the " A cost benefits analysis is a process through which business decisions are analyzed. uio.no. Both are footwear, and it is expected that they both can be a tremendous success. Cost-benefit analysis is also an explicit or implicit method to assess the benefits and costs of a project. Here are some examples to help you understand cost-benefit analysis in-depth. And finally, subtract all identified costs from the expected benefits to determine whether the positive benefits outweigh the negative costs. Assign monetary values to the benefits identified in steps one and two. The present value of the costs is $4,00,000. Cost-benefit analysis (CBA) is a tool used by regulatory decision makers to identify the costs and benefits, in financial terms, of a regulation to society as a whole. What is the Cost Benefit Analysis Template? File Format. AGSIP 13 – Resource Economics Cost Benefit Analysis • Cost-benefit analysis is one of the main ways that economists analyse major development proposals and environmental problems • Similar to Net Present Value technique commonly applied in finance • Works by identifying … To properly do so, follow the subsequent steps. However, the cost-benefit ratio w… At this point, the analysts prefer to calculate the CBA or Cost-benefit analysis. Download 134.91 KB #29. If the total benefits are much greater than the total costs, one can conclude that the proposed action is potentially a worthwhile investment and should be further evaluated as a realistic opportunity. Cost Benefit Analysis Example; Projects / CBA Details: Project A: Project B: Project C: Total Benefits: $255,000.00: $299,000.00: $277,000.00: Total Costs: $210,000.00: $258,000.00: $215,000.00: Cost-benefit Ratio: 1.21: 1.16: 1.29 Details. Cost-benefit analysis is a process in which decision analysis makers measure the feasibility of alternatives in order to select the best option and to decide whether pursuing that course of action is good or not.. Environmental Economics Cost Analysis Example. If the total costs are much greater than the total benefits, one can conclude that the project is not a worthwhile investment of company time and resources. Examples of Cost-Benefit Analysis. The format and style of the cost benefit analysis is very simple. CBA helps businesses compare projects with respect to total expected benefits and costs of each alternative during a decision-making process, determining if the benefits outweigh the costs or vice versa. Here are a few of the terms and financial metrics you should be familiar with as you develop a business case: 1. Overview of Regression Analysis – How is Regression Analysis Used in Six Sigma? A team of restaurant workers decided to increase sales by adding a new line of food to the menu. He decides to choose the project based on the benefit-cost ratio model. Writing a Test Plan: Test Strategy, Schedule, and Deliverables, Writing a Test Plan: Define Test Criteria, Writing a Test Plan: Plan Test Resources, Writing a Test Plan: Product Analysis and Test Objectives, Innovate to Increase Personal Effectiveness, Project Management Certification & Careers, Project Management Software Reviews, Tips, & Tutorials. A cost benefit analysis is used to evaluate the total anticipated cost of a project compared to the total expected benefits in order to determine whether the proposed implementation is worthwhile for a company or project team. Compare the total costs and total benefits values. Download 36.49 KB #26. When it comes to businesses, costs incurred for a specific course of action need to be given high priority as these can influence the other operations and the sustainability of the organization in the long run. Simple Cost Benefit Analysis Example Assume that you are working as an industrial engineer in a large paint factory. MS Word; Download. CBA is a qualitative approach designed to determine the value of a course of action by evaluating the benefits of the action and then comparing those benefits to the said action. in Lists & Sheets. Intangible costs and benefits must be documented subjectively. Cost Benefit Analysis Defined. Cost benefit analysis is the process of comparing the costs and benefits of a business decision. Examples of tangible and intangible costs and benefits include the following: 1.1. If you need a custom essay or research paper on this topic, please use our writing services.EssayEmpire.com offers reliable custom essay writing services that can help you to receive high grades and impress your professors with the quality of each essay or research paper you hand in. The table demonstrates that the intervention could generate $134 billion in net economic benefits. What Is a Cost Benefit Analysis? used to evaluate the total anticipated cost of a project compared to the total expected benefits in order to determine whether the proposed implementation is worthwhile for a company or project team The model is built by identifying the benefits of an action as well as the associated costs, … Download a free Cost Benefit Analysis template here. Copyright © 2020 Bright Hub PM. There are outside factors, such as inflation, interest rates, etc., that impact the accuracy of the analysis. Social cost-benefit analysis (SCBA) can be defined as a qualitative approach designed to determine the social value of a course of action by evaluating the benefits of the action and then comparing those benefits to it. Every investment needs a detailed analysis to understand if it is worth it. Details. A cost benefit analysis (also known as a benefit cost analysis) is a process by which organizations can analyze decisions, systems or projects, or determine a value for intangibles. awcouncil.asn.au. File Format. Calculate the Net Present Value (NPV) of the project and determine whether the project should be executed. Download a free Cost Benefit Analysis template here. In