Stop 06 · Business Modeling & StrategyTopics · 4/9

Cost-Benefit Analysis

In short

Every project costs money, time and attention. A cost-benefit analysis puts both sides on paper so 'this feels worth it' turns into 'this is worth it, and here's why'.

Comparing the expected costs of an initiative against its expected benefits to determine if it's worth pursuing — a foundational skill for justifying (or rejecting) a proposed project.

The purple blob balances a set of scooter keys against a pile of small paper tickets on a big balance scale.

Think of it like this

Scooter or autos?

You spend about ₹3,000 a month on autos to college. A second-hand scooter costs ₹45,000 plus petrol and servicing. Put every cost and every saving on a scale, over two or three years, and the answer stops being a gut feeling.

Watch it happen

Doing a cost-benefit analysis

List costs

List gains

Put ₹ on it

Time span

Compare

1/5Write every cost: build, licences, training, plus running costs like support and hosting every year.

The big ideas

What you need to know

Count running costs

The build cost is the easy bit. Yearly hosting, support and licence fees often add up to more over time.

Name the soft benefits

Some gains, like happier customers, are hard to price. List them separately instead of inventing a number.

Show assumptions

'Saves 2 hours a day per agent' is an assumption. Write it down so others can challenge it.

Include doing nothing

Compare against the status quo too. Sometimes not changing is the cheapest honest option.

See it in code

A tiny example

excel

1=SUM(B2:B6)2=SUM(C2:C6)3=C7-B74=C7/B7

Column B holds costs, column C holds benefits over the same period. Row 7 totals each; then net benefit and the benefit-cost ratio. Above 1 means benefits outweigh costs.

Save yourself the pain

Common mistakes

Oops

Counting only the one-time build cost.

Do this instead

Add every recurring cost over the whole period, like licences, support staff and upgrades.

Oops

Inflating benefits to get the answer your sponsor wants.

Do this instead

Use realistic or even cautious numbers, and show a best and worst case.

Your mission

Scooter vs autos, for real

~25 min

Quick check

A new CRM costs ₹10 lakh to set up and ₹2 lakh a year to run. It saves ₹5 lakh a year. Over 3 years, what's the net benefit?

Go deeper

1Build a simple cost-benefit analysis for a hypothetical process improvement idea.
2Learn to include both direct costs (implementation) and indirect costs (training, disruption).
3Practice presenting a cost-benefit case with clear, defensible assumptions.