Calculating costs and benefits

The process of calculating costs and benefits is also called calculating return on investment, or ROI. There are many ways to determine a project’s ROI, but the easiest way is to compare the upfront and ongoing costs to its benefits over time.

One common ROI formula is:

In this formula, G represents the financial gains you expect from the project, and C represents the upfront and ongoing costs of your investment in the project.

For example, imagine your project costs $6,000 up front plus $25 per month for 12 months. This equals $300 per year, but you estimate that the project will bring in $10,000 in revenue over the course of that year. Using the formula above, you calculate the ROI as: ($10,000 – $6,300) ÷ $6,300 = 0.58 = 58%

The ROI comes to 0.58, or 58%. You consider this to be a strong ROI, so you decide to pursue the project.

Performing a cost-benefit analysis can help you and your stakeholders determine if it makes sense to take on a new project by evaluating if its benefits outweigh its costs. When conducting cost-benefit analyses for your prospective projects, you can use the guiding questions and ROI formula provided in this reading as a reference. 

To learn more about performing a cost-benefit analysis, check out these articles: