Measurement of Benefits

There are three broad definitions of potential benefits: cost savings (‘hard dollars’), cost avoidance and added value. For example, in a previous example, we paid $1 and purchased 10,000 units. This time we bought 10,000 and paid $0.90. The saving is 10,000 x $0.10 or $1,000. This would filter directly to the budget holder’s bottom line. Cost avoidance is a less tangible saving, which is not available for redistribution. These savings do not lower the price of products or services, but rather minimise additional costs that would impact upon the budget had the procurement process not intervened. Examples of cost avoidance savings include resisting a supplier’s price increase request, negotiating a saving from a supplier’s quoted price, negotiating services or goods on a non-billable basis that would otherwise have been paid for, and negotiating fixed prices rather than a rise and fall clause [in times of inflation]. See also Benefits, Savings and Benefits Realisation Plan