How do I use cost-benefit analysis in Profit.co?

Profit.co provides integrated Cost-Benefit Analysis (CBA) as part of its Strategic Portfolio Management (SPM) capabilities, positioning organizations beyond traditional project management into comprehensive financial planning.

What are the profile picture requirements in Profit.co?

Cost-Benefit Analysis is a systematic financial evaluation method that compares total expected costs against projected benefits to determine a project's financial viability and overall value. In project management, CBA involves thoroughly examining all aspects of a decision, assessing the advantages and disadvantages of various courses of action, whether launching new products, implementing technology, or adopting sustainability measures.

At its core, CBA assigns monetary values to both costs and anticipated benefits, enabling organizations to determine whether a proposed action will deliver sufficient returns to justify the investment.

Costs and benefits occur at different times - A project may require 18 months of investment (cost plan period), but benefits might begin flowing from month 13 and continue for 30-40 months (benefit plan period)

What is Cost-Benefit Analysis in Project Management?

In project management, CBA is the strategic process of comparing total expected costs against projected benefits to determine a project's financial viability and overall value. It goes beyond simple profitability calculations to consider:

What are the key components of Cost-Benefit Analysis?

Cost-Benefit Analysis consists of three primary elements: costs, benefits, and financial metrics that measure project viability.

Cost Type	Category	Examples
One-Time Costs	CAPEX-focused	Initial capital investment, implementation expenses, equipment and infrastructure, training, and change management
Recurring Costs	OPEX-focused	Operational expenses, maintenance and support, ongoing resource allocation, utilities, and overhead

Benefit Elements

Benefit Type	Impact	Examples
One-Time Benefits	Single-occurrence gains	Immediate cost savings, asset value creation, competitive advantages gained
Recurring Benefits	Ongoing returns	Revenue generation, efficiency improvements, risk reduction value, customer retention improvements

How do I configure Cost-Benefit Analysis for a project in Profit.co?

Follow these steps to set up a comprehensive CBA for your budget-enabled project:

Step 1: Enable Cost-Benefit Analysis

• Navigate to Settings → Portfolios and Projects → Project from the left navigation panel.
• Switch to the Financial tab
• Under Financials, enable Cost-Benefit Analysis (CBA)

Note: If you want to add custom cost and benefit types beyond the default options, you can create them in Settings → Portfolios and Projects → Project → Financial tab before configuring your project CBA. 

Step 2: Navigate to Your Project

• Go to the Project page
• Select the project where you want to add CBA

• On the project overview page, switch to the Cost-Benefit Analysis tab

Note: The CBA tab only appears for:

• Billable projects
• Projects with budget values defined

Step 4: Configure Financial Parameters

Once you access the CBA tab, configure the following parameters:

A. Hurdle Rate

• Set the minimum acceptable rate of return (e.g., 15%)
• Acts as approval baseline for investment committees
• Example: If you set 15%, the project must deliver at least 15% returns

B. Capitalization Percentage

• Specify what percentage of investment will be capitalized as an asset
• Example: Investing $1 million, capitalizing $800,000 = 80% capitalization

C. Cost Plan Period

• Cost Plan Start Date: When investment begins
• Cost Plan End Date: When the investment ends
• Typically aligns with your project duration (e.g., 12-18 months)

D. Benefit Plan Period

• Benefit Plan Start Date: When you expect benefits to begin (can start during project execution, e.g., month 13)
• Benefit Plan End Date: How long benefits continue (e.g., 30-40 months)

E. Amortization Schedule

• A systematic expense recognition of capitalized project costs over their useful life
• Choose Monthly or Yearly amortization
• Click Schedule to activate the CBA framework

Step 5: Input Time-Phased Costs and Benefits

After scheduling, the CBA framework opens with input fields:

Enter benefits across the benefit plan horizon, showing when returns begin and how they accumulate over time.

Note: Once a CBA project is approved, it is locked to prevent edits, and the project owner can request an unlock to make changes and resubmit it for approval.

Step 6: Review Financial Analysis

Once costs and benefits are entered, Profit PPM automatically calculates:

Summary Metrics:

• Total Investment: Complete project cost
• Total Expected Benefits: Cumulative returns over the benefit period
• Net Benefit: Total benefits minus total costs
• Net Impact: Overall project value

Financial Performance Indicators:

• IRR (Internal Rate of Return): Actual return rate vs. hurdle rate
  • Example: If hurdle rate = 15% and IRR = 30%,project delivers double the minimum acceptable return and qualifies for approval
• Capitalization Schedule: How investment is capitalized
• Amortization Timeline: How expenses are distributed over time
• Net Run Rate: Subsidized investment calculations

Visual Dashboards:

• Time-phased cost breakdown
• Benefit realization timeline
• Capitalization vs. amortization comparison
• ROI trajectory

Step 7: Download and Present

Download your complete CBA analysis in CSV or PDF format to support decision-making and stakeholder communication.

Export Options:

• CSV Format: Download detailed data including all time-phased costs, benefits, and financial calculations for further analysis in Excel or other financial tools

• PDF Format: Generate presentation-ready reports for board meetings, investment committees, and executive stakeholders

Best Practices for Effective CBA

1. Be Comprehensive Yet Realistic

Include all relevant costs and benefits, but avoid inflating projections. Structured cost optimization isn't just about slashing expenses. It's about making distinct, deliberate choices: reducing spend where it doesn't drive value, optimizing enterprise performance, and still investing in the capabilities that fuel long-term growth

2. Plan for Scenarios

Run multiple analyses with optimistic, realistic, and pessimistic assumptions to understand risk exposure.

3. Distinguish CapEx from OpEx

Understanding whether investments hit balance sheets (CapEx) or P&L statements (OpEx) is crucial for CFO decision-making and financial reporting.

4. Monitor and Update

CBA isn't one-and-done. Track actual costs and benefits against projections, refining future analyses based on real performance data.

Related Questions

Learn How to Use Cost Control Strategies: Best Practices for Managing and Reducing Business Expenses. Click Here

Frequently Asked Questions