There is some theoretical basis to explain the term of the cost benefit analysis template. One of them is a theory that mentions this analysis as an approach to recommend some regulations that enables the comparison. It is by calculating a total cost and a total benefit in the form of money. Commonly, it is used when efficiency becomes an issue. In other words, it is applied to evaluate the uses of economy sources so that they can be used more efficiently. In general, it is also traditionally signed the economy rationalism. The process of calculation and analysis is indeed quite complex. Fortunately, there are some ways to make it easier. It is by using the cost benefit analysis template.
Approaches in Determining the Cost and Benefits
In this type of analysis, there are some indicators to determine and some approaches are used particularly in term of limiting the scope of the costs and benefits considered. The approaches are the costs and benefits of the inside and outside, the costs and benefits measured directly and indirectly, primary and secondary costs and benefits, and clean efficiency and redistribution benefits. In a case, those approaches are better to apply completely. It is unless if there are conditions that make the application of the approaches are impossible to conduct.
The Steps of Creating the Cost and Benefit Analysis
It is often said before that there are templates to calculate the cost and benefit analysis. It is basically really helpful but it doesn’t mean that you cannot ignore an important point. It is the cost benefit analysis formula. Meanwhile, there are some steps of conducting the analysis that should not be ignored. What are the steps?
First, it is the formulation of the problem. The process of formulation produces further information regarding the potential and relevant purposes, targets, alternatives, criteria, costs, and benefits. However, it is basically not a single process since the result can produce another formulation.
Next, there is also the target specification. The analysis is often started from general purposes. Sure, it is not enough. Those purposes must be explained in details and more specifically so that they can be measured more simply.
The next step is the identification of the problem-solving alternatives. When the target has been specified, the analyst should have an assumption about the cause of the problems along with the opportunities to solve them well. They are transformed into the regulation alternative to achieve certain purposes.
After the identification, you must pass through the search to analyze and interpret the information. Among all the steps, this one is considered the most difficult one. Well, the primary purpose is to predict the cost and benefits that have been identified in the previous step. The information is gained from the available data related to the costs and benefits from similar programs.
In the analysis, there must be an interpretation of risks and uncertainty. There is another analysis to conduct here; it is the sensitivity analysis. It refers to the procedure to test the sensitivity of conclusion toward the alternative assumptions regarding the probability. Moreover, the difference between the costs and benefits often happen here.
Next, you need to choose the criteria to make a decision. The criteria are focused on how you can make the best decision when there are 2 or more alternatives with differences in cost and benefit compositions. The criteria chosen have important ethical implications. It is because the criteria are based on different conceptions; they are morality and social fairness.
The last step in the analysis is creating a recommendation by choosing two or more alternatives. Sure, it doesn’t mean that all the problems are simply solved. There can be further problems occurred and if they are relevant, the solutions can be looked for through the cost and benefit analysis one more time. in this case, you can create another template or try to use the project cost analysis template.
The “Value of Money” Concept
In the cost and analysis cost, an analyst must be able to calculate the cost and benefit for some years at once, even in the future. It is due to the fact that the value of money can be different now and in the future. There are many factors of this and it is often influenced by the economic and social condition in the area. Sure, it means that the analyst must also be able to predict the problems probably happen in the future. This way, it is expected that the result tends to be more accurate.
The Methods to Use
Some methods are better to use in the cost and benefit analysis. Particularly in term of measuring the efficiency of the projects, there are some matters to determine. They are determining the costs and benefits from the project that will be conducted, determining each the cost and benefit in the form of money, and measuring each benefit and cost in the current value of money. There are some methods to analyst them’ they are Net Present Value Benefit (NPV), Internal Rate of Return (IRR), and the benefit-cost ratio (BCR).
NPV presents that the efficient project is a project in which the benefit is bigger than the cost needed. Meanwhile, IRR is a method that pays attention more to the value of time and money. The rate of interest is measured using it. a good analyst must be able to master all of the methods above.
The cost and benefit analysis is really beneficial as the guidance to help the analyst to know how much the level of efficiency needed. In other words, it really calculates whether the result is beneficial or not in term of money. Besides, the rational way of thinking is also needed here. To ease you more in doing the analysis, the cost benefit analysis template are good to be applied.