Cost benefit analysis is method that assesses the case for a project or make business decisions. Benefits and costs are often expressed in money terms, and are adjusted for the time value of money, so that all flows of benefits and flows of project costs over time are expressed on a common basis in terms of their present value. Cost benefit analysis template can help business have a consistent format and methods to handle business decision process.
Cost Benefit Analysis Process
Cost benefit analysis can help project management team to predict the cost structure and profit margins, however, it needs a proper procedure to handle the process. Basically, the cost benefit analysis can be divided into three parts: the total cost identification, the total benefit identification and calculation part. First, all potential costs that will be incurred by implementing a proposed action must be identified. Second, one must record all anticipated benefits associated with the potential action. And finally, subtract all identified costs from the expected benefits to determine whether the positive benefits outweigh the negative
Cost benefit analysis should not focus only on the tangible benefits that bring to the business. During cost–benefit analysis, monetary values may also be assigned to less tangible effects such as the various risks that could contribute to partial or total project failure, such as loss of reputation, market penetration, or long-term enterprise strategy alignments. Cost–benefit calculations typically involve using time value of money formulas. This is usually done by converting the future expected streams of costs and benefits into a present value amount.
When you have gathered all relevant information for your project or business decision, you need to compare the total costs and total benefits values. 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. If the total benefits outweigh the total cost, one can conclude that the proposed action is potentially a worthwhile investment and should be further evaluated as a realistic opportunity. In essence, cost benefit analysis is part of feasibility study process.
Cost Benefit Analysis Template
For project management, it is better to have your own personalized cost benefit analysis template so it will increase your work efficiency, through there are some software to help you do the analysis, but you need to understand the workings of the calculations first. Another benefit of a sample cost benefit analysis is that it will maintain a consistent style and format for all your project decision process.
Whatever style or format you choose for your cost benefit analysis example, it is important to include key elements: the total cost and individual items, the total benefit and its associate impacts and calculation part.
The first part of cost benefit analysis template is project information background. In the part, you need to give a brief overview and background of the project that is to be considered, you may also explain the issue or opportunities for the project.
The second key area of sample cost benefit analysis is the discussion of alternatives. The alternative actions or process will give managers a better view of business decisions.
The third key area of cost benefit analysis template is the life cycle costs and benefits of project. In the section, you need to give details of costs and benefits over the expected life cycle of the products or service in question.