A cost-benefit analysis (CBA) is an appraisal instrument/tool that compares the costs and benefits received from a project or program. It allows you to identify all perceived benefits and costs and translate them into monetary terms, such as dollars, before they can be compared to determine if the benefits outweigh the costs. It is utilized to evaluate the suitability of large projects or multiple options for implementation. Consequently, it must be done before a project begins. However, it can also be used in the monitoring and evaluation phase to determine if a project is worth continuing. On the basis that a CBA is carried out using a consistent framework or structure, a template can be used to standardize this analysis and facilitate more uniform outcomes.
We have provided an Excel template for your Cost Benefit Analysis that allows you to compare costs and benefits and determine a return on investment for a 5-year period. It allows you to view the summary of this comparison after calculating the total costs and benefits and net benefits. A color-coded chart that automatically displays this summary is placed at the top right corner. If the net benefits are positive, this implies the business is financially performing well, while a negative net benefits value indicates the investment is not fiscally worthwhile.
How to Use this Template
The design of this template has been simplified to focus on its efficacy and make it suitable for both beginner and expert analysts. You can use it as directed below;
Company and project details
The template begins with placeholders for providing the company name, project name, date the analysis was conducted, who performed the analysis, and project duration. This information is needed for documentation or filing reasons and can be used for reference purposes.
PinSummary
This section offers an overview of the fiscal performance of the business. It obtains totals from the Non-Recurring costs, Recurring costs, Costs, and Benefits sections for the 5 years and compares them to calculate the value of Net Benefit. The net benefit equates to the total costs subtracted from the total benefits. This value represents the return on your investment over the five years. Any changes in the figures in the subsequent sections are automatically reflected in this section.
PinCosts
Next, the template provides a section to break down the project costs. As the template indicates, costs can be classified into;
Non-recurring costs – These are one-off costs incurred at a specific phase of the project. Examples include land, equipment purchase, start-up permits, etc. This template calculates the total costs of each itemized item after the 5 years and records it in the last column. Also, it calculates the total non-recurring costs for each year and the 5 years. Therefore, any yearly change to the cost of each itemized item is reflected in three cells – the specific item’s total costs for the 5 years, the total non-recurring costs of the particular year, and the five years in their respective cells. An increase in non-recurring costs lowers the net benefit in the summary.
PinRecurring costs – These are costs incurred periodically after the project implementation. Examples include maintenance, utilities, salaries, etc. The template allows you to calculate how your recurrent costs affect your net benefit from an investment. You can determine the yearly costs of a cost item and its total after 5 years. Changing an item’s yearly costs translates to a change in the value of the total recurrent costs for the specific year and the entire five years. An increase in these figures increases the total costs (5 years) in the summary, lowering the net benefit and vice versa. This implies that you should find ways to reduce the recurrent costs to increase profitability.
PinBenefits
Then, a benefits section has been provided for you to enlist all the potential gains for each year and the entire project duration, similar to the costs section. For each benefit item, the template calculates and displays its monetary gains for each year and the total after five years. Also, it calculates the total value of all benefit items for each year and the entire 5-year period. Therefore, if you change the value of the yearly gains of a specific benefit item, it is reflected in each year’s and the 5 years’ total benefits. An increase in these figures translates into an increase in net benefits in the summary section. It implies that the business is performing well.
PinAt the end of the template is a comments and recommendations section to assist you in documenting keynotes or points from the analysis. Also, you should include your recommendations as per the CBA findings in this section. To finalize the CBA, record the names of the individuals who prepared and approved the final CBA report respectively, as guided by the template.
PinThis template has been provided in four file formats – Google Sheets, MS Excel, OpenDocument spreadsheets, and Excel spreadsheets templates. These formats are meant to increase the template’s convenience and allow you to utilize different capabilities of associated spreadsheet handling programs.
What the Numbers Mean for Your Project
If the benefits outweigh the costs, this is usually a ‘green light’ for the project. Conversely, if the costs outweigh the benefits, the project should not commence or continue as is. This may require the team to forego the project or revert to the design or conceptualization stage to make the necessary adjustments.
Pitfalls of a CBA you should be aware of
Firstly, a CBA may not be effective because the benefits and costs must be translated into monetary terms. While this can be easy for projects with direct economic benefits, it may be difficult for those with complex and intangible benefits such as customer satisfaction, empowerment, employee motivation, a stronger sense of community, etc.
Secondly, a CBA may not be suited for social development projects whose benefits may evolve with time. Some benefits may grow from unprecedented circumstances, and human prediction abilities may not be able to perceive such outcomes.
Thirdly, the findings of the CBA may vary significantly with time for the same project. The benefits conceived at the beginning of a project may not be realized by the end, thus offering differing results regarding its suitability.
Lastly, the effectiveness of the analysis, to a great extent, relies on the analyst’s predictive capabilities. Therefore, two analysts may have varying findings for the same project assessed simultaneously.
