Mgmt 301

Topics: Ford Motor Company, Ford Pinto, Cost-benefit analysis Pages: 2 (386 words) Published: February 5, 2013
MGMT 301
January 20, 2013
Case Study
1. Evaluate from a moral perspective the “cost-benefit” analysis conducted by ford

In determining whether or not to make the production change, the Ford Motor Company defended itself by contending that it used a cost-benefit analysis. Ford stated that its reason for using a cost-benefit analysis was that the National Highway Traffic Safety Administration required them to do so. The cost-benefit approach excuses a defendant if the monetary costs of making a production change are greater than the "societal benefit" of that change. The philosophy behind cost-benefit analysis promotes the goal of allocative efficiency. The problem that arose in the Ford Pinto and many other similar cases highlights the human and emotional circumstances behind the numbers which are not factored in the cost-benefit analysis. The Ford Motor Company contended that by strictly following the typical approach to cost-benefit analysis, they were justified in not making the production change to the Pinto model. Assuming the numbers employed in their analysis were correct, Ford seemed to be justified. The estimated cost for the production change was $11 per vehicle. This $11 per unit cost applied to 11 million cars and 1.5 million trucks results in an overall cost of $137 million. The controversial numbers were those Ford used for the "benefit" half of the equation. It was estimated that making the change would result in a total of 180 less burn deaths, 180 less serious burn injuries, and 2,100 less burned vehicles. These estimates were multiplied by the unit cost figured by the National Highway Traffic Safety Administration. These figures were $200,000 per death, $67,000 per injury, and $700 per vehicle equating to the total "societal benefit" is $49.5 million. Since the benefit of $49.5 million was a lot less than the cost of $137 million, Ford felt justified in its decision not to alter the product design. The cost-benefit...
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