Cost-Benefit Analysis
PROConduct rigorous cost-benefit analyses with NPV, ROI, IRR calculations, sensitivity testing, and intangible valuation for investment and strategic decisions.
Example Usage
“We’re deciding whether to build a custom inventory management system ($200k development, $30k/year maintenance) or use NetSuite ($45k/year subscription). Our current manual process costs us $80k/year in labor. Use a 5-year horizon with 8% discount rate. Calculate NPV and ROI for both options, include training costs ($15k for custom, $5k for NetSuite), and recommend the best path with sensitivity analysis if implementation takes 6 months longer than planned.”
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Suggested Customization
| Description | Default | Your Value |
|---|---|---|
| Number of years for the analysis projection | 5 | |
| Annual discount rate for present value calculations | 0.07 | |
| Currency for all monetary values | USD | |
| Whether to monetize soft benefits like morale and brand | true | |
| Percentage variation for sensitivity analysis (+/- 20%) | 0.20 | |
| Corporate tax rate for post-tax ROI calculations | 0.0 |
Research Sources
This skill was built using research from these authoritative sources:
- OMB Circular A-94 Guidelines Official US government guide establishing standard discount rates and benefit-cost procedures
- HM Treasury Green Book UK government guidance on appraisal and valuing non-market impacts
- The Cost-Benefit Fallacy (arXiv) Academic paper on forecasting errors in CBA and reference class forecasting
- Galorath Guide to CBA Industry guide on practical CBA steps and BCR calculation
- Investopedia Cost-Benefit Analysis Clear overview of definitions, formulas, and methodology limitations
- Transport CBA Python Library Open-source implementation demonstrating algorithmic CBA logic
- Tempo Cost-Benefit Guide Practical business perspective on conducting CBA for projects