Any project involves the transformation of inputs into outputs. The work of the project team, the materials and other resources that they use and the energy that they put into the project all contribute to the transformation that is the overall outcome of the project, the change that the project has produced.
For example, the inputs to a project might include a small team of people who gather information and make a display (using a wide range of materials) for an exhibition to publicize the services they offer. The outputs of the project would include the exhibition materials that had been created, and maybe a list of contacts that had been made during the exhibition. Overall outcomes of the project would be wider, and include any new service users whose awareness of the service has been raised by the exhibition and the team’s capability of being able to take part in a similar exhibition again.
One aspect of carrying out a cost–benefit analysis is to ask questions about the relationship of inputs to outputs and outcomes. The most basic questions to ask are:
࿖ What resources will be required and how much these will cost?
࿖ What outputs or outcomes will be produced?
࿖ What will be the quality of outcomes and outputs?
࿖ What quantities will be produced?
The aim of asking these questions is to identify the cost of the project, the cost of transforming inputs into outcomes. It is important to try to express the proposed outcomes clearly because projects are not always intended to pro- duce things that can be counted and then costed as separate items. You might be planning service improvements or changes that will make processes or procedures more effective. Whatever the project is about, there will be costs if the planning and implementation is carried out in time that could be used for something else.
In large-scale projects there are several financial measures that would usu- ally be used to test the financial viability of the project proposal. It is normal to consider how the cash flow during the project will impact on the organi- zation and whether there will be any financial value gained. The considera- tion of whether investment in the project is likely to be worthwhile has to be made in relation to the short and long- term financial prospects of the orga- nization. The demands of a project on the cash flow of an organization can have an impact on other areas of work unless the demand has been antici- pated and provision made to cover the additional finance required. If money Questions, evidence and decisions 41
has to be borrowed, this may incur additional costs, and the period required to repay the loan will also have to be considered.
Sometimes the costs are ‘hidden’ because the project can be carried out as part of existing work. It might be suggested that a project that does not require additional staff does not have a staff cost. However, this is a false argument because staff are employed with job descriptions and agreed areas of work.
If you ask them to do something different instead of what they would nor- mally be doing, this represents a cost to the organization because you are, in effect, employing the staff to carry out different work. In some circumstances this might be acceptable: for example, if the flow of work leaves gaps during which it is difficult to keep staff fully occupied. In other circumstances it might indicate that workloads are not very carefully monitored. There is also a danger of overloading some individuals.
The value of the project should also be considered. If you have produced something you intend to sell, you have to decide on a price. The price is not necessarily very closely related to the cost because pricing is related to what the intended purchaser will pay. For example, you might have produced a very effective training aid for health and safety trainers that many people want and would buy at a low price but not at a high price. If you find that you can only produce it at a high cost you will still not be able to sell the product at a high price. However, if you can produce these items at a low cost and sell them at a slightly higher but still low enough price you have the possibility of generating revenue. This project might still not work if the quantities that can be produced do not match the quantities that can be sold.
There might also be costs that had not been considered related to the storage of products and the sales processes, including packaging and delivery. These issues must be considered even in non-profit organizations if the intention is simply to cover costs by selling at cost price. The cost often includes more than is expected, particularly when the plan is to carry out the project within the ‘slack’ of the organization’s resources.
The value of the project might be difficult to express in monetary terms if it is more about improving something that is already available, for example, a process improvement. In some cases it is easy to identify a potential saving in time or resources, and these can be costed. However, if your proposed project is intended to improve the quality of experience, this is much more difficult to express as a value. You might be able to express the value in terms of the benefit to the customer. For example, if parents have traumatic expe- riences at the dentist, they are unlikely to want to return, and it is difficult for them to encourage their children to go to the dentist. If the project is intended to make visits to the dentist a better experience, this would potentially have wide benefits for more than one customer. This also raises the possibility that the value of the project might be related to the potential cost of not doing it.
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If this is the case, you can use that potential cost to explain the anticipated value of carrying out the project.
Project costs are usually divided into development costs and operational costs. The development costs arise during the project, and include the staff and other resources required to produce the project outputs. Once there are some outputs, there may be operational costs. These are costs associated with main- taining or using the project outputs. For example, if the project has involved setting up a new computerized system, there will be ongoing maintenance costs and there might also be staff training costs that would not have arisen without the change caused by the project.
In projects that are tested by a formal feasibility study there will be formal costings of all aspects of the project. The aim is to ensure that the project outcome contributes greater value than the value of the resources that would be used in completing the project. This economic measure is not the only one that would be considered as the context is very important. If the project would contribute to achieving the purpose of the organization, this would offer a powerful argument in its favour.
We have considered a number of ways in which you might gather evidence to support (or not) project proposals. If you have found that the evidence does not support your project proposal, it is much better to discover this at an early stage and to have the opportunity to revise the proposal or abandon the idea.
If you find that the evidence does support the project ideas, this work will provide a sound foundation for development of the project plan.
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Defining the project
Once the scope of the project has become clear and there is a commitment to go ahead, it is necessary to define the project as a written document. This might be called ‘terms of reference’, ‘project definition document’ or ‘project brief’. The purpose of the project brief (or similar document) is to detail exactly what the project is intended to produce and the resources and con- straints within which it must be achieved. This document is almost always signed by the sponsor of the project – the person who is funding the project or who holds responsibility for the use of resources to achieve the outcomes identified. The process of drawing up the brief can help to clarify anything that had not previously been fully discussed, and often demonstrates that there is more work to do before the brief can be completed.