You have a brilliant idea. You know it is going to work. You talk to your management, and you are told that the idea means spending money. The only way this idea materializes is if you can prove it is worth investing. Next best step is to conduct a cost-benefit analysis which means placing all the potential costs and comparing them to the benefits your idea will bring. If the benefits outweigh the costs, you have an easier time going back to management with your proof.
But wait! Conducting a cost-benefit analysis is used to prove that going forward with your idea will benefit the company. Keep in mind, listing on paper jargon and numbers may not get you what you want and showing management a detailed spreadsheet may not be wise for three reasons. One, they may not be interested in the details (what I would call “the weeds”), two, they may end up scrutinizing the details and spending too much time in the weeds, or three, they may tell you to email them the information and they will look at it first chance, which translates to ghosting you. This is where creating a visual, like the waterfall method comes handy because it will tell a story.
The process is simple. Follow these five steps and you can create a one-pager to talk to management.
Step 1 Gathering the costs: when gathering your costs, make sure you are collecting all expenses needed to get your idea launched. This can include labor/headcount, materials, supplies, marketing materials, equipment, and so forth. As you collect the costs, write out their costs using the three-point estimation method, identifying the:
Best Case scenario (BC): be optimistic about your cost.
Worst Case scenario (WC): be pessimistic about your cost.
Most Likely scenario (ML): be as realist as possible about your cost.
Have a column called "Expected value" that does the three-point estimation calculation = (BC+WC+ML)/3
Step 2 Brainstorming the benefits: This should already be at the forefront of your mind and part of the “why” you want this idea to come to fruition. But you may miss out on listing all the benefits. I have created an abbreviated version of my top qualitative & quantitative benefits that come from deploying a new idea. Make sure you cover your bases and list your benefits along with evidence in case it is requested. Use the three-point estimation as well. Check with your finance team at work, usually Typically benefits hit the company’s ledger for the first year only can be taken for any type of initiative project for the first year only. Depreciation kicks in after year one and so, the idea needs to breakeven within the first year.
Step 3 Calculate the cost-benefit for your idea: You can use the spreadsheet attached or create your own. Have all the costs shown in negative dollars while the benefits in positive dollars. Include the cost-benefit analysis (CBA) ratio so you can see how much the benefits outweigh your costs.
Step 4 When does breakeven happen: You want to express to your management that your benefits outweigh the costs. For these types of projects, where the benefits can be applied only in the first year, your breakeven needs to occur within this first year. The breakeven point is thus set at zero dollars where the benefits have been paid for the costs incurred. Any additional funds created by the benefits passed the breakeven point are used to entice management to see how great this opportunity can be for the business.
Step 5 Create a waterfall bar chart to tell the story: put the details of your costs and benefits’ amounts into a bar chart. Visually you can see the breakeven point on the chart to be the zero mark. Use this chart along with the CBA summary table on a one-pager you can present to management.
To put forward your idea, your company may have a template, form, or document that you will complete as part of your business case. Along with this information, use the one-pager to communicate your idea every chance you get. Like Dr. Deming would say, “without data you’re just another person with an opinion” and as we all know, a picture is worth a thousand words.
A final suggestion is to message your idea effectively along with the one-pager data to show how essential your idea can be to your company. Thus, tie this cost-benefit technique with my previous blog on developing your message. Let me know how it works.