In today’s business scenario, it’s important for you to maximize your profits for every option, idea, and investment your business goes into. For profitability and long-term sustainability of the business you are in, it’s important. You can accomplish this by using a cost benefit analysis template to help you make important business decisions. With this tool, you can identify the highest returns on the investments based on the resources, risks, and costs involved.
Cost Benefit Analysis Templates
What is a cost benefit analysis?
Also referred to as a benefit cost analysis, the cost benefit analysis is a process by which business establishments analyze projects, systems or decisions to determine the value of intangibles.
You develop a cost benefit analysis template by identifying the benefits gained from an action including the associated costs then subtracting those costs from the benefits. The outcome of the analysis yields concrete results that you can use to come up with logical conclusions around the advisability or feasibility of a situation or decision.
Successful businesses depend on cost benefit analysis in their decision-making processes because this tool provides an evidence-based, agnostic view of an issue sans the effects of politics, biases or opinions.
Because it provides a clear view of the consequence of a certain decision, this process becomes a very valuable tool in the evaluation of new hires, deciding resource allocation, making purchase decisions or developing business strategies.
Cost Analysis Templates
What is included in a cost analysis?
Because of its simplicity in both its style and format, you can easily understand a cost benefit analysis template. When creating a cost analysis template for your business, you should include the following:
- Executive Summary
This is the most important step in the preparation of a cost benefit analysis. This section should be both concise and to-the-point. You may need only one paragraph to highlight all of your project’s details. You can use your project’s proposal to draft this part of the document.
After the Executive Summary, you should detail the purpose of your project. When you do a briefing regarding the project’s analysis, you first have to indicate the name of the project and your reason for performing the analysis.
In most cases, the purpose of doing a cost benefit analysis is to determine a project’s feasibility. By purpose, this means describing how helpful the project will be for your business.
- List of Alternatives and their Details
This next section deals with either providing a description or listing down the of alternative approaches for your project. The descriptions of these alternatives should explain the current services, products, and market. This information helps others better understand the alternatives you offer.
This is one of the most important parts of the analysis. It is here where you highlight all of the non-monetary and monetary costs along with the developing and operating alternatives that you discussed in the previous section.
This section highlights the expected non-monetary and monetary benefits that your business can achieve from the project.
This is the final section of your document that highlights the briefing and summary of the results. You present the facts and elements to make a comparison.
How do you perform a cost analysis?
There might be a need to consider the revenues and costs that will occur over specific time periods while also taking into account how monetary values tend to change as time goes by. But this depends on the type and length of your project.
You can accomplish this by calculating the Net Present Value then comparing your business’ current outgoing cash flows to the current value of cash flows in the future. Performing a cost benefits analysis involves three main steps as you create your cost benefit analysis template:
- Identifying the Costs
Start by brainstorming on all of the potential costs. This may include payroll, equipment, training, licenses, travel costs, and so on. You can also take non-monetary costs into account like those related to risks, productivity or uncertainties that might influence your business or project outcomes. Ultimately, you need to assign a monetary value to all costs for you to complete this process.
- Identifying the Benefits
It is very difficult to come up with accurate projections of revenue as certain intangibles might not have precise monetary values. This means that this step poses more challenges than just monetizing or identifying costs.
Benefits involve a wide range of factors, from increased production and direct profits to enhanced reduced environmental impact or employee satisfaction. But like the costs, you need to assign values to the benefits to show in present-value terms to produce more accurate analysis.
- Comparing the Costs and the Benefits
When you have written down all of the benefits and costs, you can start comparing the total amounts to determine if the benefits outweigh the costs or vice-versa. In case the two total values are very close or equal, you might want to review your calculations and make sure that you haven’t omitted or overlooked any benefits or costs.
As you go through the process of comparing the costs and benefits, you want to find out how much time it takes for the benefits to repay your business’ costs through your cost analysis example. Apart from considering the variance between the total cash flows, the timeframe may help you make a decision on whether the project makes sense or not.
Cost Analysis Spreadsheets
How do you do cost analysis in Excel?
Making a cost benefit analysis template your own way can be time-consuming. There is a much easier and faster way to do it – by downloading a template. This makes it easier to find adequate formulas, thus, avoiding the risks of loss.
You can also use Microsoft Excel to create a cost analysis spreadsheet using the proper formulas. Here are the simple steps to do this:
- In a new spreadsheet, input the title of the document as “Cost Benefit Analysis.”
- Input all of the individual components of costing in one column.
- Input the cost per unit for each of the components included in your costing.
- Add cost columns for the previous years and then add a comparative formula.
- Relate the costs of components with the previous costs then draw an analytical assessment with the proper Excel functions.
- You may also create a column of estimated budgeted or cost benefits for comparison.
- Finally, add a section where you compile all of the composite outcomes.