Cost Benefit Analysis
A cost benefit analysis can be either a stand-alone document or an integral portion of a much more comprehensive document like a business case. The basic intent is to cost out the available options and then evaluate them with a perspective of the cost and the benefit of each alternative.
Note that some ministries may have their own approved cost benefit analysis processes and/or template; refer to the ministry links found on the Plan webpage or contact the ministry's Procurement Specialist.
A cost benefit analysis is required for service contracts of >$100,000 (as stated in the Core Policy and Procedures Manual, section 184.108.40.206), and is created prior to taking steps to find a contractor. The needs assessment, feasibility study and cost estimate processes are helpful to complete in advance of the cost benefit analysis.
If the contract is a continuation of similar services and is not the result of exercising an option to renew, the Core Policy and Procedures Manual (section 220.127.116.11) states that the ministry may rely upon the original cost/benefit justification if the requirements have not changed. If changes are needed, the ministry should update the original cost benefit analysis or develop a new one.
The following seven-step process will produce a reasonably comprehensive cost benefit analysis:
- Consider all possible quantitative costs and benefits.
- List all unique qualitative costs and benefits.
- Ensure the time period is appropriate - consider expected project life span.
- Convert, as best as possible, non-quantifiable considerations to quantifiable ones.
- Describe all the assumptions clearly.
- Apply the assumptions to each option / alternative.
- Use benchmarks and other reasonably accurate figures from prior experiences.
If any of these steps are unclear or difficult to implement for a specific contract, refer to the preceding processes (i.e. needs assessment, feasibility study and cost estimate) or contact the ministry's Procurement Specialist for assistance.
The following corporate templates have been established to assist ministries with this process:
- Cost Benefit Summary Template
- Cost Benefit Viable Alternatives Template
- Cost Benefit for Client Implications (Non-Quantitative) Template
- Cost Benefit Justification
The Cost Benefit Justification template has been created to help profile standard types of issues when a ministry has no option but to contract. The object of the template is to help with creating documentation and justifications for contracting that satisfies the core policy.
Ministries who do not have their own templates (refer to the ministry links in the Plan webpage ) should adapt these templates to suit their unique needs, or may use other formats. Note that not all templates are necessarily required for every cost benefit analysis.