Cost Benefit Analysis Example
Dec 14, 2015
Cost Benefit Analysis
Example
Cost-Benefit Analysis
Cost of TrainingProjected Savings
Cost of Training
Costs of supervisors’ timeCosts of instructors’ timeCosts of teaching materialsCosts of classroom-use
Costs of Supervisors’ Time - $1,296,000
600 supervisors18 hours training per supervisorAverage supervisor costing rate is
$120/hour
600 x 18 x 120 = $1,296,000
Costs of Instructors’ Time
* Preparation time
* Classroom time
Cost of Instructors’ Preparation Time- $10, 800
3 hours preparation per hour of instruction 18 hours of instructionAverage costing rate per hour per
instructor = $200Calculations: 3 x 18 x 200 = $10, 800
Cost of Instructors’ Classroom Time - $72,000
600 supervisors divided by 30 supervisors/session = 20 sessions to teach
18 hours/sessionCosting rate of $200/ hour/instructorCalculations: 20 x 18 x $200 = $72,000
* $ 10,800 Preparation time
* $ 72,000 Classroom time
$ 82,800 Total
Total Costs of Instructors’ Time $82,800
Total time Costs - $1,378,800
$1,296,000 Supervisors’ time cost
$ 82,800 Instructors’ time costs
$1,378,800 Total
Direct Costs
Cost of teaching materialsOff-site training costs
– Classroom Rental– Meals, break items.
Costs of Teaching Materials - $2100.00
Handouts:50 copies/supervisor600 supervisors$0.03 per copyCalculations: 50 x 600 x $0.03 = $900
Other materials (Pens, notepad) = $1200
Total $2100
Off-site Training Costs
Classroom RentalMeals, soft drinks, and snacks.
Cost of Off-site Classes- Classroom Rental = $4000.00
Classroom Rental Cost20 sessions @ 2 days per session = 40 daysClassroom rental is $100/dayCalculations: 40 x $100 = $ 4000
Cost of Meals, etc. - $18,600
$15.00 per lunch includes cost of break items (coffee, soft drinks, snacks)
600 supervisors2 lunches per supervisorCalculations: $15 x 600 x 2 = $18,000 Instructors’ lunches 40 x $15= $600
Total $18,600
Off-site Training Costs- $22,600
$ 4,000 Classroom Rental$18,600 Meals, soft drinks, and snacks.$22,600 Total
Total Direct Costs = $24,700.00
$ 2,100.00 Total cost of teaching materials
$22,600.00 Total off-site costs
$24,700.00 Total direct training costs
Total Costs - $1,401,400
$1,296,000 Total supervisors’ time costs
$82,800 Total instructors’ time
$24,700 Total direct costs
$1,402,500 Total cost of training
Estimated Cost Savings
$18.7014.9 12.7 11.4
6.2
3.72.2
1.3
6.29.9 12.1
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
$30.00
Nextyear @
25%
2nd year@ 20%
3rd year@ 15%
4th year@ 10%
In M
illi
ons
of d
olla
rs
Projected savingscarried overProjected savings
Projected costs
Benefits-to-Costs Ratios
6.21.44.4
10.1
0.14
71.8
12.2
0.14
87.96
13.5
0.14
97.1
01020
3040
5060
7080
90100
1st Year 2nd Year 3rd Year 4th Year
Savings in $millionsCosts in $millionsBenefit/cost Ratios
An Investment of $1.82 Million in the First Four Years Yields
$41.9 Million Return
1.82
41.9
0
5
10
15
20
25
30
35
40
45
First Four Years
Total CostsNet Savings
Benefit-Cost Ratio= 23 to 1
($41.9 M/$1.82M)
Objective of Proposal
Request authorization for:$ 24,700 in direct costs$1,378,800 in time costs$1,403,500 total cost