Cost Benefit Analysis

By Dmytrenko, April L. | Records Management Quarterly, January 1997 | Go to article overview

Cost Benefit Analysis


Dmytrenko, April L., Records Management Quarterly


Today's Records and Information Management (RIM) professionals must be proficient in all aspects of business management as organizations seek to cut costs, improve productivity, and justify every aspect of their operations. Conducting a cost benefit analysis is the most strategic way to support these business decisions. It is a process that should be aggressively employed, and if done correctly makes its case on its own.

WHAT IS COST BENEFIT ANALYSIS?

A Cost Benefit Analysis (CBA) is the analysis of an opportunity to demonstrate the benefits in cost saving in order to receive management commitment and support to implement. Of course, the most important part of that definition is the management commitment. Getting this commitment requires that RIM professionals are skilled in conducting and presenting a CBA.

What types of opportunities should require a CBA? Usually the big ticket equipment purchases are thought to be the main type of opportunities. Certainly recommending the purchase of a new computer, microfilm camera, or mobile shelving system requires a thorough, documented justification. Today, however, CBA is being used for a wider range of opportunities, which are no longer limited to the purchase of high priced equipment.

Generally, the change in business climate over the past five-plus years has resulted in an increased focus on an organization's bottom-line. This has affected business decision making, requiring CBA to be utilized for all major purchases, expansions, organizational changes, etc. The types of CBA opportunities can include:

* Adding staff

* Introducing technologies

* Purchasing equipment

* Upgrading existing software and/or hardware

* Outsourcing or bringing service(s) in-house

* Changing vendors

* Modifying workflow

* Implementing (new) procedures

* Remodeling facilities

* Relocating offices or a function.

CBA JUSTIFICATION

CBA justification can be organized into hard and soft dollar savings and cost avoidance. CBAs have the potential of including any one or all of these, and all should be addressed in the CBA Report. Following are explanations and examples of each:

Hard dollar savings are quantitative and easy to calculate. They represent actual savings that the opportunity will realize. Hard dollar savings include reduction or elimination of existing expenses such as for staff or supplies. Example:

* CBA Opportunity: Outsourcing an in-house microfilm operation

* Opportunity Background: RIM provides microfilm services. This currently includes four Microfilm Clerks and in-house microfilming, processing, duplicating, and quality control. All of the equipment is over ten years old and requires regular repair.

* Hard Dollar Savings: Elimination of in-house microfilm staff and microfilm supplies.

Hard dollar savings are easy to quantify and are broadly accepted. If they positively support a CBA opportunity, they provide the strongest case for justification.

Soft dollar savings are qualitative and less tangible to calculate. They represent savings that cannot be recouped. Soft dollar savings include saving management time, or freeing up records center space; both result in a benefit, but the expense still continues. Example:

* CBA Opportunity: Automating a records management operation

* Opportunity Background: The Records Department is currently a manual operation. The Records Manager spends approximately ten hours per month tracking and calculating operational statistics and preparing records management reports.

* Soft Dollar Savings: Reduction in management hours in support of management reports.

In the above example, the reduction is in management time (soft savings) not in management staff (hard savings). This soft dollar saving will gain back time which can now be applied to other management tasks.

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