Fillable Printable Cost Benefit Analysis Definition

Cost Benefit Analysis Definition

Cost BenefitAnalysis

Author: ___________________ Date: ____________ Revision: ____________

1.0GENERAL INFORMATION

NOTETOAUTHOR:Highlighted,italicizedtextthroughoutthistemplateisprovidedsolelyas

backgroundinformationtoassistyouincreatingthisdocument.Please deleteallsuchtext,aswell as

theinstructionsineachsection,priortosubmittingthisdocument.ONLYYOURPROJECT-

SPECIFICINFORMATION SHOULD APPEAR IN THE FINAL VERSION OF THIS DOCUMENT.

TheCost/BenefitAnalysisprovidesadequatecostandbenefitinformation,includingtheimpactof

security,privacy,andinternalcontrolrequirementstoanalyzeandevaluatealternativeapproachesto

meeting mission deficiencies.

1.1Purpose

Describe the purpose of the Cost/Benefit Analysis.

1.2Scope

Describe the scope of theCost/BenefitAnalysis as it relates to the project.

1.3System Overview

Provide abrief system overview descriptionasapoint of referenceforthe remainder of the document. In

addition,include the following:

Responsible organization

System name or title

System code

System category

Majorapplication:performsclearlydefinedfunctionsforwhichthereisareadily

identifiablesecurityconsideration and need

Generalsupportsystem:provides general ADP ornetwork supportforavariety of users

and applications

Cost/Benefit AnalysisPage

Operational status

Operational

Under development

Undergoing a major modification

System environmentor special conditions

1.4Project References

Provide alistofthe references thatwereusedinpreparationofthisdocument.Examplesofreferences

are:

Previously developed documents relating to the project

Documentation concerning related projects

Standard procedures documents

1.5Acronyms andAbbreviations

Providea list of the acronyms and abbreviations used inthis documentand the meaning of each.

1.6Points of Contact

1.6.1Information

Provide alist of the points oforganizational contact (POC)thatmay be neededby the documentuser for

informationaland troubleshooting purposes. Includetype of contact,contactname,department, telephone

number,and e-mail address(if applicable). Points of contactmay includebutarenot limitedto helpdesk,

development/maintenance, and operations.

1.6.2Coordination

Providealistoforganizationsthatrequirecoordinationbetweentheprojectanditsspecificsupport

function(e.g., installationcoordination, security, etc.). Include a schedule for coordination activities.

2.0MANAGEMENT SUMMARY

2.1Assumptions and Constraints

Cost/Benefit AnalysisPage

State theassumptions and constraints under which the Cost/BenefitAnalysis was conducted.

2.2Methodology

Summarize the procedures forconducting the Cost/Benefit Analysisand the techniquesused in estimating

andcomputing costs.These techniques shouldbeconsistentwiththe organization’sProjectEstimation

Guidelines,andmaybe detailedin an appendix.

2.3Evaluation Criteria

Statethe criteriaforevaluating alternatives,suchasorganizationalobjectives, operational efficiency,and

reduced operating costs.

2.4Recommendations

Summarizethe recommendations for developmentand operationof the system.

3.0DESCRIPTION OFALTERNATIVES

Thissectionidentifiesthealternativeapproachesforthedevelopmentandoperationofthesystem,as

determinedintheFeasibilityStudy,andprovidesabriefdescriptionofeach.Inaddition,itprovidesa

description of the current system if one exists.

3.1Current System

Describe thetechnicaland operational characteristics of the current system (if applicable) by summarizing

its functions, identifying thehardware used, and identifying the system’s input and output.

3.2Proposed System

Describe the technical and operational characteristics of theproposed system.

3.x[Alternative System Name]

Eachalternativesysteminthissectionshouldbeunderaseparatesectionheader.Generatenew

sectionsasnecessaryforeachalternativesystemfrom3.3through3.x.Describethetechnicaland

operational characteristics of each alternative system.

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4.0COSTS

Thissectionwillcalculateallcoststodevelopandoperateeachalternativedescribedinsections3.3

through3.x, including both one-time and recurring costs. This may be done in the form of a matrix or by

listingoutthespecificcategoryofcostsforeachalternativesystemundertheappropriatesection

headings.

Multiplycosts tobe incurred inthe futureby a present value factor,an inflationindex that definesfuture

costsinpresentdollars.Thisindextakesintoaccountitemssuchasvendorandpotentialsalary

increases. This calculation brings the cost into present dollars.

4.1Development Costs

Foreach alternativesystemdescribedin the FeasibilityStudy,estimate the costof the Define, Design, and

Buildsystemphases.Whendeterminingtheoverallcostofdevelopment,includecostsforpersonnel,

equipment, developertraining, and development tools.

4.2Operational Costs

ForeachalternativesystemdescribedintheFeasibilityStudy,estimatetheinstallation,operation,and

maintenance costs of the system.Includesuch costs aspersonnel, equipment, operational siteupgrades or

changes, and staff training.

4.3Non-Recurring Costs

Present non-recurring costs of eachalternativeover thesystem life.

