In this article, we will demonstrate how to use the cost-benefit analysis calculator in Excel. Cost-benefit analysis is a very important term in the business analysis perspective. It assists us in selecting a single option among many others. We will use Microsoft 365 to do all these.
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What is Cost Benefit Analysis
A cost-benefit analysis is the process we use to measure the benefits of a decision or taking action minus the costs associated with taking that action. The outcome of the analysis will determine whether the project is financially feasible or if the company should pursue another project. There are two basic formulas for Cost Benefit Analysis. The first one is Benefit-Cost Ratio which looks like below:
Benefit-Cost Ratio = ∑PV of all the Expected Benefits / ∑PV of all the Associated Costs
The another one is Net Present Value(NPV) and is formulated like below:
2 Suitable Methods for Cost Benefit Analysis in Excel
In order to illustrate, we will use a sample dataset. For instance, the following dataset represents the costs of the project of a company. The company will check whether the project is feasible. The company will perform Cost Benefit Analysis and only then take the final decision.
Method 1: Applying Benefit-Cost Ratio to Perform Cost Benefit Analysis
We can use Benefit-Cost Ratio to do cost benefit analysis of a single or multiple projects. The higher the ratio, the higher the possibility that the company will accept that project. We will perform this on the above dataset. You can follow the steps below to do it yourself.
- At first, we will find the sum of total costs by the SUM function. We write the following formula at
- Next, we hit ENTER and get the Total Costs.
- After that,we perform the same thing to find Total Benefit as well.
- Finally, we apply the Division operation to the C13 We will divide the F10(Total benefit) by C11(Total costs) and get the Benefit-Cost Ratio for the project.
- The Benefit-Cost Ratio for this project is 1.13 which implies the project is feasible.
Read More: How to Create Opportunity Cost Calculator in Excel
Method 2:Using Net Present Value for Cost Benefit Analysis
Another way to perform Cost Benefit analysis is evaluating Net Present Value(NPV) of that project. In the following section we will evaluate NPV for the dataset.
- Initially,we will find Total Costs and Benefits of the project as before.
- After that, we Subtract F10(Total costs) from C11(Total Benefits).
- Lastly, we hit ENTER and get the result.
- The project will make a benefit of $4000.
Read More: How to Calculate Production Cost in Excel (3 Effective Ways)
We have discussed the ways to calculate Cost Benefit Analysis calculator in Excel in the above sections. Hope this will be very helpful for you. Let us know your views and recommendations in the comment section. Have a good day.
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