2. Definition  Cost-benefit analysis is a systematic approach to estimating the strength and weakness of alternatives that satisfy transactions, activities or functional requirements for a business.  You can use this technique when: Deciding whether to hire new team members Evaluating a new project or change initiative. Determining the feasibility of a capital purchases

3. Method  Brainstorm the costs and benefits that associated with the project including:- Unexpected cost and benefits. Cost and benefits over the time.  Assign a Monetary Value to the Costs such as:- Human effort. ○ Training cost ○ Productivity ○ Additional staff Physical resource needed.  Assign a Monetary Value to the Benefits Revenue, Intangible, Soft, benefits.  Compare Value of Costs and Benefits Compare the two value to determine whether your benefit outweigh your cost Consider the payback time Total cost - total revenue (benefits) = ( - = loss, + =profits)

4. Example Stamping machine ○ Overlooked costs: Floor Space -Will the machine fit in the same space currently occupied by the three workers? Installation -What will it cost to remove the manual stampers and install the new machine? -Will you have to cut a hole in a wall to let it in or will it fit through the door? -Will you need special rollers or machinists with special skills to install it? Operator? -Somebody has to operate the machine -Does this person need a special training? -What will the operator’s salary, including overhead cost? Environment -Will the new machine be so noisy that you have to build sound proofing around it? -Will the new machine increase the insurance premiums for the company?

5. Calculation  Cost benefits analysis 1. Purchase of Machine....................- $ 20,000 2. Installation of machine....................- $ 3,125 3. Raise revenue.............................+ $ 27,520 4. Quality increase revenue..................+ $ 358 5. Reduce material cost.......................+ $ 1128 6. Reduce labour cost......................+ $ 18,585 7. New operator...................................– $8,321 8. Utilities............................................... - $ 250 9. Insurance...........................................- $ 180 10. Square footage(floor space)...................- $ 0 11. Net saving per month....................= $ 15,715