In the project and business world, it’s important for investors to have a clear idea of what they stand to gain or lose from a certain venture. One way to do this is to conduct a cost-benefit analysis (CBA) – a useful tool for comparing the costs and benefits associated with a particular project. By translating your perceived benefits and costs into monetary terms, you can more accurately gauge if the benefits outweigh the costs, helping you make more informed financial decisions.
What We Offer?
Use our premade template to assess the profitability of large, complex projects or weigh out multiple options for implementation. For optimum results, do this before a project kicks off. That said, it can also be used at a later stage, say, during the monitoring and evaluation stages to determine if a project should be periodically extended, modified or discontinued altogether. To standardize your CBA analysis, you can use a consistent framework for more uniform outcomes & comparable insights across projects.
With our premade Excel template, you can compare costs and benefits and determine a return on investment for a 5-year period. We also offer a quick summary of this comparison after calculating the total costs and benefits as well as net benefits. Plus, we use a color-coded pie chart that automatically displays this financial summary in the top right corner. If your net benefits round up to be positive, it means your business or project is doing well financially; on the other hand, a negative net benefits value means that your investment is not financially feasible or cost-effective.
Key Features
- A color-coded pie chart to show Total Costs, Total Benefits, and Net Benefits
- A Quick Summary section where changes in the mainsheet are reflected in real-time
- A comments and recommendations section at the end to document key notes or recommendations as per your CBA findings
- Available in Google Sheets, MS Excel, and OpenDocument
- Free, scalable and 100% customizable
How to Use this Template
We have deliberately designed our spreadsheet to be simple and straightforward to make it more efficacious for users. From beginner-level project professionals to expert analysts, anyone can use this template by adding the following details:
Company and project details
In this section, we have placeholders for you to flesh out with the following details:
- Company name
- Name of the project
- Date the analysis was conducted
- Person who conducted the analysis
- Duration of the project.
Recording this information is important for documentation or filing reasons and can be used for reference purposes during a company’s auditing and review processes.
Summary
For a quick, live summary, we add an overview of the fiscal performance of your business at the top of the mainsheet. This summary shows the Non-Recurring costs, Recurring costs, Costs, and Benefits for the 5 year period, while comparing them to calculate the value of Net Benefit. The net benefit is equal to the total costs subtracted from the total benefits, representing the total return on your investment over this period. Each time you enter new data in the mainsheet, your changes or updates are automatically reflected here.
Costs
In this section, we break down the project costs into:
Non-recurring costs
One-time costs incurred during a specific phase of the project, usually during the early execution phase of a project. For example, buying land, purchasing equipment or office supplies, paying license fees, etc. We calculate the total cost of each itemized item after 5 years and record it in the last column.
We also calculate the total non-recurring costs for each year during this 5-year period. 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. Naturally, increasing your non-recurring costs will lower your net benefit, with all your changes reflected in the summary feature above.
Recurring costs
Costs incurred periodically once the project kicks off. For instance, maintenance costs, utilities, employee salaries, and so on. We help you calculate the impact of your recurring costs on your net benefits. Use this template to determine the yearly costs of a cost item and its total after 5 years.
Changing an item’s yearly costs leads to a change in the value of the total recurrent costs for the specific year and the entire 5-year period. An increase in these figures increases the total costs in the summary, lowering the net benefit and vice versa. Looking to the future, you should always look for ways to reduce your recurring costs so you can generate more profits.
Benefits
In this section, list down all the potential gains you made each year for the entire project duration. For each benefit item, we calculate and show its monetary gains for each year over the total 5-year period.
We also calculate the total value of all benefit items for each year as well as the entire 5-year period. This means, if you alter the value of the yearly gains of a specific benefit item, this change is reflected in each year’s and the 5 years’ total benefits. An increase in these figures translates into a corresponding increase in net benefits, as updated in real time in the summary section. In other words, it means your company or project is performing well.
At the end of the template, record the names of the individuals who prepared and approved the final CBA report to finalize the CBA.
Key Takeaways
- If the benefits outweigh the costs, this is usually a positive sign. On the other hand, if the costs outweigh the benefits, the project should be discontinued or significantly remodelled before it is implemented. This means your team will need to go back to the design or conceptualization stage to make any necessary changes or adjustments.
- The utility of a CBA is limited by the fact that benefits and costs need to be translated into monetary terms. While this can be done easily for projects with direct economic inputs & outputs, it may be more challenging for those with complex and intangible benefits such as customer satisfaction, employee motivation, changes in social awareness levels, etc.
- Your CBA will vary significantly with time, even for the same project. The benefits imagined at the beginning of a project may not be realized by the end, thus leading to different results regarding its suitability.
