Cost Benefit Analysis
to conduct an information management cost benefit analysis or
feasibility study and want practical suggestions to ensure rapid
The objective of a feasibility study or cost benefit analysis is to describe
the information management requirement or opportunity in clear,
technology independent terms that all stakeholders can agree upon.
Opportunities or requirements may be driven by regulatory requirements
e.g. the need to develop an anti-money laundering system to meet USA
Patriot Act requirements, or by other business requirements e.g. the
need to improve processing performance or expand business intelligence
What is a cost benefit analysis?
Important information management decisions are primarily based on answers to the following:
Financial analysis is an evolving process. It starts with rough
estimates early in the project planning, or business case analysis
phase and become progressively more refined during requirements
analysis and architecture and design.
- How much will it cost? and
- Do the benefits out weigh the cost?
The objective is to provide management and technical teams with
adequate information for analyzing and evaluating solution alternatives.
The document is used by management in conjunction with the feasibility
study to make decisions about initiating a project as well as
recommending continuing, of terminating, a project.
How is a cost benefit analysis used?
It helps management:
What does management look for?
- Decide which feasible alternative is preferred to meet management objectives;
- Determine a baseline for measuring if a system is meeting performance objectives; and
- Plan, budget and allocate resources among many projects.
Some items that help management include:
What are some other management considerations?
- Documented production support costs;
- Continued technical or vendor support for existing hardware or software;
- Ease of use of existing system compared to ease of use of proposed solution;
- Capacity of existing and proposed solution to meet current and planned service level requirements;
Management needs to develop and maintain list of calculations,
assumptions, cost and benefits and source of this information as a
basis for future evaluation reviews.
Cost Benefit Analysis Checklist
Identify the origin of the request e.g. describe what precipitated this project request.
Provide the objectives to the feasibility study in clear measurable terms.
an explanation of the requirement e.g. describe the requirement in
technology-independent terms. State the specific deviations from the
desired situation, the cause, and the trigger for the new requirement
Describe any new information needs associated with the new requirement.
Validate the description of the opportunity with all stakeholders and impacted organizations.
Identify all organizational units, both internal and external, that will be impacted by the new opportunity.
Provide a glossary of terms and abbreviations.
Provide a description of the criteria that will be used to judge each alternative.
Provide a description of each proposed alternative including:
Provide at least two alternatives, even if one alternative is a "Do Nothing" alternative.
- Resources required;
- Risk involved;
- Impact on enterprise information architecture;
- Impact on technology or technology involved;
Describe the anticipated benefits of each alternative.
Provide a systematic comparison of the alternatives and list all potential implementation issues and risks.
Provide a supporting narrative describing the recommended alternative.
Ensure that the recommended alternative is not too "risky" in terms of new technology or culture change.
The objective of a feasibility study is to
describe the information management requirement or opportunity in
clear, technology independent terms that all stakeholders can agree
The objective of cost benefit analysis is to provide management and
technical teams with adequate information for analyzing and evaluating
Both of of these documents should be completed as part of an information management business case analysis.