Abstract

A fundamental concept behind strategy is one of resource allocation and the trade-offs involved. Resources are time, money, space, human capital and so on. In making such trade-offs it is important to evaluate the viability or feasibility of any strategy or action by quantifying the benefits or revenue stream of an action and comparing that to the cost of executing that strategy. Breakeven analysis refers to this exercise, which firms do to decide whether one should undertake a strategy. In this entry, we discuss the underlying logic and principle behind such an analysis, and illustrate its use with a simple example of evaluating a new project.