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    Cost Benefit Analysis - tcm36-316055

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    Vbjj

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    Cost Benefit Analysis - tcm36-316055

    Uploaded by

    Abdulkader
    9 views2 pages
    Vbjj

    Original Title

    Cost Benefit Analysis_tcm36-316055

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    Vbjj

    Copyright:

    © All Rights Reserved
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    Download as docx, pdf, or txt
    9 views2 pages

    Cost Benefit Analysis - tcm36-316055

    Uploaded by

    Abdulkader
    Vbjj

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Cost Benefit Analysis

    (from ASQ: http://asqservicequality.org/glossary/cost-benefit-analysis/)

    Description
    A cost-benefit analysis is a study to determine the relationship between the benefits and the costs of
    changes to processes, policies, and/or procedures. The costs should be stated in financial units (e.g.,
    Dollars, Pesos, Euros, etc.). Cost-benefit analyses are typically performed when there is a change that is
    pending to ensure the benefits from the changes outweigh the costs.

    Benefits
     Easy to calculate once the information is available
     Grounds the change management process in knowledge-based management and financial
    discipline

    How to Use
     Step 1. Determine all costs associated with the processes affected by a proposed change.
     Step 2. Have these costs validated by accounting staff or by the appropriate financial group.
     Step 3. Identify the changes to the processes and calculate the costs to execute the new
    process going forward (also known as the operational state).
     Step 4. Determine the costs of implementing the changes to the process. In addition to hard
    costs related to hardware and equipment, ensure that you capture costs related to information
    technology and operations, training, documentation, running processes in parallel during
    transition, office lease cancellation, and severance costs related to dismissed employees. There
    may be other costs related to implementing the change.
     Step 5. Calculate the benefits projected from making these changes.
     Step 6. Determine the cost-benefit ratio: divide the total of the projected benefits by the total
    costs. A higher the ratio of benefits to costs indicates a positive change.
    - *Tip: It is wise to have accounting and/or finance staff confirm the assumptions and
    analysis.
     Step 7. Communicate to management to obtain approval and implement the changes.
     Step 8. Periodically assess and calculate whether the benefits and costs forecasted were
    realized and recalculate the cost-benefit analysis. Use this information for future cost-benefit
    analyses of future projects.

    Page 1 of 2
    Example
    A proposed change would reduce the number of reviews required before approving an application. The
    finance department provided a cost-benefit analysis template and guidance for using the template to
    the project team.

    Calculating the costs required determining the entire costs stream associated with the end-to-end
    processing of an application by the underwriting and compliance areas. The team presented this analysis
    to the accounting department for validation.

    The improvement team redesigned the process and modeled the benefits:

     Bottom-line benefits consisted of increased sales and cost savings from reductions in staff and
    reductions in office space.
     Costs resulting from the change included communicating changes, documenting changes,
    designing and printing new forms, and training staff on the changes. Costs would also include
    severance for affected employees.

    After the accounting and finance areas approved the financial analyses and projections, the team
    delivered a presentation to senior management. Management approved the changes, the project team
    planned the implementation, and the changes were executed.

    Six months after implementation, the project team and stakeholders revisited the initial cost-benefit
    analysis and determined that actual results were consistent with forecasted expectations.

    The cost-benefit analysis is maintained in a document repository and can be leveraged by project teams
    performing similar projects in the future.

    ###

    Page 2 of 2

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