By Dara Leet Jay Prasad Saneeya Islam Jorge Mendez Ravin Sangar CostBenefit Studies By Dara Leet Jay Prasad Saneeya Islam Jorge Mendez Ravin Sangar

Objectives What is a cost benefit study? Why is it important? Overview of cost benefit studies Example of a cost benefit study: objectives, methods, results, conclusions

Cost Benefit Studies A cost benefit study is a quick and simple technique that can be used to analyze the financial decisions that are related to potential changes in a business/organization. Purpose: To determine if an investment/decision is sound To provide a basis for comparing alternatives A cost-benefit analysis is a quick and simple technique that can be used to analyze the financial decisions that are related to potential changes in a business or organization. It involves a methodical method for estimating the strengths and weaknesses of substitutions that can satisfy transactions, activities or functional requirements of a business. It’s used to determine what options provide the best alternative in terms of benefits in labor, time, cost savings, etc. The purpose of a cost-benefit analysis is to determine if an investment/decision is sound. It provide a basis for comparing alternatives by estimating the total expected cost of each option against the total expected benefits. These numbers are then used to see whether the benefits outweigh the costs, and by how much.

Importance of a Cost Benefit Study Relatively simple framework to determine most profitable course of action Assist with decision of whether to hire new team member(s) Selection between projects when funds are limited Evaluation of new project Determine feasibility of purchases Keep in mind this is intended to be used for quick and simple financial decisions There are better models for more complex, high-cost decisions For profit of enterprise you would ideally make decisions that result in excess social benefit over cause….benefits > losses

Overview of CBS Method Brainstorm costs and benefits Assign monetary value to costs Assign monetary value to benefits Compare costs to benefits Consider payback period Any unexpected costs? Benefits that you may not have initially anticipated? Cumulative costs/benefits over lifetime of project? 2.) Costs include physical resources needed to complete the project + cost of human effort. Training costs? Decrease in productivity while learning new technology? More team members? 3.) this is less straightforward and more difficult to do. Often intangible benefits such as employee/customer satisfaction; impact on health and/or safety; how to assign monetary value to that? 4.) Payback period is the time it takes to reach the break-even point, or the point at which the benefits have just repaid the costs

Example: Pharmacy Robotic Dispensing Objectives: Increase efficiency/accuracy in a Practical Pharmacy Methods: Purchase pharmacy robotic dispensing Train staff Reduce payroll Results Increase sales & net profit Improve customer service Conclusion Benefits outweigh the cost Must have a high demand of scripts Need backup staff for technical issues with equipment

Cost Benefit Estimation and Comparison Efficiency: 50 scripts a day more, 300 days open, $50 a script, 75% is drug cost & 25% margin of profit, ends up with $187,500. Payroll: $12 * 40hours * 52week = $25,000 then rounded to $30,000. Tot Benefit - Tot Cost = $115,900

To Purchase, Or Not To Purchase? Total cost for one year: $101,600 Repeating yearly costs: Additional Training ($100 /staff member) Yearly Maintenance ($800) Total benefit for one year: $217,500 Cost of improvement will be paid for within one year with profits also being made within one year

Summary Cost benefit study - technique used to assess financial decisions based on costs and benefits of implementing a change in a business or organization Overview of method Application to pharmacy setting Automated dispensing vs. new employee

References Available at: http://www.investopedia.com/terms/c/cost-benefitanalysis.asp. Accessed October 27, 2015. Available at: https://www.mindtools.com/pages/article/newTED_08.htm. Accessed October 27, 2015. Wolfram C. Cost Benefit Studies. Harvard Electricity Policy Group. Available at: http://www.ksg.harvard.edu/hepg/Papers/wolfram_cost-benefit.studies_5-22-03.pdf. Accessed October 27, 2015.

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