Performing a Cost Benefit Comparison

With your evaluation of costs and benefits completed, you can now do a cost/benefit comparison, which is fairly easy. You are at a point in your analysis where you can weigh your costs and benefits to determine whether it makes sense to build your app. Your outputs are only as good as your inputs. Your investment in gathering data is commensurate with the quality of your results. You can follow these steps to complete the cost/benefit comparison:

1. Compare your two total values for the monetary benefits first. If the total costs are considerably higher than the expected benefits, you can safely determine that the project should not be undertaken.

2. If the total costs and total benefits are pretty close, you need to go back and reevaluate your assumptions for both the costs and benefits. If after a review you find that your numbers are roughly the same, you can conclude that the project is not worthwhile from a strictly monetary standpoint. If profit is not your primary concern, it may make sense to do the project.

3. If the total monetary and intangible benefits are much greater than the total monetary and nonmonetary costs, the development of the app is worthwhile and will be a good financial and time investment for you.

The results for our example are shown in Table 11.5. As you can tell by looking at the table, the benefits outweigh the costs for building this particular app. A

breakeven analysis should also be performed to determine more precisely how long it will take before the app is producing profits.

Table 11.5 The Results of a Sample Cost/Benefit Analysis

Monetary/Nonmonetary Benefits

Monetary/Intangible Costs

Results (Benefits - Cost)

$17,465 (actual profit)

$7,299 (actual costs)

$10,166 (actual net)

$30,965 (profit + potential benefits)

$13,700 (actual costs + intangible costs)

$17,265 (net plus potential benefits)

Benefits > costs (for this example)

Decision: Favorable to build app

When factoring how much time it will take to produce a profitable app, be sure to include two to three months of extra time for Google to pay. Some developers have complained that Google is slow to pay royalties on apps.

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