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MEANING OF CBA--

When the alternatives are estimated to

provide the same benefit (such as the

same level of national defense), thealternative with the lowest cost should

be selected.

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KEY POINTS---

Develop measures or programmes intended to help reduce a certainproblem.

Develop alternative policy options for the use of each measure orprogramme.

Describe a reference scenario (sometimes referred to as business-as-usualor the do-nothing alternative).

Identify relevant impacts of each measure or programme. There willusually be several relevant impacts.

Estimate the impacts of each measure or programme in natural units(physical terms) for each policy option.

Obtain estimates of the costs of each measure or programme for eachpolicy option.

Convert estimated impacts to monetary terms, applying availablevaluations of these impacts.

Compare benefits and costs for each policy option for each measure orprogramme. Identify options in which benefits are greater than costs.

Conduct a sensitivity analysis or a formal assessment of the uncertainty ofestimated benefits and costs.

Recommend cost-effective policy options for implementation.

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EXAMPLE-- A sales director is deciding whether to implement a new computer-based

contact management and sales processing system. His department has onlya few computers, and his salespeople are not computer literate. He isaware that computerized sales forces are able to contact more customersand give a higher quality of reliability and service to those customers.They are more able to meet commitments, and can work more efficientlywith fulfilment and delivery staff.

His financial cost/benefit analysis is shown below:

Costs:New computer equipment:

10 network-ready PCs with supporting software @ $2,450 each

1 server @ $3,500

3 printers @ $1,200 each Cabling & Installation @ $4,600

Sales Support Software @ $15,000

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EXAMPLE CONT,,, Training costs:

Computer introduction - 8 people @ $400 each

Keyboard skills - 8 people @ $400 each

Sales Support System - 12 people @ $700 each

Other costs:

Lost time: 40 man days @ $200 / day

Lost sales through disruption: estimate: $20,000

Lost sales through inefficiency during first months: estimate: $20,000

Total cost: $114,000

Benefits:

Tripling of mail shot capacity: estimate: $40,000 / year

Ability to sustain telesales campaigns: estimate: $20,000 / year

Improved efficiency and reliability of follow-up: estimate: $50,000 / year

Improved customer service and retention: estimate: $30,000 / year Improved accuracy of customer information: estimate: $10,000 / year

More ability to manage sales effort: $30,000 / year

Total Benefit: $180,000/year

Paybacktime: $114,000/$180,000= 0.63 ofayear= approx.8 months

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STEPS INVOLVED IN CBA--

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STEPS CONTS

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FACTORS FOR A RELIABLE CBA-

Feasibility study

Design

Development Implementation

Operation &

Maintenance

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SCENARIO--

When dealing with decisions' using CBA techniques it is veryimportant to follow the proven principles. The health of your company & your reputation depend on it. if these rules are notfollowed then your decisions could be flawed.

Lets start, shall we Profitable way*1.

Making better asset purchase decisions for your company.

Profitable way*2.

Making better asset purchase recommendations for your clients.

Profitable way*3.Consulting to clients on how to spend their scarce investment capital on

competing projects.

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SCENARIOCONTS

Profitable way*4.

Audit clients cost benefit analysis.

Profitable way*5.

Offer these services to charities.

Profitable way*6

Implement this method across client companies. Profitable way*7

Training in cost benefit analysis.

Profitable way*8

Advertise CBA services in newsletters & client correspondence.

Profitable way*9

Offer to prepare CBA for the client funding proposals.

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Project Selection Methods

Two Broad Categories

Benefit Measurement Methods

Mathematical Models

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Benefit Measurement MethodsComparativeApproaches

Scoring Models

Benefit Contribution

Economic Models

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Mathematical Models

Also known as

Algorithms

Linear Programming

N

onL

inear ProgrammingDynamic Programming

Integer Programming

Multi-objective Programming