Operations Analysis- Step 3: Cost Benefit Analysis

Advanced Business Operations Training

Kabul, Afghanistan November 2014.

Cost Benefit Analysis

Introduction:

It provides the analytical basis for the UNCT/OMT to make informed decisions/prioritization based on two different approaches :

Qualitative approach

• CBA to take into account any cost/quality improvement based on estimated baselines figures from surveys/regional figures , staff time and other resource requirements

Quantitative approach

• CBA to take into account any cost/quality improvement based on established baselines figures from Agency ERP database and all elements of cost savings including efficiency gains to be achieved .

•

Cost Benefit Analysis

Objective: Establish basis for value based selection and prioritization

Provide sufficient, rather than exhaustive, overview of the main cost / benefit elements

Only for new services identified in needs analysis

One time vs recurrent cost

Three types of costs and benefits:

• Type 1: Monetary Costs & Benefits ($ value)

• Type 2: Labor Costs & Benefits

• Type 3: Other Costs & Benefits

ONE TIME MONETARY COST

RECURRENT MONETARY COST

ONE TIME LABOR COST

RECURRENT LABOR COST

ONE TIME BENEFIT

RECURRENT BENEFIT

OTHER COST

OTHER BENEFIT

Acquisition of new generation VSAT for VOIP

Disposal and selling of old generation VSAT

LTA Advertisement cost in the news paper

LTA development cost (Req, bid opening, fin&techn evaluation, award, conract etc..)

LTA Renewal cost (once a year over 5 years)

Increase of UN visibility and credibility

Potential litigation due to contract termination

Recruitmen of lead consultant to develop the VOIP solution

Monthly maintenance fee

x

x

x

x

xx

x

x

x

Template Simplified Transaction Cost Analysis

  Monetary Costs Benefits ($) Labor Costs Benefits Other Costs/Benefits Prioritization

  A B C D E F G H I

Proposed Business Solution (incl. Common Services)

Anticipated MonetaryCost (One Time & Recurring $ Investment)

AnticipatedMonetary Benefit (One Time & Recurring Benefits)

AnticipatedLabor Cost- Time Investment  (One Time & Recurring Labor costs)

AnticipatedLabor Benefit: Time reduction (One Time & Recurring Labor benefits)

Anticipated Significant OtherCost

Anticipated Significant OtherBenefits

Total Cost (A+C)

Total benefit (B+D)

Priority Ratio:Benefit/Cost Ratio (H/G)

                   

                   

                   

                   

                   

                   

                   

                   

                   

Higher CB Ratio,

adjusted for Other Costs, higher priority

Prioritization- Simplified Transaction Cost Analysis

Simplified Transaction Cost Analysis: Establishing the Priority Ratio

•Total Cost per business solution = Anticipated Monetary Cost ($ Investment cost) + Anticipated Non-Monetary Cost- Time Investment --- Add column A and C from the CBA template ;

•Total Benefit per business solution = Anticipated Monetary Benefit (total $ saving)+ Anticipated Non Monetary Benefit- Time/Labor cost saving--- Add column B and D from the CBA template ;

•Priority Ratio per business solution = Total Benefit Ratio/Total Cost Ratio

•Priority Ratio is adjusted for Other costs and benefits (subjective adjustment)

ACTIVITY BASED COSTING

ABC simple way to map: (SITUATION WITHOUT VS WITH LTA).

• what are the steps/processes to get a particular job done,

• What profile of staff is involved (Project Asst, OM, Procurement assistant etc… )

• What are the grades of staff involved ( G6, G7, NOA, B, C D, P3, 4, 5 D etc..)

• How long does it takes to complete each process?

• What is the hourly proforma cost for each type of staff involved ?

• What is the total cost per process/step

• What is the standard procurement cost in a situation without LTA Vs situation with LTA.

• What will be the saving per standard procurement process?

