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    Cost Benefit Analysis

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    GarvitJain
    Cost-benefit analysis is a framework that assesses the merits of a project or policy from a societal perspective by measuring monetary gains and losses. It involves quantifying the benefits and costs to the community in monetary terms and expressing the net impact as overall community gains or losses. Cost-benefit analysis is used to help decision making by evaluating whether a project is worthwhile and generating the highest value or if a completed project has been worthwhile.

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    Cost Benefit Analysis

    Uploaded by

    GarvitJain
    178 views2 pages
    Cost-benefit analysis is a framework that assesses the merits of a project or policy from a societal perspective by measuring monetary gains and losses. It involves quantifying the benefits and costs to the community in monetary terms and expressing the net impact as overall community gains or losses. Cost-benefit analysis is used to help decision making by evaluating whether a project is worthwhile and generating the highest value or if a completed project has been worthwhile.

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    Cost-benefit analysis is a framework that assesses the merits of a project or policy from a societal perspective by measuring monetary gains and losses. It involves quantifying the benefits and costs to the community in monetary terms and expressing the net impact as overall community gains or losses. Cost-benefit analysis is used to help decision making by evaluating whether a project is worthwhile and generating the highest value or if a completed project has been worthwhile.

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    178 views2 pages

    Cost Benefit Analysis

    Uploaded by

    GarvitJain
    Cost-benefit analysis is a framework that assesses the merits of a project or policy from a societal perspective by measuring monetary gains and losses. It involves quantifying the benefits and costs to the community in monetary terms and expressing the net impact as overall community gains or losses. Cost-benefit analysis is used to help decision making by evaluating whether a project is worthwhile and generating the highest value or if a completed project has been worthwhile.

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    Cost benefit analysis:

    Cost-benefit analysis is a framework to assess the merits of an activity (project,


    policy) from the perspective of society (as opposed to a single individual).
    It involves:
    measuring the gains and losses (benefits and costs) from an activity to the
    community using money as the measuring rod; and
    aggregating those values of gains and losses and expressing them as net
    community gains or losses (see Pearce 1983)
    . 1.1 What is cost-benefit analysis used for?
    Cost-benefit analysis is used to help people make decisions. Depending on
    when the analysis is undertaken (before, during or after an activity), cost-benefit
    analysis can provide information to help assess:
    whether a project or activity will be or is worthwhile: o Should we invest in
    this project? o Which of these two projects should we support? Which project will
    give us the best pay off per dollar invested? Which project will generate the
    highest value to society once we have paid for it?
    whether a project or activity has been worthwhile.

    Conclusion:
    Cost/Benefit Analysis is a powerful, widely used and relatively easy tool for
    deciding whether to make a change. To use the tool, first work out how much the
    change will cost to make. Then calculate the benefit you will from it. Where costs or
    benefits are paid or received over time, work out the time it will take for the benefits
    to repay the costs. Cost/Benefit Analysis can be carried out using only financial
    costs and financial benefits. You may, however, decide to include intangible items
    within the analysis. As you must estimate a value for these, this inevitably brings an
    element of subjectivity into the process

    Example:
    Example: A sales director is deciding whether to implement a new computerbased contact management and sales processing system. His department has only
    a few computers, and his salespeople are not computer literate. He is aware that
    computerized sales forces are able to contact more customers and give a higher

    quality of reliability and service to those customers. They are more able to meet
    commitments, and can work more efficiently with fulfillment and delivery staff. His
    financial cost/benefit analysis is shown below: Costs:
    New computer equipment:
    10 network-ready PCs with supporting software @ $2,450 each
    1 server @ $3,500 3 printers @ $1,200 each Cabling & Installation @
    $4,600

    Sales Support Software @ $15,000 Training costs:


    Computer introduction 8 people @ $400 each
    Keyboard skills 8 people @ $400 eachSource:
    Sales Support System 12 people @ $700 each
    Other costs:
    Lost time: 40 man days @ $200 / day
    Lost sales through disruption: estimate: $20,000
    Lost sales through inefficiency during first months: estimate: $20,000 Total
    cost: $114,000 Benefits:
    Tripling of mail shot capacity: estimate: $40,000 / year
    Ability to sustain telesales campaigns: estimate: $20,000 / year
    Improved efficiency and reliability of follow-up: estimate: $50,000 / year
    Improved customer service and retention: estimate: $30,000 / year
    Improved accuracy of customer information: estimate: $10,000 / year
    More ability to manage sales effort: $30,000 / year
    Total Benefit: $180,000/year
    Payback time: $114,000 / $180,000 = 0.63 of a year = approx. 8 months

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