Analysis Decision making is never easy in the business field. It is for this reason that many entrepreneurs depend on cost benefit analysis as the best technique to pursue and accomplish all the projects that they have at hand. Cost benefit analysis [CBA] is a technique designed to help determine whether a business project should go forward and whether the benefits will offset the costs. In simple terms, CBA helps ascertain how well, or poorly, a planned project will turn out- are the benefits appealing or worthy. It is also known as the benefits-cost analysis [BCA].
Cost benefit analysis has two key purposes. Firstly, it determines if it is a sound investment or decision that an individual or organization is making. Secondly, it provides a basis for comparing different projects.
It involves comparing the total expected cost of each option against the total expected benefits making it easy to check whether the benefits balance the costs and by which margin.
Cost benefit analysis relates to, but distinct from cost-effectiveness analysis- an economic analysis that compares the relative costs and outcomes of two or more projects. CBA assigns a monetary value to the degree of likely effect unlike other techniques employed. In essence, in CBA benefits and costs are expressed in monetary terms.
On top of this, these benefits are adjusted depending on the time value of money making it easy to express the flow of costs and benefits on a common basis. there are formal techniques used that relate closely to cost benefit analysis besides cost-effectiveness analysis and they are cos-utility analysis, economic impact analysis, social return on investment [SROI] analysis and fiscal impact analysis to name but a few. It is an analysis of the expected balance of costs and balance and account all foregone alternatives or opportunities. Accurate CBA picks out choices that easily increase welfare from a perspective that will make it easy to utilize the available resources.
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Cost benefit analysis is a tool or technique used by governments and other organizations such as private sector business mainly to appraise the interest of a given policy. The cost benefits analysis process is quite easy.В Here are a few steps to be well-versed with while undertaking the CBA process;
- List alternative projects
- List the available stakeholders
- Select the appropriate measurements of all cost or benefit elements
- Predict the outcome of cost and benefit with a certain relevant duration
- Apply discount rate
- Calculate the net present value of project options and
- Lastly, adopt a recommended choice.
Cost benefits analysis makes it easy to measure the positive or negative effects of a project of choice. The most suitable measurements will include effects of the project on participants and non-users. В The key point here is to keep in mind that, cost benefit analysis is a relatively honest tool essential for determine whether decisions that you are making on a projects are right. To effectively carry out the analysis, use only financial costs and benefits. It is wise to also include tangible things in the analysis as it brings more subjectivity into the cost benefits analysis process.
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