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C o s t B e n e f i t A n a l y s i s t o o l k i t ( v 2 )
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Cost Benefits analysis
One of the key items in any business case is an analysis of the costs of a project that includes some
consideration of both the cost and the payback (be it in monetary or other terms).
1. A basic analysis
1.1 Benefit measures:
For Small projects a cost-benefit analysis can be fairly basic – the table below gives an example of
what might be appropriate.
Benefit of
proposed
product(s)
Evidence
Financial analysis of the cash flows associated with the new technolo
gy, to
show a net gain. Simple payback techniques are OK for Small projects
(section 3.1).
Improved performance
e.g. lower operating
costs; improved
quality; better
customer service;
higher speed or more
flexibility
Technical capabilities of the propose
d new system showing
:
expected productivity gains;
reduced waste, e.g. lower reject rates, less reworking;
reduced energy consumption.
Such information might come from:
suppliers;
results of pilots;
the experience of other organisations;
results of a customer survey showing that the aspect of customer
service in question is a priority for customers;
analysis of the technical capabilities of the technology in relation
to customer requirements, showing that the stated aspects of
customer service are likely to be improved.
Better
customer
service
Information that
competitors are already investing in equivalent
technology, and therefore not to do so would be to fail to keep up.
Customer surveys that demonstrate that the quality/service improvement
predicted will attract/keep customers more effectively than at present.
1.2: Net and gross:
Whatever approach is taken, when actual costs are being estimated it is vital to quote things in both
net (excluding VAT and overheads) and gross terms (all costs included).
A basic layout is illustrated below; this can be adapted for use as appropriate to the project. Note
that when you do a payback analysis (section 3) you’ll need to separate out the one-off and
recurring elements as appropriate. It may be appropriate to present payback analyses in two tables,
one for the net and amounts and one for the gross amounts as otherwise the table may get too
complicated.
Cost Benefit Analysis Example
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