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520 RATIONING CAPITAL AMONG COMPETING PROJECTS
SOlUTIQN
Each of the four project proposals has a single course of action. The general manager could, for
example, buy the office manager a new safeandbuy the inspection equipment for the machine
shop. But he could also decide tonotbuy the office manager a safeorthe equipment for the
machine shop. There is, then, an alternative to buying the safe for the office manager: not to buy.
him the safe-to do nothing. Similarly,he could decide to do nothing about the request for the
machine shop inspection equipment. Naturally, there are do-nothing alternatives for each of the
four single project proposals:IA. Purchase the foundry a new ladle.
lB. Do nothing. (Do not purchase a new ladle.)
2A. Obtain the inspection equipment for the machine shop.
2B. Do nothing. (Do not obtain the inspection equipment.)
3A. Make improvements to the spray booth in the painting department.
3B. Do nothing. (Make no improvements.)
4A. Buy a new safe for the officemanager.
4B. Do nothing. (Let him use the old safe!)One can adopt Alt. 1A(buy the ladle) or 1B(do not buy the ladle), but not both. We find that what
we considered to be a single course of action is really a pair of mutually exclusive alternatives.
Even Alt. 3 is in this category.The originally stated single proposal was:The painting departmentreports that improvementsmust be made to the spray booth to
conformto new air pollutionstandards.Since the painting departmentmustmake the improvements, is there actually another alter-
native? Although at first glance we might not think so, it may be possible to change the paint,
or the spray equipment, and thereby solve the air pollution problem without any improvements
to the spray booth. In this situation, there does not seem to be a practical do-nothing alternative,
for failure to comply with the air pollution standards might result in large fines or even shutting
down the plant. But if there is not a practical,do-nothing alternative, there might be a number of
do-something-else alternatives..
We conclude that all project proposals may be considered to have mutually exclusive alter-:
natives.Identifying and Rejecting Unattractive Alternatives
It is clear that no matter what the circumstances may be, we want to eliminate from further
considerationany alternativethat fails to meet the minimumlevelof economicattractiveness,
provided one of the other alternatives does meet the criterion. Table 17-1 summarizes five
techniques that may be used.
At first glance it appears that many calculations are required, but this appearance is
misleading.Anyof the fivetechniques listed in Table 17-1may be used to determine whether
to reject an alternative. Each will produce the same decision regardingRejectIDon't reje..o.----