What is the principle of effectiveness?

The principle of efficiency is an idea that accepts as an economic truth that the greatest degree of benefits is created when the marginal social costs associated with the event are harmonized or perhaps overcome by marginal social benefits that are eventually caused by this event. To put it simply, the principle claims that in order for any activity to be truly effective, it must create at least sufficient benefits to predominate as a result of the action. The general idea of ​​the principle of effectiveness can be used in a number of business applications, from efforts to ensure a new customer to the sources used to create a new product for sale to consumers.

The use of the effectiveness principle requires a firm understanding of the costs associated with the procedure and at the same time develop a precise understanding of the benefits that are likely to be created by this action. For exampleIt is likely to generate a potential customer, and then compare the expected revenues with the costs incurred in persecution of this customer. If there is a reason to believe that the prospect can be converted to a customer in a reasonable period of time and that all the costs associated with the acquisition can be recovered and obtained, then the activity is considered effective. If the expected revenues require a longer period of time to compensate for costs, the seller may decide to focus attention on more lucrative prospects.

In the production environment, the principle of efficiency can serve as a guide for how goods and services are produced. The aim is to ensure that each step in the production process is as effective and time -effective as possible and that goods resulting from efforts can be sold in sufficient amount to justify efforts. As long as the waste level is maintained in a minimum and the finished goods are sold at a stable pace, then the level of efficiency is generally considered an acceptable scope.

One of the problems on applying the principle of efficiency is the need to rely on factual and verifiable data to be evaluated. This means that subjective information that is open to a wide range of interpretation is usually not useful and should not be considered part of the process. With regard to only data that are considered reliable, owners and managers can easily decide whether the procedure is in the best interest of the operation, or whether any other procedure would eventually be more practical and efficient.