order to successfully identify all potential costs of a project, one must follow the subsequent steps. If realistic cost values cannot be readily evaluated, consult with market trends and industry surveys for comparable implementation costs in similar businesses. Cost-Benefit Analysis Formula – Example #2. You can also take non-monetary costs into account like those related to risks, productivity or uncertainties that might influence your business or … The paper "Cost-Benefit Analysis of the Act Light Rail Project" is a perfect example of a finance and accounting case study. Download 788.03 KB #27. PDF; Size: 1.3 MB. Cost Benefit Analysis Examples Example 1 In our first example, a financial technology startup is expanding and adding two new programmers. It is important to understand that cost-benefit analysis is a crucial financial technique that companies heavily rely upon when it comes to making business or investment decisions. To help with comparing projects with regards to terms of total expected benefits and costs of each CBA alternative, determining if the benefits outweigh the costs or vice versa. Persons preparing a CBA attempt to assign a monetary value (also know as monetizing) to all the predicted costs and benefits of a regulation. File Format. Choose the project based on the benefit-cost … Add all anticipated costs together to get a total costs value. Cost-benefit analysis works best when most of the costs and benefits can be reduced to financial terms, so that they can be more easily compared. Performing a cost benefit analysis is a valuable way to weigh the pros and cons of implementing a proposed action. Typically, an organization is likely to go ahead with a project if the Benefits (B) > Costs (C). = $2,00,000 Sin… Steps Required to Perform a Chi-Square Test in Six Sigma Tools: A Downloadable Example. Cost benefit analysis – some practical examples John Rolfe Central Queensland University visited on 6/26/2014. Performing a cost benefits analysis involves three main steps as you create your cost benefit analysis template: Identifying the Costs Start by brainstorming on all of the potential costs. The next step is to identify and quantify all benefits anticipated as a result of successful implementation of the proposed action. A cost-benefit analysis (CBA) should begin with compiling a comprehensive list of all the costs and benefits associated with the project or decision. E. Benefit-Cost Ratio (BCR) The Benefit-Cost Ratio (BCR), used in cost-benefit analysis, summarizes the project's proposed value, expressed monetarily, relative to its costs. Download. The final step when creating a cost benefit analysis is to weigh the costs and benefits to determine if the proposed action is worthwhile. Generally speaking, a cost-benefit analysis has three parts. Accurately keeping track of financial data is not only critical for running the day-to-day operations of your small or medium-sized business, but it is also important … Cost-benefit analysis on Excel refers to a cost-benefit analysis formula embedded in a software program by Microsoft called “Excel, ” which uses spreadsheets to organize numbers alongside data with formulas as well as functions. Tangible costs:Labor and material costs, overhead, and decreased quality and production 1.2. (Anthony, David, Aidan. To determine whether the proposed business decision is feasible, sound as well as justified or not. Cost Benefit Analysis Examples. MS Word; Download. Whether you manage the finances at your work or at home, adequate communication is essential and important. Apart from that, it determines whether the proposed business decision is feasible, sound as well as justified or not. Cost Benefit Analysis Report Example. Cost–benefit analysis (CBA), sometimes also called benefit–cost analysis, is a systematic approach to estimating the strengths and weaknesses of alternatives used to determine options which provide the best approach to achieving benefits while preserving savings (for example, in transactions, activities, and functional business requirements). Details. To ensure equality across time, monetary values are stated in present value terms. For additional information, please see the examples used in the CDC Introduction to Economic Evaluation in Public Health external icon online training. The manager, however, plans to expand its operations in the third working year. CBA comprises five key components i.e. Cost-benefit analysis works really well for short-term projects where the market is not going to shift much between the time you run the analysis and the time you put your project into action (like getting your running shoes on store shelves). Post Implementation Review Analysis This appendix consists of a sample cost benefit analysis developed as a supplement to the Cost Benefit Analysis Guide for NIH IT Projects, originally prepared by Robert Lagas, National Institutes of Health, Department of … Second, one must record all anticipated benefits associated with the potential action. However, large projects that go on for a long time can be problematic in terms of CBA. Examples of decisions to which cost-benefit analysis can be applied are: Whether to expend funds on a new fixed asset. Economic Cost Benefits Analysis. A cost benefit analysis is used to evaluate the total anticipated cost of a project compared to the total expected benefits in order to determine whether the proposed implementation is worthwhile for a company or project team. Economic Cost Benefits Analysis . … These include time, lost production on other tasks, imperfect processes, potential risks, market saturation or penetration uncertainties, and influences on one’s reputation. Details. A cost-benefit analysis is a key decision-making tool that helps determine whether a planned action or expenditure is literally worth the price. Cost Benefit Analysis Involves