3.4  Summary of the Costs

The cost of each option should be summarised.  Only cash values should be used in the options appraisal so depreciation or its equivalent are excluded as are the notional capital charges required under some government accounting rules.  Interest charges are also excluded as the cost of capital is factored in to the discount rate.

The detailed costs can be contained in an Appendix

The costs should cover

Capital costs

Opportunity costs - the value of the asset if put to an alternative use

Start up or Organisational development costs - what are the once only costs of implementation e.g. training, transition, dual running  

Revenue costs - the ongoing annual running costs of the project

Lifecycle costs - will intermittent investment be required to re-life the asset e.g. a computer upgrade, refurbishing buildings

Residual values - if the investment is a tangible asset what will it be worth at the end of its economic life or of the contract?

Avoided costs - by making this choice would money be saved elsewhere in the organisation?

Costs borne by others - any costs incurred by others as a consequence of the investment must be included

Costs to be specifically excluded are:

Transfer payments:

•  Redundancy payments

•  VAT

Sunk costs - costs already incurred or irrevocably committed

Depreciation - would lead to double counting

The costs should be calculated on a bottom up basis.