Fundamentals for Project Initiation

Cost Benefit Analysis

The process of adding up the expected value of a project—the benefits—and comparing them to the dollar costs.

  • Establish project goals
  • Create the scope
  • Provide deliverables
  • Define success criteria


  • Minimize risks and maximize gains for projects
  • Reduce biases and keep stakeholder self-interest from influencing decisions
  • Help you make a strong business case

Guiding questions

To determine the benefits of a project, you might ask:

  • What value will this project create?
  • How much money could this project save our organization?
  • How much money will it bring in from existing customers?
  • How much time will it save?
  • How will it improve the customer experience?

And to determine the costs of a project, consider questions such as:

  • How much time will people have to spend on this project?
  • What are the one-time costs?
  • Are there any ongoing costs?
  • What about long-term costs?

You might also consider questions about intangible benefits. These are gains that are not quantifiable, such as:

  • Customer satisfaction. Will the project increase customer retention, causing them to spend more on the company's products or services?
  • Employee satisfaction. Is the project likely to improve employee morale, reducing turnover?
  • Employee productivity. Will the project reduce employee's overtime hours, saving the company money?
  • Brand perception. Is the project likely to improve the company's brand perception and recognition, attracting more customers or providing a competitive advantage?

Calculating costs and benefits


In this formula, G represents the financial gains you expect from the project, and C represents the upfront and ongoing costs of your investment in the project.

For example, imagine your project costs $6,000 up front plus $25 per month for 12 months. This equals $300 per year, but you estimate that the project will bring in $10,000 in revenue over the course of that year. Using the formula above, you calculate the ROI as: ($10,000 - $6,300) ÷ $6,300 = 0.58 = 58%