There is a difference between expenditure and investment. We spend to get what we need, but we invest to realize a return on the investment. Building a computer-based system is an investment. Costs are incurred throughout life cycle. Benefits are realized in the form of reduced operating costs, improved corporate image, staff efficiency, or revenues. To what extent benefits outweigh costs is the function of cost/benefit analysis.
Cost/benefit analysis is a procedure that gives a picture of the various costs, benefits, and rules associated with a system. The determination of costs and benefits entails the following steps:
1. Identify the costs and benefits pertaining to a given project.
2. Categorize the various costs and benefits for analysis.
3. Select a method of evaluation.
4. Interpret the results of the analysis.
5. Take action.
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