Cost Benefits Analysis


Quick Summary
Is your project worth the cost? Have you included long-term costs and intangible benefits in your decisions about your project's value? This cost benefit analysis template walks you through consideration of all the angles, and a careful evaluation of the results.


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What this is

A Cost Benefit Analysis documents the relationship between the anticipated costs of a project or solution and the anticipated benefits of that solution. It is traditionally published during the initiation and planning phases of the project, with an expected level of accuracy of somewhere between +/-100% and +/15-%. As the project progresses, the Cost Benefit Analysis is updated to reflect any known changes to the anticipated costs or benefits of the project. At the very minimum, the Cost Benefit Analysis is updated and published at each of the project phase gates or approval points. It is also updated at the end of the project to reflect actual costs and expected benefits as of project completion.


Why it's useful

A Cost Benefit Analysis is useful for articulating the expected return on investment of a project, determined by the development costs and expected benefits in a consistent and easy to understand way. The results of the cost benefit analysis can be used to help determine whether or not the project should move forward. For example, if the anticipated costs far outweigh the expected benefits, then careful consideration should be given to whether or not the project should be discontinued.

Cost benefit analysis can also be used as an input for decision-making. When a team must choose between multiple solutions, it can be helpful to compare the costs and benefits of each solution as an input to the decision making process. Multiple projects can be evaluated against each other and prioritized more easily using the same type of cost benefit analysis tool.

Frequently, a Cost Benefit Analysis is accompanied by a tool for measuring the actual project costs (such as a project budget or results from project time-tracking efforts) as well as a tool for measuring the project benefits (such as a Benefits Realization Measurement plan).


How to use it

  1. A cost benefit analysis is frequently completed by either the project manager or the business analyst on a project, but can be conducted by just about anyone. Regardless of who completes the cost benefit analysis, both roles should be involved in the review of the findings.
  2. With input from the project team, identify the expected costs of the project, and state them in a consistently quantifiable way. Include costs that will be incurred during the project year as well as future ongoing costs (such as costs associated with the ongoing maintenance of the solution).
  3. Identify the expected benefits of the solution and state them in a measurable way, separating hard benefits from soft benefits. Hard benefits should be stated in terms of scientifically measureable time, units, etc., that are then translated to dollars. Soft benefits should be stated in terms that tie directly back to organizational or business goals.
  4. Publish the initial Cost Benefit Analysis to establish a baseline for the project, or to compare the costs and benefits of multiple solutions to assist in the decision making process.
  5. Update the Cost Benefit Analysis as the project progresses, to show adjusted costs and adjusted benefits as you become aware of them. Publish the updates to the appropriate audiences, as determined by your project and environment.
  6. Publish the final updates to the Cost Benefit Analysis once the project has been completed, to show actual costs, benefits actually realized by the time the project is complete, and anticipated benefits yet to come. Include the changes to the Cost Benefit Analysis throughout the project lifecycle in the lessons learned process, and apply any lessons about how to estimate costs and benefits better for future project efforts.
About the Author

Sinikka L. Waugh, PMP, is the founder and head coach of the project management coaching firm Your Clear Next Step, L.L.C. Sinikka is an actively practicing project management consultant, known for consistently helping teams find innovative ways to leverage effective project strategies across multiple disciplines and technologies. With over 10 years in project roles (primarily program manager, project manager, and business analyst) Sinikka has successfully applied project and leadership expertise to improve project performance in a wide variety of industries, including publishing, education, product fulfillment and distribution, insurance, event and travel management, human resources, and financial services. As a coach, Sinikka's down-to-earth, "try this now" approach blends with her passion for helping others improve. Her energetic and engaging style helps make both the art and science of project management accessible to those she works with.

Sinikka holds a BA from Central College, an MA from the University of Iowa, and is a certified Project Management Professional through the Project Management Institute.


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Related Templates
Project Budgets and Cost Tracking
Document the expected and actual costs for your project. Templates are provided for various levels of tracking.

Benefits Realization Plan
A Benefits Realization Plan documents the expected benefits of the project, details how they will be measured, and captures those measurements for later assessment and use in lessons learned.

Project Cancellation Guidelines
Helps you decide whether it's time to reboot the project or cancel it, and how to manage a graceful shutdown if that's the right choice.



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