Cost-Benefit Analysis (CBA)
A technique for deciding whether a project is worth doing by comparing its measurable gains to its associated costs.
Explanation
A CBA quantifies all costs and all benefits within a defined timeframe and computes return on investment:
ROI = (G − C) / C
Where:
G= total gains (financial and operational benefits)C= total costs (direct, indirect, ongoing, and risk-related)
A positive ROI indicates the project economically justifies implementation.
What to include
Costs:
- Direct costs — labor, materials, equipment for the project itself
- Indirect costs — utilities, overhead, support functions
- Ongoing costs — maintenance, operations, upgrades after launch
- Risk-related costs — expected cost of identified risks
Benefits:
- Revenue increase
- Cost savings
- Productivity gains
- Qualitative operational benefits (translated to dollars where possible)
Application
Perform a CBA during course-2-project-initiation, before drafting the project-charter. The CBA feeds the charter’s business case section. Revisit when scope changes materially — a project that was justified at the original scope may no longer be.
Questions the charter’s business case should answer (informed by CBA):
- What business value will this project create?
- How much money could it save the organization?
- How much time will people have to spend on this project?
Connections
- project-charter — CBA feeds the business case
- triple-constraint — CBA recomputes if any constraint shifts
- course-2-project-initiation