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 lunch, we do a cost benefit analysis, although it is not a precise numerical calculation, we do it with the aim of make the best decision in terms of quality of food, 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 anticipated expenses and the benefits of one or more actions, so that you can select the most profitable option. This process is a reasoning based on achieving the best results at 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 family prepositions that can also be carried out in Excel.

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If we want determine the feasibility 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 assess whether the project is worth it, so this analysis is not only done at the beginning a project but also during the project.

an accountant doing the necessary calculations for a cost analysis

How projects are divided into blocks, at the end of each of them An analysis is carried out 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 keep the following in mind: 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 monetary value of the project is, shadow prices these are known as the set wage labor force.

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, the final valuation is called 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 should be. We must fill these tables, with the figures of the periods to evaluate the income and expenses.

Then we must make a results chart In the lower part to calculate them, the first value to calculate is the sum of the income applying the NPV, we do this by clicking on said box, we go to formulas we look for the NPV, once we have it when selecting it we 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 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 the 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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