By comparing the map of the proposed solution to the map of the current situation, the differences in time requirements (cycle times) and $ value can be established;

ABC SIMPLE PROCUREMENT

LEVEL TIME(HRS) PROFORMATOTAL LEVEL TIME(HRS) PROFORMATOTAL Prepare requisition Proj Asst G5 0.5 14.57 7.29 Prepare requisition Proj Asst G5 0.5 14.57 7.29Review Requisition Proj Head NOA 0.5 25.01 12.51 Review Requisition Proj Head NOA 0.5 25.01 12.51Prepare RFQ Proc Assist G7 3 21.16 63.47 Prepare RFQ Proc Assist G7 0 0 0.00Prepare RFQ Proc head NOA 1 25.01 25.01 Prepare RFQ Proc head NOA 0 0 0.00Prepare RFQ OM NOC 1 42.89 42.89 Prepare RFQ OM NOC 0 0 0.00Publish Advertisement Proc Assist G7 1 21.16 21.16 Publish Advertisement Proc Assist G7 0 0 0.00Receive and sort proposal Admin Assit G5 1 14.57 14.57 Receive and sort proposal Admin Assit G5 0 0 0.00Open & Sign proposals Proc Assist G7 0.5 21.16 10.58 Open & Sign proposals Proc Assist G7 0 0 0.00Open & Sign proposals Proc Head NOA 0.5 25.01 12.51 Open & Sign proposals Proc Head NOA 0 0 0.00Open & Sign proposals Admin Assit G5 0.5 14.57 7.29 Open & Sign proposals Admin Assit G5 0 0 0.00Open & Sign proposals Finance Assit G7 0.5 21.16 10.58 Open & Sign proposals Finance AssitG7 0 0 0.00Technical evaluation Proc Assist G7 2 21.16 42.31 Technical evaluation Proc Assist G7 0 0 0.00Technical evaluation Proc Head NOA 2 25.01 50.03 Technical evaluation Proc Head NOA 0 0 0.00Technical evaluation Admin Assit G5 2 14.57 29.14 Technical evaluation Admin Assit G5 0 0 0.00Technical evaluation Finance Assit G7 2 21.16 42.31 Technical evaluation Finance AssitG7 0 0 0.00

0.00 0 0.00Financial evaluation Proc Assist G7 0.5 21.16 10.58 Financial evaluation Proc Assist G7 0 0 0.00Financial evaluation Proc Head NOA 0.5 25.01 12.51 Financial evaluation Proc Head NOA 0 0 0.00Financial evaluation Admin Assit G5 0.5 14.57 7.29 Financial evaluation Admin Assit G5 0 0 0.00Financial evaluation Finance Assit G7 0.5 21.16 10.58 Financial evaluation Finance AssitG7 0 0 0.00Ref check Proc Anal NOB 3 31.77 95.31Site visits Proc Assist G7 2 21.16 42.31Site visits Proc Anal NOB 2 31.77 63.54

0.00 0.00Review by Contract committee (CAP) Proc head NOA 0 25.01 0.00 Review by Contract committee (CAP)Proc head NOA 0 0 0.00Review by Contract committee (CAP) OM NOC 0 42.89 0.00 Review by Contract committee (CAP)OM NOC 0 0 0.00Review by Contract committee (CAP) PM NOB 0 31.77 0.00 Review by Contract committee (CAP)PM NOB 0 0 0.00Review by Contract committee (CAP) PM NOB 0 31.77 0.00 Review by Contract committee (CAP)PM NOB 0 0 0.00Review by Contract committee (CAP) PM NOB 0 31.77 0.00 Review by Contract committee (CAP)PM NOB 0 0 0.00

0.00 0.00Endorsement by HoA. D1 0.5 167.30 83.65 Endorsement by Head of Ops. NOC 1 42.89 42.89Create PO Proc Assist G7 0.5 21.16 10.58 Create PO Proc Assist G7 0.5 21.16 10.58Award contract/Prepare PO Proc Assist G7 0.5 21.16 10.58 Award contract/Prepare PO Proc Assist G7 0.5 21.16 10.58Delivery confirmation Proc Assist G7 0.5 21.16 10.58 Delivery confirmation Proc Assist G7 0.5 21.16 10.58TOTAL 29 749 TOTAL 3.5 94

#REF!PERCENTAGE SAVING ON SIMPLE PROCUREMENT PROCESS COST 87%

PERCENTAGE SAVING ON SIMPLE PROCUREMENT PROCESS TIME 88%

WITHOUT LTA WITH LTA

SIMPLE PROCUREMENT COST SAVING SCENARIO PROJECTION ACTIVITY BASED COSTING

A B C D E F G H I

Priority Ratio:

