Explain how a cost-benefit analysis could be used to build a fact-based business case

What will be an ideal response?

Many people, including most chief financial officers, want to see the business case for an information system based on some convincing, quantitative analysis that proves beyond the shadow of a doubt that the benefits of the system will outweigh the costs. The most common way to prove this is to provide a detailed cost-benefit analysis of the information system. One goal of a cost-benefit analysis is to accurately determine the total cost of ownership (TCO) for an investment. TCO is focused on understanding not only the total cost of acquisition but also all costs associated with ongoing use and maintenance of a system. Consequently, costs can usually be divided into two categories: non-recurring costs and recurring costs. Next, you determine both tangible benefits and intangible benefits.

A simplified cost-benefit analysis contrasts the total expected tangible costs versus the tangible benefits. Alternatively, you could perform a break-even analysis-a type of cost benefit analysis to identify at what point (if ever) tangible benefits equal tangible costs-or a more formal net-present-value analysis of the relevant cash flow streams associated with the system at the organization's discount rate (i.e., the rate of return used by an organization to compute the present value of future cash flows).