7 Basic Steps for Cost Benefit Analysis
When making a crucial business decision it’s imperative that the concerned decision makers or officials understand the cost structure and associated benefits of their choice, be it establishing a new program or making changes to an existing program. Here are a few basic steps to be followed while conducting a cost benefit analysis:
Set the basic framework for cost benefit analysis: Specify the needs of the program, policy changes, and the current status quo.
Identify and categorize costs and their associated benefits: It is important to label costs and their benefits as- direct, indirect, tangible, and intangible in order to ensure that you understand the effects of each cost factor and its’ benefit.
Project costs and benefits over a definite period: Gauge how costs and the associated benefits change every year.
Monetize the cost and their benefits: Ensure you measure costs and benefits in the same unit.
Compute net present values: This helps determine aggregate values to understand the feasibility and social justice of the policy.
Perform sensitivity analysis: This step helps you to determine the accuracy of your assumptions and estimates.
Make specific recommendations: Assess all net results and account for other qualitative considerations.
About the Client
The client– a Fortune 200 OEM parts manufacturer with operations spread across regions such as- Europe, North America, Russia, and South Africa.
Several divestitures and acquisitions resulted in a fragmented supply base and major losses for the OEM parts manufacturer. This highlighted the need for implementing a systematic approach to estimating the strengths and weaknesses of alternatives. SpendEdge was assigned the task of compiling a comprehensive list of all the costs and benefits associated with the clients’ business decisions.
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SpendEdge’s cost benefit analysis experts conducted an internal survey of the client’s top facilities to understand their requirements and quantify the foreseeable costs and the benefits over a period of time. Cost benefit analysis offered a realistic assessment of the spend management capabilities of the OEM parts company including- direct and indirect spend categories. The cost benefit analysis template enabled them to categorize costs and the benefits into different categories such as- direct, indirect, tangible, and intangible. This helped them optimize their spend management capabilities and develop superior negotiation strategies.
This cost benefit analysis assessment was a success story in terms of- increasing price conformity, consolidating spend, and improving savings. The cost benefit analysis template helped the OEM parts manufacturer to devise the most cost-effective blend of countermeasures to tackle the challenges.
For ages, SpendEdge has been developing world-class procurement and spend management solutions to help organizations across industries. Our razor-sharp focus enabled us to offer accessible, flexible, and scalable solutions that improved the OEM parts manufacturer’s ROI without breaking the bank.
The cost benefit analysis solutions aided the OEM parts manufacturer to:
- Devise a cost benefit analysis template that outlines the parameters of the analysis
- Categorize costs and associated benefits
- Make well-informed business decisions
Collaborative Supply Market Data, Reliable Solutions, & Transformative Results.
Is that what you’re looking for? Get in touch to find out how our cost benefit analysis solutions can help.