PRINTING $1,200.00 $260,000.00 $6,519.70 $84,756.12 $7,719.70 $344,756.12 0.45 10.00

TRAVEL $1,200.00 $480,000.00 $6,519.70 $84,756.12 $7,719.70 $564,756.12 0.73 3.00PLANE CHARTERING $1,200.00 $340,218.40 $8,659.07 $84,756.12 $9,859.07 $424,974.52 0.43 11.00INTERPRETATION $1,200.00 $103,200.00 $6,519.70 $84,756.12 $7,719.70 $187,956.12 0.24 19.00FUEL $1,200.00 $720,000.00 $6,519.70 $84,756.12 $7,719.70 $804,756.12 1.04 1.00TRANSPORT $1,200.00 $340,982.40 $6,519.70 $84,756.12 $7,719.70 $425,738.52 0.55 5.00MAINTAINANCE IT $1,200.00 $142,741.60 $5,643.63 $84,756.12 $6,843.63 $227,497.72 0.33 17.00

PLOMBERIE $1,200.00 $32,000.00 $6,519.70 $84,756.12 $7,719.70 $116,756.12 0.15 22.00

MAINTENANCE FIRE EXTINGUISHER $1,200.00 $34,004.80 $5,643.63 $84,756.12 $6,843.63 $118,760.92 0.17 21.00COURRIER $1,200.00 $24,098.00 $4,767.57 $84,756.12 $5,967.57 $108,854.12 0.18 20.00AUDIT $1,200.00 $200,980.00 $5,643.63 $84,756.12 $6,843.63 $285,736.12 0.42 12.00OFFICE FURNITURES $1,200.00 $200,980.00 $4,767.57 $84,756.12 $5,967.57 $285,736.12 0.48 9.00FOODS AND BEVERAGES $1,200.00 $225,600.00 $4,767.57 $84,756.12 $5,967.57 $310,356.12 0.52 8.00

GARAGE $1,200.00 $143,594.80 $4,767.57 $84,756.12 $5,967.57 $228,350.92 0.38 13.00TRANSLATION $1,200.00 $115,783.60 $4,767.57 $84,756.12 $5,967.57 $200,539.72 0.34 16.00PHOTOCOPY $1,200.00 $94,275.60 $3,891.50 $84,756.12 $5,091.50 $179,031.72 0.35 15.00EVENT MANAGEMENT $1,200.00 $219,582.40 $3,891.50 $84,756.12 $5,091.50 $304,338.52 0.60 4.00LIVE STREAMING $1,200.00 $343,903.20 $3,891.50 $84,756.12 $5,091.50 $428,659.32 0.84 2.00STATIONARY $1,200.00 $103,418.40 $3,891.50 $84,756.12 $5,091.50 $188,174.52 0.37 14.00INSURANCE $1,200.00 $183,582.40 $3,891.50 $84,756.12 $5,091.50 $268,338.52 0.53 6.00PUBLICATION $1,200.00 $49,827.20 $3,891.50 $84,756.12 $5,091.50 $134,583.32 0.26 18.00ELECTRIC MAINTAINANCE $1,200.00 $182,758.00 $3,891.50 $84,756.12 $5,091.50 $267,514.12 0.53 7.00

RANKING PER OMT

ADJUSTED

RANKING BY UNCT

Anticipated labor cost-Time

investment( One Time & Recurring

Labor cost)

Anticipated Labor Benefit: Time

reduction (One Time& Recurring

Labor benefit)

Anticipated

Significant Other

Cost

Anticipated

Significant Other benefit

Total Cost (A+C)

COST BENEFIT ANALYSIS for Common ProcurementMonetary Costs Benefits ($) Labor Costs Benefits (Labor)

Other Costs/Benefits

Prioritization

Anticipated Monetary Cost (

One time & Recurring $ investment)

Anticipated monetary

Benefit(One time & Recurring

Benefits)

Proposed Business Solution (incl. Common Services)

Benefit/Cost (H/G)/100

Total Benefit (B+D)