1. PRJ566: Project Planning and Management Cost Benefit Analysis

2. Agenda  What is cost benefit analysis?  The process  Examples – identifying costs and benefits

3. What is cost benefit analysis?  Shows the benefit or return the project will bring to the business  Helps a company decide which projects are most important to the business  Helps the project manager prove how important their project is

4. Costs  The costs that your project will incur Hardware Software People Ongoing maintenance  These are usually tangible because they are easy to identify and to attribute a $ value to

5. Benefits  The benefits that your project will incur Tangible:  People costs saved  Increase in sales to the company Intangible:  i.e. Improving employee moral

6. Agenda  What is a cost benefit analysis?  The process  Examples – identifying costs and benefits

7. The Process  Determine costs, both one-time and on-going, of all solutions being investigated  Determine and quantify all benefits of all solutions being investigated

8. The secrets  Effective estimates  Measures that reflect business value  Good organization

9. Costs--one time  Development costs – wages, contract fees  Initial Training costs  Initial equipment costs – hardware, software, network

10. Costs--ongoing  Overhead - facilities, office space, etc.  Web site costs--domain name renewal, Web hosting  Communication costs--phone, Internet, and so on  Maintenance of software and hardware  “Maintenance” of staff (ongoing training, and so on)

11. Benefits-can come from  Cost savings people, time, equipment, mistakes  New services to clients - revenue  Mandatory changes  Strategic advantage Make more money!  Technical reasons

12. Cost benefit analysis  Start by identifying and listing all costs  Next identify and list all benefits  Format them into a table: Costs Item A$ Item B$ Item C$ Item A$ Item B$ Item C$

13. Agenda  What is a cost benefit analysis?  The process  Examples – identifying costs and benefits

14. Example 1  You are implementing a software package called SAP for Seneca College. This software package provides Human Resources (HR) functionality. The software costs $275,000 and it will take approximately 2 weeks to implement it and a week (5 days) to train HR on it’s functionality. 3 IT employees will be installing it and 1 IT employee will conduct the training. Cost for an employee is $175/day.

15. Example 1  Seneca estimates they can save the equivalent of 2 employees per year. Cost of each employee is $23,000 per year  Identify the costs and benefits

16. Example 2  You have decided to create a company that will provide driver education training to students. You will need to develop materials for in-class training, market your company and then arrange both the in-class training classes and the in-car driving instruction.

17. Example 2  Some information about this business: Each in-class training session must last 24 hours which can be split over 3 Saturdays (8 hours per day), or 8 evenings (3 hours per evening). Each student will have 10 hours in-car instruction. Students will pay $1150 which will cover both the in-class and in-car instruction. A class will only run when it’s full and can have 20 students.

18. Example 2  More information about this business: It costs $50 per hour to rent the room for classes. It will cost about $300 to develop the advertising. It will take about 150 hours to develop the materials and the employee who develops the materials charges $20 per hour. You will mail out 5000 postcards and it costs $.50 to mail out each postcard.  Identify the costs and benefits to put a course on for the first time