Cost Benefit Analysis and How to Perform One

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What is Cost Benefit Analysis and what is the process involved in performing one?

Cost-benefit analysis is a process by which business decisions are examined. It is used to calculate and total up the equivalent money value of the benefits and costs to the community of projects to determine if they are worthy pursuits. Cost benefit analysis refers both to:

  • Helping to appraise, or assess, the case for a project, program, or policy proposal;
  • An approach to making economic decisions of any kind.

Under both definitions, the process involves, either overtly or implicitly, weighing the total anticipated costs against the total expected benefits of one or more actions in order to narrow down the best or most profitable option. The formal process is often referred to as either CBA (Cost-Benefit Analysis) or BCA (Benefit-Cost Analysis).

Here are the steps involved in a generic cost-benefit analysis process:

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