Benefit analysis is simply keeping track of the efficiency of decisions made as an investment for the business to go beyond the metrics and be on top of the market. This is also an essential tool in determining the right steps in making a decision that will ensure your benefits are worth the costs. Hence, it's also known as cost-benefit analysis. With that being said, cost-benefit analysis tends to determine which action is worth investing for—it's all about weighing options. In order to keep track of the investments made by the business, let's try to check these five key steps in creating a benefit analysis.
1. Anticipate Costs and Benefits
The first stage of creating a benefit analysis is to identify what are the possible costs when coming up with such (a) business decision(s). Initially, identifying the possible costs, as well as risks, would be a bit pessimistic, isn't it? But in the business world, it would be better to expect the worst to come—be practical! It's best to determine whether such a project or program to be conducted would bring more benefit or risk; or, will the business be given what is due.
2. Monetize the Costs
Determining the monetary value of the costs is a key step in making a financial estimate that is fundamental before conducting programs or projects. These costs may be an investment for natural and human resources—not to mention labor and location. However, it will still be important to think about as many costs as possible. For example, how much would be the training cost, material cost, wage, etc.? Then, identify if these investments would cause productivity or otherwise.
3. Monetize the Benefits
As part of the estimation process, technical analysis is fundamental before making such investments. Analyzing the benefits could be a bit challenging because it is really difficult to determine the value or degree of the revenue (return of investment). Consider this: is an imported golden vase worth $150,000 because of its material used, or is it because it's shipped from a country with rich gold reserves? In this case, it would be best to consult experts to help you out. Basically, you think about the factors for the worth of such investments.
4. Ready Your Calculator
As soon as you have all of these in mind, bring your calculator and begin comparing the monetary value of your costs and benefits in order to help you decide which action to take. To do this, divide your total cost by your total revenue (or benefits) then identify your payback time to find out how long you will get the return of investment or the break-even point. A break-even means, according to accounting dictionaries, that your total cost is equal to the revenue. This means that you are given what is due; your benefit is worth your investment.
5. Make a Decision
As soon as you are done with all the computation and breakdown of your costs and benefits, determine which is worth the expenses. Among all the many proposed courses of action to take, which one should be taken? Make sure you picked the ones that present a break-even point. This business estimate will ensure you receive the benefits of such projects since you are able to identify what's in it for you and how long you will have to wait until you enjoy its benefits.