What is a cost benefit analysis and how is it calculated in Excel? – Get to know him here

To choose everyday things in life, such as having lunch, we do a cost benefit analysis, although it is not a precise numerical calculation, we do it with the aim of making the best decision in terms of food quality, price, service among others.

In this article we will know a little more about said cost analysis and a plus we will teach you how to calculate in Excel and this content complements the one we did recently on how to keep track of credit card payments.

What is a cost benefit analysis?

This process includes a comparison between the expected expenses and the benefits of one or more actions, so that the most profitable option can be selected. This process is a reasoning based on achieving the best results with the least effort, both in a technical way with human motivation. A type of calculation or similar example that we can cite is the case of familiar prepositions that can also be carried out in Excel.

If we want to determine the viability of a project, the cost and benefit analysis is very important so that you can make the best decision for any company, organization or institution, as this will help you evaluate whether the project is worth it. This analysis is not only done at the start of a project but also during the project.

an accountant doing the necessary calculations for a cost analysis

As the projects are divided into blocks, at the end of each one of them an analysis is made to verify that the objectives have been met and to see if the best option was really chosen in terms of it or if any adjustments have to be made. You may also be interested in learning a similar topic, which is to calculate the gross and net profit margin in production processes.

How do you calculate a cost benefit analysis in Excel?

For this analysis we must take into account the following : identify the collections and payments that are handled in the market, transfer corrections where the fiscal nature is taken into account and public transfers the external costs and benefits, although it may be difficult to know what the cost is. monetary value of the project, shadow prices these are known as the labor of determined salaries.

man doing cost benefit calculations

Also the so-called “discount rate”, in this step is the moment where we will check if the project is profitable or not, since not all products give economic benefits at the same rate, it is called final valuation to the comparison of investments, homogenizing the cash flows of all of them before making a decision.

Making the cost benefit calculation in Excel very easy

To calculate it in Excel, we open our spreadsheet and make a table where we will place the investment amount and the discount rate, then we make a table with the cash flow, in which the period, investment, income and expenses. We must fill these tables, with the figures of the periods to evaluate the income and expenses.

Then we must make a table of results at the bottom to calculate them, the first value to calculate is the sum of the income applying the NPV, we do this by clicking on said table, we go to formulas we look for the NPV, a Once we have it, when we select it, another box will appear where there are three cells in the first one, we must place the value of “the discount rate”,

In the second we place the sum of the income, and with this we already have the NPV or NPV of the income, then we do the same procedure for the sum of the income, once ready we go to the investment costs that is obtained by adding the expenses plus investment. Then we are ready to calculate our cost benefit and you will have learned one of many tricks in Excel.

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