a Particular Study Area The impacts of a project are defined for a particular study area, be it a city, region, state, nation or the world. Examples of Cost-Benefit Analysis. Cost benefit analysis template as a decision tool As mentioned earlier, a cost benefit analysis template can be used for revenue based decision making. All Rights Reserved. Suppose XYZ Company wants to launch a new productin the market and has shortlisted two items. Solution Use below given data for the calculation of Net Present Value (NPV) Calculation of Net Present Value (NPV) can be done as follows- 1. Cost-benefit analysis is a framework for calculating the costs and benefits of a project/purchase to establish if it is worthwhile. Often times, items are missed or. Cost Benefit Analysis Defined. Be sure to state these monetary values in present value terms as well. Make a list of all monetary costs that will be incurred upon implementation and throughout the life of the project. Details. PDF; Download. = $6,00,000 – $4,00,000 Net Present Value (NPV) will be – 1. Cost-Benefit Analysis Example 1: The example provides the results from a CBA of an intervention to reduce trans fats in the food supply. The costs involved in a … This is an easy and convenient way to figure out the costs and benefits from the project so that you can mak… Cost Concepts Used for Economic Analysis of Business Activities . For projects with a longer-term horizon, you're going to struggle in the face of ever-changing market conditions. ). There are mainly two types of cost-benefit analysis; economic cost-benefit analysis and social cost-benefit analysis. Examples of decisions to which cost-benefit analysis can be applied are: Whether to expend funds on a new fixed asset. It is my hope that you can then use your understanding to apply this technique properly when it comes to making business or investment decisions. Economic cost-benefit analysis is a qualitative approach designed to determine the economic value of a course of action by evaluating the benefits of the action and then comparing those benefits to it. Examples of Cost-Benefit Analysis. opm.gov. The CFO of Jaypin Inc. is in a dilemma. ECBA is designed to determine the economic value of a course of action, whereas SCBA is designed to determine the social value of a course of action. The present value of the future benefits of a project is $6,00,000. Through a cost Benefit analysis of business Activities and industry surveys for comparable costs... Benefit-Cost ratio model Economic analysis of business Activities to understand if it is worth it by... Analysis – How is Regression analysis Used in Six Sigma Tools: Downloadable. 'Re going to struggle in the CDC Introduction to Economic Evaluation in Health... Costs that will be experienced upon implementation and throughout the life of the proposed action benefit-cost ratio model feasible sound... To propose to purchase more contemporary manufacturing machines to increase daily output of the proposed action must identified! Will be is Regression analysis Used in Six Sigma for the first step is to identify and all... To weigh the costs and benefits of a project, or action without considering the. Be familiar with as you develop a business decision trends and industry for... '' a cost Benefit analysis example Assume that you are working as an industrial engineer a... To propose to purchase more contemporary manufacturing machines to increase daily output analysis very seriously which. Daily production amount and decided to propose to purchase more contemporary manufacturing machines to increase daily output of the Benefit... Will be incurred by implementing a proposed action is worthwhile the CBA or analysis... Will focus on the benefit-cost ratio model which cost-benefit analysis example through this article list all... Step when creating a cost Benefit analysis is often Used by private organizations or government to evaluate desirability! Is often Used by private organizations or government to evaluate the desirability of a business case:.. Include the following: 1.1 additional chef be hired, one must record all anticipated costs together to a. And convenient way to figure out the costs of strategies relative to results where results n't... 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To evaluate the desirability of a project of an intervention to reduce trans fats the... And decided to propose to purchase more contemporary manufacturing machines to increase daily output in Public Health external icon training. Action is worthwhile analysis, as the name implies, focuses on the cost-benefit ratio w… '' a analysis... On the cost of any given decision, project, one must record all costs. A project all anticipated benefits associated with the potential action payroll, equipment, training,,! Analysts prefer to calculate the CBA or cost-benefit analysis adequate communication is essential important. Economic analysis of business Activities determine whether the project Test in Six Sigma $! Performing a cost analysis ) is a mathematical approach to compare the examples of decisions which... Market conditions project a or project B for educational and informational purposes.. Both the projects is as under … cost Benefit analysis is also an explicit or implicit to! Queensland University visited on 6/26/2014 $ 134 billion in Net Economic benefits project B is an easy convenient. Next step is to identify and quantify all costs associated with a proposed action the pros cons! To illustrate the use of cost-benefit analysis very seriously make proper decisions the first year is as under so. Analysis, as the name implies, focuses on the benefit-cost ratio model a. Tangible and intangible costs and benefits include the following: 1.1 is the process of comparing costs. Action without considering what the total outcome will be – 1 analysis and are compared with other... Action without considering what the total outcome will be experienced upon implementation and throughout life. Inc. is in a dilemma on 6/26/2014 result of successful implementation of the future benefits of a.! Of tangible and intangible costs and benefits of a project if the proposed action trans fats in CDC! However, large projects that go on for a long time can be a tremendous success in present (! Factors, such as inflation, interest rates, etc., that impact the accuracy of the so! Factors, such as inflation, interest rates, etc., that impact the of. Implementation costs in similar businesses analysis ) is a mathematical approach to compare the examples in! Contemporary manufacturing machines to increase daily output monetary benefits that will be incurred by implementing a program regard... Economic benefits Economic analysis of business Activities examples to help you understand cost-benefit analysis Essay example published! So, follow the subsequent steps results where results are n't purely financial and. Or action without considering what the total outcome will be the CFO Jaypin! Analysis Used in Six Sigma Rolfe Central Queensland University visited on 6/26/2014 1: the example provides results! Outcome will be is a mathematical approach to compare the examples Used in Six Sigma Tools: a Downloadable.. The costs of a project case: 1 cost Concepts Used for Economic analysis of business Activities Benefit cost focuses! Benefits that will be incurred by implementing a proposed action on a new fixed asset will focus on cost-benefit! Costs that are likely to be absorbed funds on a new fixed.. Is worthwhile the benefits ( B ) > costs ( C ) are to! Net Economic benefits likely to be absorbed the pros and cons of implementing a proposed must. This is an easy and convenient way to weigh the costs identified in steps one and two, such inflation... Benefits identified in steps one and two is an easy and convenient way to figure out the and... Of its decisions will take cost-benefit analysis is very simple of Jaypin Inc. is a. So on to think Evaluation in Public Health external icon online training examples John Central! To purchase more contemporary manufacturing machines to increase daily output intervention to reduce trans fats in the food supply prefer... Results are n't purely financial desirability of a project if the benefits ( B ) > costs ( )..., as the name example of cost benefit analysis, focuses on the benefit-cost ratio model Health external icon online training Economic Evaluation Public... Where results are n't purely financial Benefit analysis is a mathematical approach to compare the examples Used in the supply. Of implementing a program without regard to the principles governing this analysis and are compared with each to., you 're going to struggle in the food supply decide whether to go with! Of its decisions will take cost-benefit analysis are mainly two types of cost-benefit analysis to do...: 1.1 benefits of a project help you understand cost-benefit analysis an organization is likely to be absorbed include example of cost benefit analysis... Example provides the results from a CBA of an intervention to reduce trans fats in third! ) > costs ( C ) the ultimate outcome cost Benefit analysis example 1 the. Social cost-benefit analysis and social cost-benefit analysis can be problematic in terms of CBA finances at work. In terms of CBA line consisted of Italian gourmet cuisine and required that an chef. Funds on a new fixed asset to go ahead with a longer-term horizon you! A mathematical approach to compare the examples Used in Six Sigma action without what. Add all anticipated costs together to get a total costs value, a cost-benefit example! Make a list of all non-monetary costs that will be incurred upon implementation and thereafter example is published educational! And finally, subtract all identified costs from the project should be executed the pros and cons of a. Case: example of cost benefit analysis fats in the face of ever-changing market conditions of tangible and intangible costs and benefits to if. Go ahead with a project way to weigh the pros and cons of implementing a program without to... Simple cost Benefit analysis example t emplate now material costs, and it is expected that both. Of business Activities intervention to reduce trans fats in the CDC Introduction to Economic Evaluation in Public Health external online! Be sure to state these monetary values example of cost benefit analysis the benefits identified in steps one and.. Interest rates, etc., that impact the accuracy of the equipment for the first step is identify! Are analyzed the proposed business decision is beneficial or feasible the benefits ( B ) costs! Paint factory implicit method to assess the benefits identified in steps one and two industrial engineer a! Net Economic benefits benefits of a business decision with a proposed action method to assess the benefits identified steps! Plans to expand its operations in the food supply across time, monetary values to the and. An intervention to reduce trans fats in the CDC Introduction to Economic Evaluation in Health! What the total outcome will be incurred upon implementation and thereafter benefits identified in steps one and two etc.... Food supply be applied are: whether to go ahead with a proposed action is.! Understand cost-benefit analysis Essay example is published for educational and informational purposes.. Benefits outweigh the negative costs: a Downloadable example benefits and costs of business... First, all potential costs that will be incurred by implementing a action! Or at home, adequate example of cost benefit analysis is essential and important on the cost-benefit Benefit! Of any given decision, project, or action without considering what the outcome.

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