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  4. 3. Identification Phase
  5. Cost Benefit Analysis

Cost Benefit Analysis

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Cost Benefit Analysis is one of the project management deliverable you can create with our project management lifecycle software.

Cost Benefit Analysis is the estimation of the total costs and possible profits to be derived from a project, through the adoption of different solutions.

This article shows you how to perform a Cost Benefit Analysis.

Activity 1: Identify Possible Solutions

Based on the project description, statement of business need and business objective(s), identify a range of solutions that can be considered to address the identified need. Evaluate each possible solution and summarize the strengths of each.

Cost Benefit Analysis - Possible Solutions

Activity 2: Perform Cost Analysis

Evaluate solutions’ one-time costs

Identify the one-time capital and operating costs of the possible solutions. The following are some of the cost categories suggested. Feel free to add or remove any categories:

  • Internal Staff Labor
  • Services
  • Software Tools
  • Hardware
  • Materials and Supplies
  • Facilities
  • Telecommunications
  • Training
  • Contingency (Risk)

Evaluate solutions’ on-going/annual costs

Identify the on-going and annual cost of each of the possible solution. The cost categories are pre-populated based on the previous step.

Cost Benefit Analysis - On-going Cost Analysis

Activity 3: Perform Benefits Analysis

Perform benefit analysis on possible solutions

Identify the benefits of adopting each solution.

Tangible benefits are benefits that can be measured and quantified. Typically it refers to a reduction in cost and an increase in potential revenue. Intangible benefits are non-quantifiable improvements like risk, ease of use, brand equity, etc.

Cost Benefit Analysis - Benefits Analysis

Activity 4: Select and Justify Solution

Select a solution with justification

Based on the cost and benefits analysis, recommend a solution. State why the preferred option was chosen by summarizing its benefits and costs, and explaining why the benefits outweigh the costs involved.