Cost-Benefit Analysis
Raviteja Turaga
Dr. Hammad Elbedour
Analysis, Modelling and Design
Date: 06/03/2016.
Cost-Benefit Analysis
Cost-benefit analysis is an economic evaluation whether to go ahead with the project depending on the benefits attained from the invested amount on the project (cost). To perform this analysis, all the inputs (cost) and outputs (benefits) should be measured in the same unit of measurement and at the same time. Generally, the measurement unit is money (usually dollar). We need to measure these at the same time because the dollar value changes time to time. While evaluating the cost benefit analysis we need to take both the tangible and intangible costs in to consideration and classify the costs in one time cost and recurring costs. So these onetime costs and recurring costs need to have relation with time depending on the length of the project. Need to determine the fixed costs and variable costs in both onetime cost and recurring cost. We need to have the relation between time and money as we determine the costs, benefits and useful life of the project is determined on present day, to have a successful cost-benefit analysis. We need to maintain a record for all these costs.
The most commonly used Cost benefit analysis are:
1. Net Present Value (NPV): It uses cost of capital and discount rate to determine the present value of the project.
2. Return of Investment (ROI): It is the ratio of net cash receipts of the project divided
NPV analysis uses future cash flows to estimate the value that a project could add to a firm’s shareholders. A company director or shareholders can be clearly provided the present value of a long-term project by this approach. By estimating a project’s NPV, we can see whether the project is profitable. Despite NPV analysis is only based on financial aspects and it ignore non-financial information such as brand loyalty, brand goodwill and other intangible assets, NPV analysis is still the most popular way evaluate a project by companies.
The development of a Shared Governance Educational Program to educate unit-level council chairs has a proposed budget of $14,855.73. This figure is based on the assembly of an Interprofessional Team to lead the initiate and planning stages of the program. The team is based on key individuals hourly such as: the workshop coordinator, the Chief Nursing Officer, Magnet Coordinator, chairs of the hospital-wide councils, nurse educators, a business analyst, and Director of Patient Relations. These human resources were budgeted by their hourly wage based on the number of hours they would be in planning meetings. The educational program was held within the organization in various computer labs, library, conference and classrooms. There was no cost associated with using this space. Supplies needed for the project were for handouts given during each presentation i.e. computer paper for PowerPoint presentation and folders were budgeted.
The NPV compares the inflow of cash against the flow of cash to make the investment. With the cash flows occurring over a period of time, NPV also takes into account the cost of capital. The cost of capital or discount rate allows the company to weigh the present value of capital today with the investment capital’s present value. Futronics Inc. investment would have an NPV of $138,642.39. The NPV of this investment would add value to Futronics Inc.’ worth.
Along with the Benefit Measurement Method, Constrained optimization method can also be used which involves mathematical approach. Since this method involves the mathematical approach, several calculations are performed in order to take a decision to accept or reject the project. “Mathematical models, also known as Constrained Optimization Methods, are a category of project selection methods, which is a tool and technique of the Develop Project Charter process” (PMP, 2008). Cost-benefit analysis is one of the methods which fall into this category. All the positives and negatives of the project are taken into consideration and then the negatives are carefully excluded from the benefits. Different results are produced for the different projects. The most worthy and financially rewarding option are selected from these results. When employing this method, there are many things that are to be considered such as the impact of the decision on the development of the organization in the future, the length of time the equipment lasts and whether it is possible to do the cost control during the project.
Cost-benefit analysis is used to help decide whether or not to continue with a project, essentially weighing the pros and cons related to benefits versus the cost of achieving the desired result. Cost-benefit analysis (CBA) is a technique used to compare the total costs of a program/project with its benefits (Oxford, n.d.).
•Analyze the economics of New Orleans in light of the above parameters and develop your own Cost-Benefit Analysis (CBA) for rebuilding.
The Affordable Healthcare Act has opened up opportunities for many citizens across the United States. Since the bill passed in 2010, the United States Health Department has recorded “about 16.4 million uninsured people have gained health coverage” (2014). Now that many people have been granted the chance to receive a regular check-up from the doctor’s office or go to the emergency room to receive urgent care, there are not enough primary health care professionals to assist those who are in need. The shortage of health care professionals has become a rising problem in the United States. According to the Association of American Medical Colleges (AAMC) over the next 10 years the United States is expected to have a shortage of primary care doctors
(A). Performing a cost-benefit analysis would help the project manager and team compare and establish vendor financial and non-financially benefits. By performing a cost-benefit analysis, the project manager can gain benefits by selecting vendors and suppliers that specialize in certain areas. Performing the cost-benefit analysis would highlight vendor strengths in delivery, flexibility, quality and reliability, fair price, familiarity, and financial and business stability that would best meet the established project budget and hospitals and ambulatory care facilities with the necessary framework for EHR exchange. Choosing a vendor with a good delivery history would eliminate waste when purchasing needed EHR software and equipment, this
In terms of policy design, the ACA does benefit the American population, expanding coverage and giving Americans better access to care. Moreover the ACA focuses on preventative health measures which is better for the population health in general. This falls in-line with our National Agenda on health as my health policy framework outlines. As mentioned before, the debate of health care reform has been going on for almost a century and it is agreed upon that something must be done to address the issues in the health care system, both in terms of healthcare delivery and health insurance.
Account for time. Time is money. We prefer to receive cash sooner rather than later. Use net present value as a technique to summarize the quantitative attractiveness of the project. Quite simply, NPV can be interpreted as the amount by which the market
Net Present Value (NPV) calculates the sum of discounted future cash flows and subtracting that amount with the initial investment of the project. If the NPV of a project results in a positive number, the project should be undertaken. It is the most widely used method of capital budgeting. While discount rate used in NPV is typically the organization’s WACC, higher risk projects would not be factored in into the calculation. In this case, higher discount rate should be used. An example of this is when the project to be undertaken happens to be an international project where the country risk is high. Therefore, NPV is usually used to determine if a project will add value to the company. Another disadvantage of NPV method is that it is fairly complex compared to the other methods discussed earlier.
1. The net present value is the projects present value of inflows minus its cost. It shows us how much the project contributes to the shareholders wealth. The NPV of each franchise are:
An initial cost-benefit analysis was conducted in order to calculate if this change was justifiable and feasible in terms of cost. It began by introducing the idea to staff and evaluating their feedback. This initial assessment indicated the staff’s overall commitment to this change process. Staff participation is crucial to the cost because they are responsible for implementing the practice, which will ultimately save the hospital money. The benefits of this practice change such as the financial savings and decrease in workload were presented to the staff during the EBP launch meeting in order to encourage participation and adherence to the change. The biggest cost associated with this project would be the training and
This analysis will determine whether or not the project is worth pursuing using a net present value (NPV) approach.
The internal rate of return (IRR) and the net present value (NPV) techniques are 2 investment decision tools that satisfy the 2 major criteria for the correct evaluation of capital projects. This criterion is that the techniques should incorporate the use of cash flows and the use of the time value of money. This makes them viable techniques for evaluating investment proposals.