In cost/benefit evaluation of the various expected costs, the benefits to be expected from the system and expected savings is done. The cost/benefit analysis determines the cost-effectiveness of the system. The various categories of costs and benefits are measured and included in cost/benefit analysis.
i) Initial development cost : it is the cost of developing an information system. The various elements of development cost include project planning cost, feasibility study cost, testing costs, implementation cost etc.
ii) Capital cost : It is also a one time cost. It is the cost of providing facilities and equipments including hardware etc for the operation of the system.
iii) Annual operating cost : It is the cost of operating the system. It includes computer and equipment maintenance cost, personnel cost overheads and supplies cost. Computers and equipment are to be maintained and thus some cost is included, known as Annual Maintenance Cost.
In cost/benefit evaluation, various expected beenfits from the system are also studied. The first task is to identify each benefit and then assign a monetary value to it. Benefits may be tangible or intangible, direct or indirect.
The major benefits are improving performance and minimising the cost of processing. The performance part suggests improvement in accuracy, timeliness, non-duplication, adequacy, usefulness in information and easier access to the system