cost-benefit-analysis

What this skill does

# Cost-Benefit Analysis

You evaluate projects and initiatives by comparing total costs against total benefits in present-value terms. You research industry benchmarks, market data, and comparable project costs yourself — do not ask the user for data they would need to look up. Only ask the user for decisions and confirmations.

This skill complements `industry-benchmarking` (which compares performance metrics) and `competitive-analysis` (which evaluates strategic positioning) by providing **financial evaluation of specific investment decisions**.

## Phase 1 — Setup

### Input handling

Follow shared foundation SS7 — interview mode. When input is missing or insufficient, interview to gather at minimum:

| Dimension | Required | Default |
|---|---|---|
| **Project/initiative context** | Yes | — |
| **Alternatives to compare** | No | Will identify + "do nothing" baseline |
| **Time horizon** | No | 5 years (will recommend based on context) |
| **Discount rate** | No | Will research industry standard |

**Exit interview when**: Project context is clear enough to identify costs, benefits, and alternatives.

### 1. Collect input

Accept one of:
- A project or initiative description
- A file path to a business case or project proposal
- Pasted content (business case, project brief, investment proposal)
- No input or vague input -> enter interview mode

### 2. Detect scope

From the input (or interview results), identify:
- **Project/initiative**: What is being evaluated
- **Domain**: Industry, regulatory context
- **Alternatives**: Options to compare (including "do nothing")
- **Time horizon**: How many years to project
- **Discount rate**: Rate for present-value calculations

### 3. Confirm scope

```
**Project**: [name]
**Alternatives**: [list including "do nothing"]
**Time horizon**: [N years]
**Discount rate**: [X% + rationale]
```

Ask the user to confirm or adjust. Ask diagram render mode and output path per the `diagram-rendering` and `autonomous-research` mixins.

## Phase 2 — Research

Use WebSearch and WebFetch per the `autonomous-research` mixin.

### 2a. Cost benchmark research

Research relevant cost data for this type of project/industry:
- Industry benchmarks for implementation, operational, and labor costs
- Comparable project cost data and case studies
- Typical cost structures and breakdown patterns

### 2b. Benefit benchmark research

Research relevant benefit data:
- Market data for benefit estimation (productivity gains, revenue benchmarks)
- Comparable project ROI data and realized benefits
- Industry-standard benefit realization rates

### 2c. Financial parameter research

Research financial parameters:
- Typical discount rates for the industry/context
- Inflation rates and cost escalation factors
- Industry-standard payback period expectations

## Phase 3 — Alternative Definition

Identify 2-4 alternatives to evaluate:
- Always include a **"Do Nothing" baseline** (status quo costs and trajectory)
- Define each alternative with a brief description, scope, and key differentiators
- Present alternatives for user confirmation before proceeding

| ID | Alternative | Description | Key differentiator |
|---|---|---|---|
| A0 | Do Nothing | Status quo — continue current approach | Baseline for comparison |
| A1 | [name] | [description] | [differentiator] |
| A2 | [name] | [description] | [differentiator] |

## Phase 4 — Cost Identification

For each alternative, identify and categorize all costs:

### Direct costs
- **Capital costs**: Equipment, infrastructure, technology, licenses
- **Operational costs**: Maintenance, hosting, subscriptions, utilities
- **Labor costs**: Salaries, contractors, consultants
- **Implementation costs**: Setup, migration, integration, deployment

### Indirect costs
- **Overhead**: Management, administration, facilities allocation
- **Opportunity cost**: What is foregone by choosing this alternative
- **Training**: Staff development, onboarding, certification
- **Change management**: Communication, transition support, productivity dip

### Intangible costs
- **Brand risk**: Reputation exposure during transition
- **Morale**: Staff disruption, uncertainty, resistance
- **Disruption**: Business continuity impact during implementation

### Classification rules
- Categorize every cost as **one-time** or **recurring**
- **Exclude sunk costs explicitly** — costs already incurred regardless of decision
- Assign each cost to specific years (Year 0 through Year N)
- Document source or basis for each estimate

Present cost table per alternative:

| ID | Cost item | Category | Type | Year 0 | Year 1 | ... | Year N | Confidence |
|---|---|---|---|---|---|---|---|---|

## Phase 5 — Benefit Identification

For each alternative, identify and categorize all benefits:

### Tangible benefits
- **Revenue increase**: New revenue streams, market expansion, price optimization
- **Cost savings**: Reduced operational costs, efficiency gains, waste reduction
- **Productivity gains**: Time savings, throughput improvement, error reduction
- **Error/risk reduction**: Fewer defects, lower incident rates, compliance improvement

### Intangible benefits
- **Brand value**: Market perception, competitive differentiation
- **Satisfaction**: Customer satisfaction, employee satisfaction
- **Retention**: Customer retention, employee retention
- **Strategic positioning**: Market readiness, capability building, optionality

### Classification rules
- Categorize every benefit as **direct** or **indirect**
- Categorize every benefit as **short-term** (Years 0-2) or **long-term** (Years 3+)
- Assign each benefit to specific years (Year 0 through Year N)
- Document source or basis for each estimate

Present benefit table per alternative:

| ID | Benefit item | Category | Type | Year 0 | Year 1 | ... | Year N | Confidence | Monetization method |
|---|---|---|---|---|---|---|---|---|---|

## Phase 6 — Monetization

For intangible items (both costs and benefits), apply the most appropriate monetization technique:

| Technique | When to use | Example |
|---|---|---|
| **Productivity-based** | Time savings quantifiable | Hours saved x labor rate |
| **Avoided cost** | Expense prevented | Insurance claim reduction, penalty avoidance |
| **Proxy metrics** | Indirect chain to financial value | Satisfaction -> retention -> CLV delta |
| **Market-based** | Comparable pricing exists | Benchmark against market rates for equivalent |
| **Expert judgment** | No direct data available | Estimate with confidence range (use sparingly) |

### Monetization rules
- Document the technique used for every intangible item
- Assign a confidence level to each: **High** (strong data), **Medium** (reasonable estimate), **Low** (expert judgment/assumption)
- For Low confidence items, provide a range (min-max) rather than a point estimate
- Never present monetized intangibles as precise figures — always show the basis

## Phase 7 — Financial Calculations

For each alternative, calculate:

### Year-by-year cash flow table

| Year | Total costs | Total benefits | Net cash flow | Discount factor (1/(1+r)^t) | PV of net | Cumulative PV |
|---|---|---|---|---|---|---|

### Key metrics

- **NPV** (Net Present Value) = Sum of all discounted net cash flows
  - NPV > 0: project adds value
  - NPV < 0: project destroys value
- **BCR** (Benefit-Cost Ratio) = PV of total benefits / PV of total costs
  - BCR > 1: benefits exceed costs
- **IRR** (Internal Rate of Return) = Discount rate where NPV = 0
  - Calculate iteratively; if no solution exists, report "No IRR (cash flows do not cross zero)"
- **Payback Period** = Year when cumulative net cash flow turns positive
  - If never positive within the time horizon, report "Does not pay back within [N] years"
- **Break-even point** = When cumulative benefits equal cumulative costs (undiscounted)

## Phase 8 — Sensitivity Analysis

### Key variable identification
Identify 3-5 variables with the highest impact on NPV. Common candidates:
- Discount ra