Cost-Benefit Analysis for MBA Business Capstone Projects
Cost-benefit analysis (CBA) is a method used to evaluate the financial feasibility of a project or business decision. It compares the expected costs of implementing a strategy with the anticipated benefits, helping decision-makers assess whether the benefits outweigh the costs.
4.1 Steps for Performing a Cost-Benefit Analysis
- Identify Costs: List all direct and indirect costs associated with the project or decision. These can include capital investment, operational costs, and potential risks.
- Estimate Benefits: Quantify the potential benefits, such as increased revenue, market share, or cost savings. Where possible, assign a monetary value to these benefits.
- Compare Costs and Benefits: Subtract the total costs from the total benefits to determine whether the project or decision will result in a net gain or loss.
- Consider Intangible Factors: In some cases, the benefits of a project (e.g., brand reputation or customer loyalty) might not be easily quantifiable. Consider these factors in your analysis.
4.2 Example of Cost-Benefit Analysis
- Project: Launching a new product line
- Costs: Product development, marketing, manufacturing, distribution
- Benefits: Additional revenue, market share growth, brand positioning
4.3 Interpreting the Results
- Net Present Value (NPV): If the benefits outweigh the costs, calculate the NPV to assess the profitability of the decision over time.
- Break-even Analysis: Calculate when the company will start seeing a return on investment (ROI) after costs are covered.
