Page 99 - DCAP304_DCAP515_SOFTWARE_PROJECT_MANAGEMENT

Unit 4: Programme Management & Project Evaluation

His financial cost/benefit analysis is shown below: Notes
Costs:
New computer equipment:
 10 network-ready PCs with supporting software @ $2,450 each

 1 server @ $3,500
 3 printers @ $1,200 each
 Cabling & Installation @ $4,600

 Sales Support Software @ $15,000
Training costs:
 Computer introduction – 8 people @ $400 each
 Keyboard skills – 8 people @ $400 each
 Sales Support System – 12 people @ $700 each

Other costs:
 Lost time: 40 man days @ $200/day
 Lost sales through disruption: estimate: $20,000

 Lost sales through inefficiency during first months: estimate: $20,000
 Total cost: $114,000
Benefits:
 Tripling of mail shot capacity: estimate: $40,000/year
 Ability to sustain telesales campaigns: estimate: $20,000/year

 Improved efficiency and reliability of follow-up: estimate: $50,000/year
 Improved customer service and retention: estimate: $30,000/year
 Improved accuracy of customer information: estimate: $10,000/year

 More ability to manage sales effort: $30,000/year
Total Benefit: $180,000/year
Payback time: $114,000 / $180,000 = 0.63 of a year = approx. 8 months
The payback time is often known as the break even point. Sometimes this is more important
than the overall benefit a project can deliver, for example because the organization has had to
borrow to fund a new piece of machinery. The break even point can be found graphically by
plotting costs and income on a graph of output quantity against $. Break even occurs at the
point the two lines cross.
Inevitably the estimates of the benefit given by the new system are quite subjective. Despite
this, the Sales Director is very likely to introduce it, given the short payback time.
Example of a Cost-benefit Analysis
A company that would like to buy Business Intelligence software to improve its business might
use a CBA to make up its mind.

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