Cost Justification

Cost justification is determined using a cost-benefit analysis (CBA) which involves comparing the estimated costs of a project or system to the potential benefits and outcomes that may result.

• There are two forms of costs: fixed costs and variable costs

  • Fixed Costs - costs that remain the same regardless of output; also sometimes referred to as overhead costs (example: bills which have the exact same expense rate month to month such as rent)

  • Variable Costs - costs that fluctuate or vary in response to output (example: credit card bill which fluctuates based on the amount you spend)

• Common measures of financial importance used within a cost benefit analysis are the breakeven point and the return on investment (ROI)

  • Breakeven Point - the point at which costs are recovered (usually referring specifically to fixed costs)

  • Return On Investment - economic gain or loss from a project or system

Cost benefit analyses provide a basis for making practical decisions concerning human factors projects and work by comparing the cost of the usability work (tools and softwares used, employee and participant compensation, etc.) to the projected value or benefits (such as a reduction in end user's time spent on a task).

A small example of a cost-benefit analysis can be seen below which analyzes and justifies the cost of graduate students at North Carolina State University. We have also imbedded a template to conduct your own personal cost-justification.

• References:

  • Asplund, D., & Eliasson, J. (2016). Does uncertainty make cost-benefit analyses pointless? Transportation Research Part A: Policy and Practice, 92, 195–205. https://doi.org/10.1016/j.tra.2016.08.002

  • Mouter, N., Annema, J. A., & Wee, B. van. (2013). Attitudes towards the role of cost–benefit analysis in the decision-making process for spatial-infrastructure projects: A Dutch case study. Transportation Research Part A: Policy and Practice, 58, 1–14. https://doi.org/10.1016/j.tra.2013.10.006

  • Whalen, T., & Wright, D. (1999). Methodology for cost‐benefit analysis of Web‐based tele‐learning: Case study of the bell online institute. American Journal of Distance Education, 13(1), 24–44. https://doi.org/10.1080/08923649909527012