Cost-performance and cost-benefit analyses are ways of answering the questions, "Is this worth doing?" and "How will we know whether it was worth it when we're done?" These tools are methods for assessing the value of a project by comparing its costs to measures of its performance, or more generally to the value of benefits it produces. The analysis requires accurate cost data, as well as measures of performance in appropriate units and overall benefits. Cost- performance measurement is narrower in that it deals only with measures of performance as the basis for comparison.

Cost and performance data can be obtained from operational records, direct observation, surveys, or group meetings at which those who perform the operations report and discuss costs and performance measures. Both one-time costs and ongoing costs should be included.

Measure system costs. Working out the cost side of cost- benefit analysis requires careful attention to what cost information is relevant, what's available, and how it can be interpreted and used. Although it can seem like a straightforward task, a comprehensive cost analysis can be quite complex and demanding.

While it is not possible to present a comprehensive description of cost analysis here, the basic framework table below provides a useful approach and guide for further detail work.

Cost Analysis Framework
Reason for Incurring Cost (object of cost or expenditures)	Direct Cost	Indirect Cost	Opportunity Cost
Personnel
Equipment
Supplies
Utilities
Contractual services
Facility construction
etc.

Definition of cost. A cost is something of value that is given up or exchanged for a particular reason. It might be as obvious as the financial outlay for some new equipment or as subtle as the extra time it takes a supervisor to explain new procedures to a staff member. An effective cost analysis takes into account who is involved in these exchanges, what they may be giving up (incurring costs), why they would be expected to do so, and what the organizational consequences may be. A framework for identifying types of costs is useful in this task, and is shown in the table. It is useful to describe costs in terms of at least two concerns: the purpose of the cost, that is, what is the result of the exchange, and the impact of the cost on the organization's resources.

In the table, the rows provide the places to identify the reasons for incurring the cost. A typical budget contains standard categories of reasons (or objects) for costs or expenditures. These can be in terms of program objectives (as in a program budget), or in functional terms (such as legal services, personnel, etc.), or by the specific goods, services.

Separate direct, indirect opportunities of costs. The impacts on the organization can be separated into the three types shown in the columns of the table: direct , indirect , and opportunity costs. Direct costs of a new system or integration initiative are usually the easiest to identify and analyze, since they typically are the financial costs that are part of ordinary budget making and planning. A carefully worked out and detailed budget for an integration initiative is a necessary part of the planning and business case development.

However, a budget is not a complete cost analysis, and may miss part or all of the other kinds of costs. Indirect costs are usually based on estimates or pro-rating of shared resources, such as portion of infrastructure maintenance and depreciation or overall administration expense. These costs are usually more difficult to identify and analyze, since the estimates they require are often based on uncertain assumptions and limited knowledge of actual impact. But most organizations have developed ways of estimating these costs, and thus they should be part of the cost analysis.

The problem is a bit more difficult when it comes to opportunity costs, the losses or costs to the organization that result from implementing the new system rather than the alternative uses of those resources. The judge who spends several hours learning a new computer system, for example, instead of reading a law journal has incurred an opportunity cost. These costs are real and can be important, but are very difficult to measure and document. Participants in the development and implementation of a new system are often very sensitive to opportunity costs, since these affect their day- to-day work. But these costs are not part of any formal accounting system and so may be ignored by planners and budget makers, often to the detriment of implementation. At the very least, a well-developed business case should attempt to identify the possible opportunity costs involved in an initiative and discuss ways to ameliorate negative impacts.

Assess risks. The consideration of costs should include risk assessment. Risks may be inherent in any of the internal or external factors that could affect the success of your project. These may include such potential risks as staff and client resistance to change, immaturity of a new technology, personnel limitations, technology failures, and expected changes in the technical, political, or management environment.

Define benefits. The performance estimate also includes a list of the expected benefits of developing the system. Typical benefit categories include "faster," "better," and "cheaper." So the analysis should describe precisely how which products or activities will be better, how much faster they will be, and how much less they will cost.

Measure performance. The analysis should also include a statement of how each benefit will be measured to see if it has been achieved. Some measures will be relatively easy to describe in quantitative terms, especially those in the cheaper and faster categories. Others that we usually think of as qualitative (e.g. "client satisfaction") can often be translated into measures through surveys and interviews. To identify broader, societal benefits, you must think as much as possible in terms of outcomes and results rather than outputs. Outcomes are benefits in terms of how an agency staff member, business partner, or constituent will have their lives changed, rather than how many hits your World Wide Web page will receive. The benefit is the impact your effort will have on society rather than the number of clients served.

"Bottom line" information. Cost, risk, and performance analyses produce the necessary bottom line information on which you base the final decision about whether to go ahead with your project. The integration project plans and expectations will have been fine-tuned by developing the other evaluation products described in this appendix. Before a final implementation decision is made on the project, however, the costs and benefits need to be anticipated and fully understood by the ultimate decision maker.

Project evaluation. The results of your cost-benefit and cost- performance analyses form an important part of project evaluation. After the project is completed, these measures can be used to evaluate whether it actually achieved its goals within its expected budget. This assessment is an important factor in planning for future activities.

Complex environment. A comprehensive analysis of your project's impact may be difficult to prepare because of the complex environment in which public sector programs reside, and the many factors that may affect the intended outcomes of the project.

Hit "cheaper" and "faster," but forget "better." Project managers are often more experienced with cost analyses, and it may be easier to develop projects that fit into the cheaper and faster categories. While these are definitely important, many innovative applications also address the better category. This typically often requires more resource-intensive assessment methods.