Cost-Benefit Analysis

When it comes to goal setting or deciding on the best plan ofattack, working up a cost-benefits analysis will help you decidejust which route would be best for you. And a cost-benefit analysisdoesn’t have to be complicated. You simply draw a line down themiddle of a piece of paper to create two columns. On the left, listthe benefits of achieving a given goal. On the right, list what itwill cost you to get there. Once you’ve done that, you can simplyadd up the benefits and costs columns and see which has more, orassign weighted scores to each entry and total them at the bottom.Of course, you may not want to let this quick and easy analysismake the final decision for you. And it may sometimes be thenearest thing to a tossup. But even a simple cost-benefit analysiscan give you an idea of whether a given goal is worth investigatingfurther.

An example is a sales director who needs to decide whether toimplement a new computer-based contact management and salesprocessing system. The sales department currently has only a fewcomputers, and its salespeople aren’t computer savvy. Any systemupgrade would require extensive employee training. The company islikely to experience a drop in sales during the transitionperiod.

While total expenses, including equipment, installation andtraining costs, plus lost productivity, are estimated to be$55,800, the company’s analysis reveals the new computer systemwould increase sales capacity, boost efficiency and enhancecustomer service and retention–financial benefits the company pegsat $90,000 annually. Based on the cost-benefit estimates, thecompany would see a return on its investment in eight months.(Payback time: $55,800 ? $90,000 = 0.62 of a year.)