DescriptorsDefinitionsPayback_period_-_the_period_of_time

Descriptors

Definitions:

Payback period - the period of time, expressed in months, that a project requires to recover the money invested in it (including the one-time savings which are often excluded by some calculators)

Benefit-cost ratio - an indicator that is often used to decide whether the benefits of a given project or solution outweigh the actual costs (the higher the ratio the better the investment)

Analysis horizon - the number of months the project is expected to be utilized before replacement or major upgrade

Implementation costs include capital costs (equipment, constructions, etc.), training, travel, outside professionals, lost of productivity during implementation & training, implementation costs such as installation, etc.

Ongoing costs include maintenance costs (monthly costs relating to the ongoing maintenance) and operational cost (internal labor, expendables, materials, supplies, etc.)

Hard savings - the direct benefits that affect the bottom line and can directly improve the financial performance of the organization (examples are: sales/price increase, cost reduction and productivity savings)

Soft savings - the indirect benefits which are difficult measure (they are mainly improved yield of a business process, the increased stakeholder satisfaction and the increased safety in the workplace)

One-time savings - examples are value of inventory reduction and sale of unneeded assets

Example

Call Center
$, hours, units	E.g.: $/unit	$	Year-1/partial year	Year-2	Year-3
Cost/Benefit	Unit	Entry/Quantity	Final/Total	Description
Project Title	C O S T S	Implementation costs (one time)	8,000
CRM Rules for CCR Quality	1	Update rules in CRM	8,000	Cost to update rules
Solution Title/Description	2
3
Sponsor	4
CC Manager	Ongoing costs (monthly)	0
Project Manager	1
J Doe	2
Timeframe for CBA (in months)	3
12	4
Estimated cost/savings year one (maximum 12)	>>>Total Costs (monthly)	667	3,333	11,333	19,333
5	B E N E F I T S	Hard and soft savings (monthly)	1,200
Average labor cost (hourly / daily)	1	Saving from reduced calls	Calls	5000	1,000
$23.00	2	Saving from reduced QC	QC	500	200
Assumptions/Comments	3
1	4
2	Savings (one time)	0
3	1
4	2
5	3
6	4
7	>>>Total benefits (monthly)	1,200	6,000	20,400	34,800
Benefit-cost ratio	1.80	667	Monthly payback	Net cash flow	Net gains	2,667	9,067	15,467
Monthly payback period	6.7	0	6.7	1,200	ROI		80.0%

Cost Benefit Analysis

$, hours, units	E.g.: $/unit	$	Year-1/partial year	Year-2	Year-3
Cost/Benefit	Unit	Entry/Quantity	Final/Total	Description
Project Title	C O S T S	Implementation costs (one time)
1
Solution Title/Description	2
3
Sponsor	4
CC Manager	Ongoing costs (monthly)	0
Project Manager	1
J Doe	2
Timeframe for CBA (in months)	3
4
Estimated cost/savings year one (maximum 12)	>>>Total Costs (monthly)
5	B E N E F I T S	Hard and soft savings (monthly)	0
Average labor cost (hourly / daily)	1	5000
2	500
Assumptions/Comments	3
1	4
2	Savings (one time)	0
3	1
4	2
5	3
6	4
7	>>>Total benefits (monthly)
Benefit-cost ratio			Monthly payback	Net cash flow	Net gains
Monthly payback period				0	ROI

blog1

Descriptors

Example

Cost Benefit Analysis

Get help from top-rated tutors in any subject.