Cost Benefit Analysis

Cost–benefit analysis (CBA), sometimes called benefit–cost analysis (BCA), is a systematic approach to estimating the strengths and weaknesses of alternatives that satisfy transactions, activities or functional requirements for a business. It is a technique that is used to determine options that provide the best approach for the adoption and practice in terms of benefits in labor, time and cost savings etc. The CBA is also defined as a systematic process for calculating and comparing benefits and costs of a project, decision or government policy (hereafter, "project").

• Determine on-going staffing costs - an analysis of the operating costs (actual versus proposed). This is based on the rough design of the planned system and its anticipated impact on the company.
• Estimated savings and expenses by user department areas (e.g., Manufacturing, Marketing, etc.). This describes the on-going costs associated with the system, as well as the anticipated savings.
• Itemized benefits - both tangible and intangible. In the systems world, the biggest benefits are typically intangible in nature. A benefit is typically written beginning with a transitive verb, such as improve, maximize, minimize, etc. Substantiate your claim; do not simply say Improved cash flow; instead, say something like, Improved cash flow through tighter control over inventory and faster response from Production.
• Break Even point - the calculated point in time where cost savings match accumulated development expenses. It is normally calculated as: Break Even Point = Investment ÷ Average Annual Savings For example, where the project Investment was $49,215 and the Average Annual Savings was $22,861, the Break Even Point is 2.15 years (26 months)
• Calculate Return On Investment (ROI) - the ratio of projected cost savings versus amount invested. It is typically calculated as: ROI = (Average Annual Savings ÷ Investment) X 100 Using the figures from above, the ROI is 46.4%