1. Cost Benefit Evaluation Techniques

2. Cost benefit analysis Steps
Identifying all the costs and benefits of carrying out the project and operating the delivered application
Expressing these costs and benefits in com on units

3. Categories of cost Development cost –includes development staff cost
Setup cost-cost of putting the system in place
Operational cost-operating the system after installation

4. Cash flow forecasting: Typical product life cycle cash flow

5. Netprofit

6. Payback period
It is the time taken to break even or pay back the initial investment.
Advantage: it is easy to calculate and is not sensitive to small forecasting errors.
Disadvantage: it ignores the overall profitability of the project.

7. ROI-Return on Investment or ARR-Accounting rate of return
ROI=average annual profit *100
total investment
Eg: Netprofit:50000 and total investment
ROI=50000/5 *100
100000
=10%

8. Net Present Value

9. Applying the discount factors to project 1

10. Internal rate of return
It is calculated as the percentage discount rate that would produce NPV of zero.
Calculated using the spreadsheet or other computer program that provides functions for calculating the IRR.
Disadvantage: it does not indicate the absolute size of the return