Fillable Printable Cost Benefit Analysis Definition
Fillable Printable Cost Benefit Analysis Definition
Cost Benefit Analysis Definition
Cost Benefit Analysis
<Project/System name>
Author: ___________________ Date: ____________ Revision: ____________
1.0 GENERAL INFORMATION
NOTE TO AUTHOR: Highlighted, italicized text throughout this template is provided solely as
background information to assist you in creating this document. Please delete all such text, as well as
the instructions in each section, prior to submitting this document. ONLY YOUR PROJECT-
SPECIFIC INFORMATION SHOULD APPEAR IN THE FINAL VERSION OF THIS DOCUMENT.
The Cost/Benefit Analysis provides adequate cost and benefit information, including the impact of
security, privacy, and internal control requirements to analyze and evaluate alternative approaches to
meeting mission deficiencies.
1.1 Purpose
Describe the purpose of the Cost/Benefit Analysis.
1.2 Scope
Describe the scope of the Cost/Benefit Analysis as it relates to the project.
1.3 System Overview
Provide a brief system overview description as a point of reference for the remainder of the document. In
addition, include the following:
Responsible organization
System name or title
System code
System category
Major application: performs clearly defined functions for which there is a readily
identifiable security consideration and need
General support system: provides general ADP or network support for a variety of users
and applications
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Operational status
Operational
Under development
Undergoing a major modification
System environment or special conditions
1.4 Project References
Provide a list of the references that were used in preparation of this document. Examples of references
are:
Previously developed documents relating to the project
Documentation concerning related projects
Standard procedures documents
1.5 Acronyms and Abbreviations
Provide a list of the acronyms and abbreviations used in this document and the meaning of each.
1.6 Points of Contact
1.6.1 Information
Provide a list of the points of organizational contact (POC) that may be needed by the document user for
informational and troubleshooting purposes. Include type of contact, contact name, department, telephone
number, and e-mail address (if applicable). Points of contact may include but are not limited to helpdesk,
development/maintenance, and operations.
1.6.2 Coordination
Provide a list of organizations that require coordination between the project and its specific support
function (e.g., installation coordination, security, etc.). Include a schedule for coordination activities.
2.0 MANAGEMENT SUMMARY
2.1 Assumptions and Constraints
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State the assumptions and constraints under which the Cost/Benefit Analysis was conducted.
2.2 Methodology
Summarize the procedures for conducting the Cost/Benefit Analysis and the techniques used in estimating
and computing costs. These techniques should be consistent with the organization’s Project Estimation
Guidelines, and may be detailed in an appendix.
2.3 Evaluation Criteria
State the criteria for evaluating alternatives, such as organizational objectives, operational efficiency, and
reduced operating costs.
2.4 Recommendations
Summarize the recommendations for development and operation of the system.
3.0 DESCRIPTION OF ALTERNATIVES
This section identifies the alternative approaches for the development and operation of the system, as
determined in the Feasibility Study, and provides a brief description of each. In addition, it provides a
description of the current system if one exists.
3.1 Current System
Describe the technical and operational characteristics of the current system (if applicable) by summarizing
its functions, identifying the hardware used, and identifying the system’s input and output.
3.2 Proposed System
Describe the technical and operational characteristics of the proposed system.
3.x [Alternative System Name]
Each alternative system in this section should be under a separate section header. Generate new
sections as necessary for each alternative system from 3.3 through 3.x. Describe the technical and
operational characteristics of each alternative system.
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4.0 COSTS
This section will calculate all costs to develop and operate each alternative described in sections 3.3
through 3.x, including both one-time and recurring costs. This may be done in the form of a matrix or by
listing out the specific category of costs for each alternative system under the appropriate section
headings.
Multiply costs to be incurred in the future by a present value factor, an inflation index that defines future
costs in present dollars. This index takes into account items such as vendor and potential salary
increases. This calculation brings the cost into present dollars.
4.1 Development Costs
For each alternative system described in the Feasibility Study, estimate the cost of the Define, Design, and
Build system phases. When determining the overall cost of development, include costs for personnel,
equipment, developer training, and development tools.
4.2 Operational Costs
For each alternative system described in the Feasibility Study, estimate the installation, operation, and
maintenance costs of the system. Include such costs as personnel, equipment, operational site upgrades or
changes, and staff training.
4.3 Non-Recurring Costs
Present non-recurring costs of each alternative over the system life.
