Descriptors
| Definitions: |
| Payback period – the period of time, expressed in months, that a project requires to recover the money invested in it (including the one-time savings which are often excluded by some calculators) |
| Benefit-cost ratio – an indicator that is often used to decide whether the benefits of a given project or solution outweigh the actual costs (the higher the ratio the better the investment) |
| Analysis horizon – the number of months the project is expected to be utilized before replacement or major upgrade |
| Implementation costs include capital costs (equipment, constructions, etc.), training, travel, outside professionals, lost of productivity during implementation & training, implementation costs such as installation, etc. |
| Ongoing costs include maintenance costs (monthly costs relating to the ongoing maintenance) and operational cost (internal labor, expendables, materials, supplies, etc.) |
| Hard savings – the direct benefits that affect the bottom line and can directly improve the financial performance of the organization (examples are: sales/price increase, cost reduction and productivity savings) |
| Soft savings – the indirect benefits which are difficult measure (they are mainly improved yield of a business process, the increased stakeholder satisfaction and the increased safety in the workplace) |
| One-time savings – examples are value of inventory reduction and sale of unneeded assets |
Example
| Call Center | |||||||||||
| $, hours, units | E.g.: $/unit | $ | Year-1/partial year | Year-2 | Year-3 | ||||||
| Cost/Benefit | Unit | Entry/Quantity | Final/Total | Description | |||||||
| Project Title | COSTS | Implementation costs (one time) | 8,000 | ||||||||
| CRM Rules for CCR Quality | 1 | Update rules in CRM | 8,000 | Cost to update rules | |||||||
| Solution Title/Description | 2 | ||||||||||
| 3 | |||||||||||
| Sponsor | 4 | ||||||||||
| CC Manager | Ongoing costs (monthly) | 0 | |||||||||
| Project Manager | 1 | ||||||||||
| J Doe | 2 | ||||||||||
| Timeframe for CBA (in months) | 3 | ||||||||||
| 12 | 4 | ||||||||||
| Estimated cost/savings year one (maximum 12) | >>>Total Costs (monthly) | 667 | 3,333 | 11,333 | 19,333 | ||||||
| 5 | BENEFITS | Hard and soft savings (monthly) | 1,200 | ||||||||
| Average labor cost (hourly / daily) | 1 | Saving from reduced calls | Calls | 5000 | 1,000 | ||||||
| $23.00 | 2 | Saving from reduced QC | QC | 500 | 200 | ||||||
| Assumptions/Comments | 3 | ||||||||||
| 1 | 4 | ||||||||||
| 2 | Savings (one time) | 0 | |||||||||
| 3 | 1 | ||||||||||
| 4 | 2 | ||||||||||
| 5 | 3 | ||||||||||
| 6 | 4 | ||||||||||
| 7 | >>>Total benefits (monthly) | 1,200 | 6,000 | 20,400 | 34,800 | ||||||
| Benefit-cost ratio | 1.80 | 667 | Monthly payback | Net cash flow | Net gains | 2,667 | 9,067 | 15,467 | |||
| Monthly payback period | 6.7 | 0 | 6.7 | 1,200 | ROI | 80.0% | |||||
Cost Benefit Analysis
| $, hours, units | E.g.: $/unit | $ | Year-1/partial year | Year-2 | Year-3 | ||||||
| Cost/Benefit | Unit | Entry/Quantity | Final/Total | Description | |||||||
| Project Title | COSTS | Implementation costs (one time) | |||||||||
| 1 | |||||||||||
| Solution Title/Description | 2 | ||||||||||
| 3 | |||||||||||
| Sponsor | 4 | ||||||||||
| CC Manager | Ongoing costs (monthly) | 0 | |||||||||
| Project Manager | 1 | ||||||||||
| J Doe | 2 | ||||||||||
| Timeframe for CBA (in months) | 3 | ||||||||||
| 4 | |||||||||||
| Estimated cost/savings year one (maximum 12) | >>>Total Costs (monthly) | ||||||||||
| 5 | BENEFITS | Hard and soft savings (monthly) | 0 | ||||||||
| Average labor cost (hourly / daily) | 1 | 5000 | |||||||||
| 2 | 500 | ||||||||||
| Assumptions/Comments | 3 | ||||||||||
| 1 | 4 | ||||||||||
| 2 | Savings (one time) | 0 | |||||||||
| 3 | 1 | ||||||||||
| 4 | 2 | ||||||||||
| 5 | 3 | ||||||||||
| 6 | 4 | ||||||||||
| 7 | >>>Total benefits (monthly) | ||||||||||
| Benefit-cost ratio | Monthly payback | Net cash flow | Net gains | ||||||||
| Monthly payback period | 0 | ROI |