What is a cost justification strategy and why do you need one?
A cost justification strategy is a way to show why the proposed costs for a particular project are needed to accomplish the project tasks. It is beneficial to justify the costs as this is a way to clearly identify how necessary it is to spend the proposed money. The cost justification strategy is there to provide a complete snapshot of the proposed work and it helps to justify both the need and the price.
One thing you must ensure to include when justifying the costs of a project is it’s ROI. After all, the main thing your customer wants to know is whether they will get back the money that they put in and also how long this may take (payback period). Make sure to also include information about the Internal Rate of Return (IRR) which compares the initial money spent upfront against the future benefits giving you an annual returns percentage. Net Present Value (NPV) is also another value to consider including to prove your project’s worth. This looks at all the benefits, deducts the costs and adds a time value of money to show a result as a money profit and displays how much your business value has increased.
It’s not all about the monetary benefits when trying to prove your project’s worth. The benefits and value the costs may bring to your customer’s business is also an important part of justifying the need for the project. These benefits can come in many forms such as improved customer loyalty, a reduction in risk for the business, a reduction in general costs and margin and revenue improvements.
Once you have all the information you need to create your cost justification strategy, make sure to also present it in a professional way to really prove your worth! Customers do not respond well to a complicated Excel spreadsheet as they can be difficult to understand, time consuming and it is difficult to change any initial information that has been inputted. Shark was designed to be intuitive as well as user friendly, and it generates business case outputs that will suit the needs of the customer and fit with the required sales scenario.
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