4.3.1 Capital Investment Costs
Include costs for acquiring, developing and installing:
Site and Facility
Automated data processing (ADP) equipment
Data communication equipment
Environmental conditioning equipment
Security and privacy equipment
ADP operations, multipurpose and applications software
Database
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4.3.2 Other Non-Recurring Costs
Include costs for:
Studies (requirement and design studies)
Procurement planning and benchmarking
Database preparation
Software conversion
Reviews and other technical and management overhead
Training, travel and other personnel-related costs of 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
Parallel system costs
Potential disruption to existing business operations
4.4 Recurring Costs
Present the monthly and/or quarterly recurring costs of operating and maintaining each alternative over the
system life, including:
Equipment lease, rental and in-house maintenance
Software lease, rental and in-house maintenance
Data communications lease, rental and in-house maintenance
Personnel salaries and fringe benefits
Direct support services (intra-agency services)
Travel and training
Space occupancy
Supplies and utilities
Security and privacy
Contractual and interagency services, (e.g., ADP services, data communications, software,
technical and other support)
Overhead. Include overhead expenses that represent additional or incremental expenses
attributable to the alternative
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5.0 BENEFITS
This section describes benefits that can be assigned dollar values for each alternative system described
in sections 3.3 through 3.x. This may be done in the form of a matrix or by listing out the specific
category of benefits for each alternative system under the appropriate section headings.
5.1 Non-Recurring Benefits
In the following subsections, describe non-recurring benefits for each alternative system.
5.1.1 Cost Reduction (Savings)
Describe non-recurring cost reductions (savings) resulting from improved system operations, such as:
reduction of resource requirements; improved storage and retrieval techniques; improved resource
utilization; and reduced error rates.
5.1.2 Value Enhancement
Describe benefits that enhance the value of an application system, such as: improved resource utilization;
improved administrative and operational effectiveness; and reduced error rates.
5.1.3 Other
Describe other benefits, for example, offsetting receipts. Include the value of excess equipment.
5.2 Recurring Benefits
Present the monthly and/or quarterly recurring benefits of operating and maintaining the alternative system
over the system life, including:
Equipment lease, rentals and in-house maintenance
Software lease, rental and in-house maintenance
Data communications lease, rental and in-house maintenance
Personnel salaries and fringe benefits
Direct support services (intra-agency services)
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 avoidance of future costs that would be incurred if the best alternative
were chosen from a set of alternatives, compared to maintaining current operations. Describe
improvements in operational flexibility, information handling and response to anticipated
requirements, as related to cost avoidance.)
5.3 Intangible Benefits
Describe benefits that are difficult to quantify in terms of direct dollar values (e.g., improved employee
satisfaction, reduced risk of incorrect processing, improved information handling, enhanced organizational
image) for the alternative system. Intangible benefits can sometimes be assigned values in terms of
estimates and tradeoffs. When applicable, include:
Boundary estimates (i.e., analysis of best case and worst-case estimates to justify the proposed
alternative)
Tradeoffs with tangible benefits (i.e., cases where an intangible benefit is gained at the expense of
reduced potential tangible benefits)
6.0 COMPARATIVE COST/BENEFIT SUMMARY
This is a summarization of the cost and benefits identified in detail in the previous chapters. Present the
elements below in a manner to facilitate comparison.
6.1 Cost of Each Alternative over the System Life
For each alternative described in sections 3.3 through 3.x, present costs in the period (year, quarter, month)
in which they will be incurred.
6.1.1 Non-Recurring Costs
Total the non-recurring costs previously itemized.
6.1.2 Recurring Costs
Include recurring costs such as rental, maintenance, utilities, telecommunications and personnel. Total the
recurring costs.
6.1.3 Total Cost
Total the non-recurring and recurring costs subtotals for each year of the system life.
6.1.4 System Life Costs
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Calculate the total cost over system life by summing the total costs over the period of the system life.
6.1.5 Present Value Cost
Calculate Present Value (PV) cost over the entire system life using authorized present value factors.
Calculations are to be based on Net Present Value (NPV) methodology. Include formula to substantiate
calculations.
6.1.6 Residual Value Estimate
Calculate the remaining economic value of ownership of all IS resources as of the last month of the system
life, as established by organizational guidelines. Make the present value calculation to get the discounted
residual value.
6.1.7 Adjusted Cost
Calculate the adjusted cost by subtracting the discounted residual value from the total present value cost.
6.2 Benefits
Identify the period of benefits. Enter the quantifiable dollar benefits for the period in which they are
accrued, and make present value calculations.
6.3 Net Present Value (NPV)
Calculate the net present value by subtracting the adjusted cost from the total present value of benefits.
6.4 Benefit/Cost Ratio
Calculate the benefit/cost ratio by dividing the total present value of benefits by the adjusted cost.
6.5 Payback Period
Calculate the year or month in which the sum of benefits first exceeds the sum of the costs expressed in
current dollars.
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