What criteria should you consider when performing a cost-benefit analysis for engineering projects?

1 Define the scope and objectives

The first step in any CBA is to define the scope and objectives of the project. You need to identify the problem that you want to solve, the stakeholders that are involved or affected, the alternatives that are available or feasible, and the time horizon that you want to consider. You also need to establish the criteria that you will use to evaluate the costs and benefits of each alternative, such as technical, economic, social, environmental, or ethical factors. By defining the scope and objectives clearly, you can avoid ambiguity and confusion in the later stages of the analysis.

2 Estimate the costs and benefits

The next step is to estimate the costs and benefits of each alternative. Costs are the resources that are required or consumed by the project, such as money, time, labor, materials, or energy. Benefits are the outcomes that are generated or improved by the project, such as revenue, quality, performance, safety, or satisfaction. You need to identify and quantify all the relevant costs and benefits that are associated with each alternative, and express them in a common unit of measurement, such as dollars or hours. You also need to account for inflation, discounting, risk, uncertainty, and sensitivity in your estimates, as these factors can affect the present and future value of your costs and benefits.

3 Compare the alternatives

The third step is to compare the alternatives based on their costs and benefits. There are different methods that you can use to do this, such as net present value (NPV), benefit-cost ratio (BCR), internal rate of return (IRR), or payback period (PP). These methods help you calculate the net value or return of each alternative, and rank them according to their profitability or efficiency. You need to choose the method that best suits your project objectives and criteria, and apply it consistently and transparently. You also need to consider the trade-offs and limitations of each method, and check the validity and reliability of your results.

4 Communicate the results

The final step is to communicate the results of your CBA to the relevant stakeholders. You need to present your findings and recommendations in a clear and concise manner, using tables, graphs, charts, or other visual aids. You need to explain the assumptions, methods, data sources, and uncertainties that underlie your analysis, and highlight the strengths and weaknesses of each alternative. You also need to address any questions, feedback, or objections that may arise from your audience, and justify your conclusions with evidence and logic. By communicating the results effectively, you can persuade and influence the decision-makers and stakeholders to accept and implement your preferred alternative.

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?