A benefit/cost analysis may be as simple as a ratio quickly scribbled on the back of an envelope; it may be as complicated as a mathematical model built on a mainframe computer which no single person understands in its entirety. The model presented here is a fairly simple one, but it includes most of the elements to permit the analyst to expand it into as confusing and complex a model as one could want. The one element which has been excluded is discounting; more about that later.
The data for a benefit/cost analysis are entirely user-generated and are usually unique to each project. The analyst will need to construct the following tables (the dots [...] indicate user-supplied data):
EVALUATION MEASURES Msr.1 Msr.2 Msr.3 Msr.4 Project 1 ..... ..... ..... ..... PROGRAM Project 2 ..... ..... ..... ..... ALTERNATE Project 3 ..... ..... ..... ..... Project 4 ..... ..... ..... ..... TABLE OF IMPACTS WGTS FOR EVAL MSRS COSTS FOR PROGRAMS MSR WGT PROGRAM COST Msr. 1 ..... Project 1 ..... Msr. 2 ..... Project 2 ..... Msr. 3 ..... Project 3 ..... Msr. 4 ..... Project 4 ..... TOTAL BUDGET = .....
The terms used in these tables are:
SUMMARY OF COSTS AND BENEFITS WEIGHTED NO. OF WEIGHTED EFFECT/ PROGRAM UNIT UNITS IN PROGRAM COST ALTERNATE EFFECT BUDGET EFFECT RATIO 1 0 xxxx xxxx xxxx 2 0 xxxx xxxx xxxx 3 0 xxxx xxxx xxxx 4 0 xxxx xxxx xxxx
The template does not include a procedure for discounting the costs and impacts of a program. While this is a slightly more advanced procedure, it is easily modeled on a spreadsheet. The analyst might construct two additional tables to the side or below the model provided. One table would be used to calculate the total discounted costs, the other to calculate total discounted benefits. The tables should be designed to calculate the present value of future benefits using the formula already provided. The bottom line of each table should total the benefits (or costs) and that figure entered into the appropriate line of the effectiveness/cost model.