A cost-benefit analysis (CBA) is a process that is used to estimate the costs and benefits of decisions in order to find the most cost-effective alternative.
What is cost benefit analysis?
Points to consider while measuring cost benefit analysis.
Direct cost
An example of a direct cost is the supplies used to make the product. The cost of material , equipment, labor, etc.
Indirect cost
Indirect costs include rent, office supplies, the cost of account and legal expenses, rent, security expenses, mobile bill expenses, rental office equipment, etc.
Intangible cost
Intangible cost is a cost that can be identified but cannot be quantified or easily estimated. It includes the time it takes for a staff member to learn new technology so that he could work in the company with the new technology system.
opportunity cost
The opportunity cost is the loss of potential future return from the second best unselected project.. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can’t spend the money on something else. In short, it is the value of the path that is not taken.
To find the value of opportunity cost, apply this formula.
Opportunity cost = FO – CO
Where FO means forgone option and CO means chosen option.
Cost of potential risk
The cost of potential risk for Project C needs to be carefully evaluated and accounted for in the project budget. This will help ensure that the project is completed within the allocated resources and that any unexpected risks can be addressed without causing significant delays or additional expenses. Cost of potential risk is the risk that a project will spend more money than was originally budgeted. Such risks manifest in various types and forms, including storms, floods, vandalism, earthquakes, and civil unrest. A project may stall or discontinue when such events occur. Therefore, it is crucial for project managers to identify potential risks and develop a contingency plan to mitigate their impact on the project’s progress and success.
