Costbenefit analysis

The benefits of a project should outweigh the costs; however, the point at which the costs are outweighed by the benefits may be some way in the future. How far is a question that a cost/benefit analysis can help to determine.

Table 5.2 Cost/benefit analysis ($)

Year O

Year l

Year 2

Year S

Year 4

Benefits

-

13,000

70,000

71,000

81,000

Costs

2,500

15,850

64,620

27,400

24,250

Net

-2,500

-2,850

5,380

43,600

56,700

Cumulative

-2,500

-5,350

30

43,630

100,380

This simple cost/benefit analysis compares the investment and the intended returns of a project over time. In Table 5.2, the cost/benefit analysis shows a healthy return being made on the investment. In year 2 the benefits outweigh the costs invested to date and "payback" is achieved. In years 3 and 4 the profits grow substantially.

What matters now is to consider whether those figures are realistic as initial forecasts are often too optimistic. They should also be compared with the cost/benefit figures for other projects under consideration.

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Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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