PART TWO: QUANTITATIVE ELEMENTS OF A COST BENEFIT ANALYSIS FOR AN EMIS IMPLEMENTATION
While the value of a structured environment, health and safety (EHS) and sustainability program is widely understood, the purchase of an enterprise-wide software solution to help manage EHS is often seen by upper management as a pure support function expense. Even though most EHS professionals recognize the benefit of a corporate-wide centralized system for managing EHS programs, the financial arm of the organization may be reluctant to fund implementation projects, when the value is not identified in the language of dollars and cents. The onus is on the EHS lead to demonstrate that the cost is actually an investment and that this investment will generate a return which is an acceptable use of the company’s limited capital.
An integral part of the business case is the cost benefit analysis. This article focuses on the financial calculation components of a cost benefit analysis that is to be included as part of a standard business case for requesting funds to implement an enterprise-wide EMIS.
Cost benefit analysis is one of the most widely used techniques for project selection purposes within organizations. In creating a strong cost benefit analysis document; focus will need to be paid on the identification of costs and benefits using reasonable estimates and quantitative data from Net Present Value (NPV) calculations, cost benefit ratios, and payback period identification.
Comparison of Alternatives
When presented with an idea for a project, most decision makers would like to know what alternatives are available. For this reason, most cost benefit analysis will often represent a comparison of alternative projects. In the case an EMIS implementation, comparisons will often be between implementing a new software solution and doing nothing. Costs and Benefits should be identified for all scenarios.
Quantitative vs. Qualitative Data
In order for the business case to have the best chance of securing the desired funds, a significant portion of the proposal should focus on the quantitative aspects of proposed projects, as opposed to the qualitative characteristics. Quantitative analysis focuses on measurable numeric data while qualitative analysis is based on observed characteristics that are difficult to measure. An example of qualitative data associated with a software implementation would be the cost of savings realized, while an example of qualitative data could be improved employee morale.