Management Tip of the Day: Know the 6 Steps in Cost/Benefit Analysis

Are you having trouble viewing this email? If so, click here to see it in a web browser. HOME   |   BLOGS   |   THE MAGAZINE   |   BOOKS   |   AUTHORS   |   STORE RSS   |   Mobile JUNE 20, 2011 Know the 6 Steps in Cost/Benefit Analysis We all know we should make an investment when the benefits outweigh the costs, but few people understand what really goes into the analysis. Here are the six steps: Understand the cost of status quo. You need this to measure the relative merit of an investment against the "do nothing" option. Identify costs. Consider up-front costs as well as any in future years. Identify benefits. Ascertain what additional revenue will come in from the investment. Determine the cost savings. What can you stop doing if you make this investment? Create a timeline for expected costs and revenue. Map out when the costs and benefits will occur and how much they will be. Evaluate non-quantifiable benefits and costs. Assess whether there are intangible benefits such as strengthening your firm's position with distributors, or costs such as creating unnecessary complexity. Today's Management Tip was adapted from "Guide to Finance Basics for Managers." Buy the full guide to learn more about crunching the numbers » Share Today's Tip: FEATURED PRODUCT Mastering Business Fundamentals: A Harvard ManageMentor Skill Pack Harvard ManageMentor This interactive, online skill pack is designed specifically to give you the advice and hands-on tools you need to be successful. It includes four modules on Finance Essentials, Budgeting, Marketing Essentials, and Negotiating to help you be more effective in dealing with the challenges you face every day. Save more than 35% off the individual component modules when you purchase this specially-priced set. One-year single user license. ADVERTISEMENT Follow the Tip: PREVIOUS TIPS You Can Prevent Silo Thinking Use Constraint to Instigate Innovation Prepare Your Speech, but Be Ready to Change It 3 Rules for Making Your Writing Clear Look Beyond the Financials Don't Mix Business with Pleasure Share a Hypothesis Instead of a Directive Treat Every Task as Three Steps, Not One 3 Rules for Choosing the Right IT Vendor Avoid 3 Traps of Performance Management BEST SELLERS HBR's 10 Must Reads: The Essentials HBR's Must Reads Library Set Guide to Persuasive Presentations Guide to Better Business Writing Guide to Getting the Right Work Done Free HBR Interactive issue Download the iPad app HBR Reads, and get your issue with audio and video interviews and multimedia slideshows. Learn more » UNSUBSCRIBE   |   UPDATE YOUR PROFILE   |   MORE EMAIL NEWSLETTERS   |   PRIVACY POLICY Was this email forwarded to you? If so, sign up to start receiving your own copy. ABOUT THIS MAILING LIST You have received this message because you subscribed to the "Management Tip of the Day" email newsletter from Harvard Business Review. If at any point you wish to remove yourself from this list, change your email address, or sign up for other email newsletters and alerts, please visit the Harvard Business Review Email Newsletter Preference Center. OPT OUT If you do not wish to receive any email messages from Harvard Business Review, click here. ADVERTISE WITH HBR This enewsletter is read by thousands of decision makers every day. Learn more about connecting your brand with this audience. Copyright © 2011 Harvard Business School Publishing, an affiliate of Harvard Business School. All rights reserved. Harvard Business Publishing | 60 Harvard Way | Boston, MA 02163 Customer Service: 800-545-7685 (+1-617-783-7600 outside the U.S. and Canada)