One tool that is commonly used by business executives is a cost vs. benefit analysis (CBA) for new initiatives and investments. Yet I find that some entrepreneurs use a less formal approach to making decisions about their business. While I’m all for using your intuition and taking risks, there is true benefit to determining the actual cost and comparing it to the expected benefits of a project, new product launch, etc.

What is a cost vs. benefit analysis?

Simply put, a cost/benefit analysis calculates the expected cost of implementing a new initiative (a technology, event, product, new policy, etc.) and weighs it against the expected benefits the initiative will result in. A CBA uses both quantitative and qualitative information to determine if the benefit outweighs the initial and ongoing cost of a project. While CBA is usually done for financial questions, I find that it can be helpful for many decisions I need to to take in my business.

Why might I need to show the cost vs. benefit of a new initiative?

*You want to decide whether to launch a new product or service.
*You are trying to get funding from investors or creditors.
*You want to show the value of a product or service to a potential client.
*You want to determine if a new project is sustainable for your organization.
*You are thinking about implementing a new technology system that can automate some of your work.

Assessing an initiative by using CBA as a tool is a great way to bring structure to the way you make business decisions. It can be very important for entrepreneurs who have a track record of casually investing their money or time into things that don’t serve their organization in the long run.

Conducting a simple CBA

I. To conduct a CBA, you first determine all of the expected benefits (both financial and non-financial) of your new initiative. This includes things like:

*Expected income: how will the initiative bring in new or increased revenue?
*Reduction in costs: where will you actually spend less money because of the initiative?
*Decrease in time you’ll spend on related activities: what is the cost of your time or your staff’s time?
*Improvement to your customer offerings: what is that worth to the client? Will you retain clients longer or obtain new clients?

II. Next, you determine the expected costs. Costs include:
*Financial cost: How much the initiative will cost – both initially and over time?
*Time: Will it take time and/or resources to implement?
*Training: Will you, your staff or your clients need training?

If you need a more in-depth analysis, you may want to consider calculating the pay-back period. This is the amount of time it will take to recover your initial cost. For example, if you invest in a new technology that costs $20,000 up front and saves you $5000 annually, then your pay-back period is 4 years. At this point, you want to be sure that the new technology you’re investing in will benefit you for more than 4 years.

III. Finally, you compare the benefits against the costs and use it as a decision making tool.
One thing to remember is that your gut intuition is not to be ignored. No matter what the numbers say, make sure to take a step back and feel into what is right for you and your organization.

Entrepreneurship generally means you are going to have to take some risks and you can’t always calculate the outcome. This is when it becomes really important to be clear on your vision for your business and ask yourself, “Is this initiative aligned with my vision?” If the answer is no, then it won’t make sense to spend the time conducting the CBA.

As a business owner, I like to have concrete tools that help me to run my organization and provide structure for me to flow within. A CBA is one of these tools – it provides a system to help me make decisions and questions any assumptions I have. I encourage you to try out this tool and see if it helps you. You can keep it very simple by just scratching down some numbers on your notepad. Or, for really big decisions, you may want to hire someone to help you conduct a thorough CBA. The important thing is you’re aware of this tool and have it when you might need it.

Good luck in all of your business decision making!

Many business owners dive in to a strategic planning process by setting goals for their organization – a great way to measure and plan for your business. But a crucial first step that I see many business owners skipping over is the process of getting clear on their strategic vision.

As author John Naisbitt says, “Strategic planning is worthless – unless there is first a strategic vision.”

Having a strong vision is really the basis for creating what you want. Do you know that place of wanting something so badly that you can see it, feel it and taste it? That’s the place you want to be in your business. What would success feel like for you? What would it look like? Feeling the success before it happens helps you embody what you are creating or building before it happens.

So what are the key components of a strategic vision?

1. Exciting. Your strategic vision is something that really gets you moving. It motivates you. The thought of having it is exciting and inspires you to bring your gifts to the world.

2. Sustainable. A strategic vision creates sustainability for yourself and others. The achievement of your vision positively affects your stakeholders (customers, employees, etc.) It’s a win-win: it brings good to you and to others.

3. Unique. Your strategic vision reflects your individual gifts. It is your unique expression of what you offer to your target market. No one else can bring the same offerings to your market that you can. What is your unique vision?

These components bring meaning to your vision – helping to bring it to life and ensure it’s relevant to your organization. Just the process of creating your strategic vision will bring you into much greater alignment with the outcome you desire from your business.

Successful entrepreneurs already understand the importance of creating a strategic vision, and they prioritize the visioning process – coming back to their vision on a regular basis to see if it’s still something that resonates for their organization. If strategic visioning is an area you have not prioritized in your business, I invite you to contact me to learn more about how I facilitate sessions for my clients so that they get crystal clear on their strategic vision. We then use the vision as a starting point to create a sustainable, executable plan to achieve success. Contact me directly and I’ll share with you my personal methodology for getting clear on what I want to create in my business and how I use that clarity to develop an actionable, achievable plan for success.