4.3.1Capital Investment Costs

Include costs for acquiring, developing and installing:

Site and Facility

Automateddata processing (ADP) equipment

Data communicationequipment

Environmental conditioning equipment

Security and privacy equipment

ADP operations, multipurpose and applicationssoftware

Database

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4.3.2Other Non-Recurring Costs

Include costs for:

Studies(requirementand designstudies)

Procurement planningandbenchmarking

Database preparation

Software conversion

Reviews and other technical and managementoverhead

Training, travel andotherpersonnel-related costsof development and installation (except salaries

and fringe benefits)

Involuntary retirement, severance and relocation costs for personnel

Contractual, interagency or other direct support services

Incremental or additional overhead costs

Parallelsystem costs

Potentialdisruption to existing business operations

4.4Recurring Costs

Present the monthlyand/or quarterly recurring costs of operating and maintaining eachalternativeoverthe

system life, including:

Equipment lease, rental and in-house maintenance

Software lease, rental and in-housemaintenance

Data communicationslease, rentaland in-house maintenance

Personnel salaries and fringebenefits

Direct support services (intra-agencyservices)

Travel and training

Space occupancy

Supplies and utilities

Security and privacy

Contractual andinteragencyservices,(e.g.,ADPservices,datacommunications,software,

technical andother support)

Overhead. Include overhead expenses that represent additional or incremental expenses

attributable to the alternative

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5.0BENEFITS

Thissectiondescribesbenefitsthatcanbeassigneddollarvaluesforeachalternativesystemdescribed

insections3.3through3.x.Thismaybedoneintheformofamatrixorbylistingoutthespecific

category of benefits for each alternative system under the appropriate section headings.

5.1Non-Recurring Benefits

Inthefollowing subsections, describe non-recurring benefits for each alternative system.

5.1.1Cost Reduction (Savings)

Describenon-recurringcostreductions(savings)resultingfromimprovedsystemoperations,suchas:

reductionofresource requirements;improved storageandretrievaltechniques;improved resource

utilization; and reduced error rates.

5.1.2Value Enhancement

Describe benefits thatenhance the value ofanapplication system,suchas:improved resource utilization;

improved administrative and operational effectiveness; and reduced error rates.

5.1.3Other

Describe otherbenefits, for example, offsetting receipts. Include the valueof excess equipment.

5.2Recurring Benefits

Present the monthlyand/or quarterly recurring benefits of operating and maintainingthealternative system

over thesystem life, including:

Equipment lease, rentals andin-housemaintenance

Software lease, rental and in-housemaintenance

Data communicationslease, rentaland in-house maintenance

Personnel salaries and fringebenefits

Direct support services (intra-agencyservices)

Travel and training

Space occupancy

Supplies and utilities

Security and privacy

Contractual and interagency services, such as: information systems (IS) services, data

communications, software, technical and other support

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Overhead. (Include overhead benefits that represent additional or incremental expenses

attributable to the alternative.)

Cost avoidance. (Describe avoidanceof future costs thatwould be incurredif the best alternative

werechosenfromasetofalternatives,comparedtomaintainingcurrentoperations.Describe

improvements in operational flexibility, information handling and response to anticipated

requirements, as related to cost avoidance.)

5.3Intangible Benefits

Describebenefitsthataredifficulttoquantify intermsofdirectdollarvalues(e.g.,improvedemployee

satisfaction, reduced riskof incorrectprocessing, improved information handling, enhanced organizational

image)forthealternativesystem.Intangiblebenefitscansometimesbeassignedvaluesintermsof

estimates andtradeoffs. When applicable, include:

Boundaryestimates(i.e.,analysisofbestcaseandworst-caseestimatestojustifytheproposed

alternative)

Tradeoffs with tangible benefits (i.e., cases where an intangible benefit isgained attheexpense of

reduced potential tangiblebenefits)

6.0COMPARATIVE COST/BENEFIT SUMMARY

Thisis a summarizationof the cost and benefitsidentifiedin detailin thepreviouschapters. Present the

elements below in a manner to facilitate comparison.

6.1Costof EachAlternative over the System Life

For eachalternativedescribedinsections3.3 through 3.x, present costs intheperiod(year, quarter, month)

in which they will be incurred.

6.1.1Non-Recurring Costs

Total the non-recurringcosts previously itemized.

6.1.2Recurring Costs

Includerecurring costs such asrental, maintenance, utilities, telecommunications and personnel. Total the

recurringcosts.

6.1.3Total Cost

Total the non-recurringandrecurringcosts subtotals for each year of thesystem life.

6.1.4System Life Costs

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Calculate the total cost over system lifeby summing the total costs over the period of the system life.

6.1.5Present Value Cost

CalculatePresentValue(PV)costovertheentiresystemlifeusingauthorizedpresentvaluefactors.

CalculationsaretobebasedonNetPresentValue (NPV)methodology.Include formulatosubstantiate

calculations.

6.1.6Residual Value Estimate

Calculate the remainingeconomicvalueof ownership of all ISresources asof the last monthof the system

life, asestablished byorganizational guidelines. Make the present value calculation toget the discounted

residual value.

6.1.7Adjusted Cost

Calculate the adjustedcost by subtracting the discounted residual value from the total present value cost.

6.2Benefits

Identifytheperiodofbenefits.Enterthequantifiabledollarbenefitsfortheperiodinwhichtheyare

accrued,and make present value calculations.

6.3Net Present Value (NPV)

Calculate the net present value bysubtracting the adjustedcost fromthetotal presentvalueofbenefits.

6.4Benefit/Cost Ratio

Calculate the benefit/cost ratio by dividing the total present value of benefits by the adjustedcost.

6.5Payback Period

Calculatethe yearormonth in which the sumofbenefitsfirstexceeds the sum ofthe costsexpressed in

current dollars.

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