Lesson 5.2 — Cost-Benefit Analysis: Costs, Benefits, NPV & Risk
Cost-Benefit Analysis: Costs, Benefits, NPV & Risk
Watch the embedded video above, then use this page to review the central concepts, evidence and practical implications.
Lesson content
This lesson covers benefits, lifecycle costs, Net Present Value and risk assessment, using practical examples to connect the method with innovation procurement.
What you will learn
- Identify internal and external benefits
- Separate procurement costs, CAPEX and OPEX
- Calculate and interpret NPV
- Interpret NPV results across different assessment periods
- Assess technical, financial, operational, market and legal risks
Build the case in five linked steps
Each step feeds the next. Weak assumptions upstream create false precision in the final NPV.
Compare all cash flows in present-value terms.
Interpretation—not an automatic verdict
Key terms
| NPV | Net Present Value: discounted benefits minus discounted costs over the assessment period. |
|---|---|
| Discount rate | The rate used to express future cash flows in present-value terms; the exercise uses 3.5%. |
| CAPEX | Upfront capital and development expenditure. |
| OPEX | Recurring operating, maintenance, licence, staffing and support expenditure. |
Timeline discipline
Assign each cost and benefit to the year in which it is expected to occur. For the Legionella exercise, use Years 0–2 for PCP R&D, Year 3 for deployment and Years 4–8 for operations and benefit realisation.
Before you continue
Reflection: Which qualitative benefit in your project could be translated into a defensible monetary estimate?
Lesson resource: S5-L2 — calculation slides covering benefits, lifecycle costs, NPV and risk assessment. Verify that the exported slide range matches the recorded lesson and excludes sensitive case material.
