Cost-benefit Analysis

Cost-benefit analyses tries to give information as to what extent investments or projects of your company are promising. For this reason the costs of one alternative are compared with the expected utility of it.

The following four steps will help you successfully undertake a cost-benefit analysis:

  1. Recording of costs: At first you have to collect all costs that result from all possible project / investment alternatives and write them down. Here you should also include follow-up costs and impacts on all departments of your company.
  2. Assessment of Benefits: In a second step you should consider all arguments in favour of each alternative. You should be able to derive the future benefit of the alternatives from the listed factors.
  3. Comparison of costs and benefits: In this step costs are contrasted with the benefits. If it is possible, assign a financial value to the benefits.
  4. Comparison of the alternatives: Depending on the results of the third step you have to estimate costs and justify the benefits by using 1 to 3 arguments. Thereafter you have to decide which one of the measures you will select.