Key Components of Project Initiation and Cost-benefit Analysis

6 min readApr 5, 2022

Initiation begins after a problem or opportunity has been identified within an organization.

Often, stakeholders like senior leaders at a company will initiate a project to address a specific need for the business.

The initiation phase is a crucial time for asking stakeholders the right questions, performing research, determining resources, and clearly documenting the key components of a project.

Doing this will help you solidify the scope, or the boundary, of the project.

Without sufficient understanding of the project’s goals, you might underestimate what resources you need or how long the project might take. Or, without agreeing with stakeholders on what success looks like, you might think the project was completed successfully, while the stakeholders might think it didn’t accomplish their goals.

Proper initiation also helps ensure that the benefits of the project outcomes will outweigh the costs of the project.

To determine this, you’ll do what’s called a cost benefit analysis, which is the process of adding up the expected value of a project (the benefits) and comparing them to the dollar costs.

Determine the benefits of a project:

What value will this project create?
How much money could this project save our organization?
How much money will it bring in from existing customers?
How much time will be saved?
How will the user experience be improved?

Determine the costs of the project

How much time will people have to spend on this project?
What will be the one-time costs?
Are there any ongoing costs?
What about long-term costs?

Key Components of Initiation

There are several key components of initiation that you need to consider in order for your project to be successful:

Goals: The goal is what you’ve been asked to do and what you’re trying to achieve. All projects should have clear goals, and often those will be determined by senior company leaders with your help.
Scope: This is the process to define the work that needs to happen to complete the project.
Deliverables: These are the tangible and intangible outcomes of a project.
Success criteria: Success criteria are the standards by which you measure how successful a project was in reaching its goals.
Stakeholders: Stakeholders are key to making informed decisions at every step of the project, including the initiation phase. They’re the people who both have an interest in and are affected by the completion and success of a project. As a result, they’re often instrumental in determining the goals, objectives, deliverables, and success criteria of a project, from coming up with the idea to outlining their expectations of its results.
Resources: Resources generally refer to the budget, people, materials, and other items that you’ll have at your disposal. It’s super important to think carefully about those pieces early on.

A project charter is a document that contains all the details of a project. Project charters clearly define the project and its goals and outline what is needed to accomplish them. A project charter allows you to get organized, set up a framework for what needs to be done, and communicate those details to others.

Once you’ve drafted the charter, you would then review the document with key stakeholders to get their approval to move into the planning stage.

As you move through the initiation phase, it’s your job to ensure that you understand the needs of the project stakeholders early on. It’s also your role to ensure that all stakeholders are in agreement on the goals and overall mission of the project before moving on to the next phase.

Cost-benefit analysis

It is the process of adding up the expected value of a project — the benefits — and comparing them to the dollar costs.

The benefits of a cost-benefit analysis

A cost-benefit analysis can minimize risks and maximize gains for projects and organizations. It can help you communicate clearly with stakeholders and executives and keep your project on track. Because this type of analysis uses objective data, it can help reduce biases and keep stakeholder self-interest from influencing decisions.
Comparing a project’s benefits to its costs can help you make a strong business case to stakeholders and leadership and ensure your organization pursues the most profitable or useful projects. Organizations use cost-benefit analyses to reduce waste and invest their resources responsibly.

Guiding questions for a cost-benefit analysis

When you’re pursuing a project, the benefits should outweigh the costs

You might also consider questions about intangible benefits. These are gains that are not quantifiable, such as:

Customer satisfaction. Will the project increase customer retention, causing them to spend more on the company’s products or services?
Employee satisfaction. Is the project likely to improve employee morale, reducing turnover?
Employee productivity. Will the project reduce employees’ overtime hours, saving the company money?
Brand perception. Is the project likely to improve the company’s brand perception and recognition, attracting more customers or providing a competitive advantage?

You can also flip these questions to consider intangible costs. These are costs that are not quantifiable. For example, might the project put customer retention, employee satisfaction, or brand perception at risk?

When assigning values to tangible or intangible costs and benefits, you can reference similar past projects, conduct industry research, or consult with experts.

Calculating costs and benefits

The process of calculating costs and benefits is also called calculating return on investment, or ROI. There are many ways to determine a project’s ROI, but the easiest way is to compare the upfront and ongoing costs to its benefits over time.

One common ROI formula is: (G-C) / C = ROI

In this formula, G represents the financial gains you expect from the project, and C represents the upfront and ongoing costs of your investment in the project.

For example, imagine your project costs $6,000 upfront plus $25 per month for 12 months. This equals $300 per year, but you estimate that the project will bring in $10,000 in revenue over the course of that year. Using the formula above, you calculate the ROI as: ($10,000 — $6,300) ÷ $6,300 = 0.58 = 58%

Performing a cost-benefit analysis can help you and your stakeholders determine if it makes sense to take on a new project by evaluating if its benefits outweigh its costs.

First things first, to set up a project for success and to make your job easier, you want to figure out what needs to be done before you actually get started. You need to define exactly what your goals and deliverables are so that you’ll be able to tell your team members what to do. You need a clear picture of what you’re trying to accomplish, how you’re going to accomplish it, and how you know when that has been accomplished.

A project goal is the desired outcome of the project. It’s what you’ve been asked to do and what you’re trying to achieve.

One of the biggest differences between what makes a good goal and a not-so-good goal is how well it’s defined — meaning, how clear and specific is the goal?
These goals also tell you how to do what you’ve been asked to do.
Where we’re going. Well-defined goals are both specific and measurable. They give you a clear sense of what you’re trying to accomplish.
To do this, you might need to get more information from your stakeholders. Talk to them about their vision for the project. Ask how this aligns with the company’s larger goals and mission. By the end of that conversation, you and your stakeholders should agree to support the project goals in order to avoid running into issues later on.
Make sure that before you start your project, you, your stakeholders, and your team are all clear on the project’s goals so that you know you are making the right kind of progress.
A project goal should tell the team what the end of the project will look like. The goal should also be clear and specific.

Project deliverables refer to the tangible outcomes of the project. In other words, a deliverable is what gets produced or presented at the end of a task, event, or process.

When a goal is reached, you can visibly see the results documented in a chart, graph, or presentation. Deliverables help us quantify and realize the impacts of the project.
Make sure to ask questions about what the deliverable should be and have everyone share the vision and expectations of the deliverables so you’re all on the same page.
Project deliverables can be an item or report that teammates present to stakeholders, such as a presentation, chart, or graph.