More Costs

Floor Space

Will the machine fit in the same space currently occupied by the three workers?

Installation

What will it cost to remove the manual stampers and install the new machine? Will you have to cut a hole in a wall to get it in or will it fit through the door? Will you need special rollers or machinists with special skills to install it?

Operator?

Somebody has to operate the machine. Does this person need special training? What will the operator's salary, including overhead, cost?

* Environment

Will the new machine be so noisy that you have to build soundproofing around it? Will the new machine increase the insurance premiums for the company?

Accurate Cost Benefit Analysis

Once you have collected ALL the positive and negative factors and have quantified them you can put them together into an accurate cost benefit analysis.

Some people like to total up all the positive factors (benefits), total up all the negative factors (costs), and find the difference between the two. I prefer to group the factors together. It makes it easier for you, and for anyone reviewing your work, to see that you have include all the factors on both sides of the issues that make up the cost benefit analysis. For the example above, our cost benefit analysis might look something like this:

Cost Benefit Analysis - Purchase of New Stamping Machine

(Costs shown are per month and amortized over four years)

Purchase of Machine .................... -$20,000

includes interest and taxes

Installation of Machine ..................... -3,125

including screens & removal of existing stampers

Increased Revenue .......................... 27,520

net value of additional 100 units per hour, 1 shift/day, 5 days/week

Quality Increase Revenue ..................... 358

calculated at 75% of current reject rate

Reduced material costs ...................... 1,128

purchase of bulk supply reduces cost by $0.82 per hundred

Reduced Labor Costs ....................... 18,585

3 operators...