Cost Benefit Analysis

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Did you know? CBA is widely used in business, government, and policy decisions to compare the benefits and costs of projects.

1. What is cost benefit analysis?

Cost Benefit Analysis (CBA) is a decision-making tool used to compare the total expected costs and benefits of a project, policy, or investment. It helps businesses and organizations determine whether an action is financially and strategically worthwhile by evaluating whether benefits outweigh the costs.

2. What are the 5 steps of cost-benefit analysis?

The five key steps in a typical cost-benefit analysis are:

1. Define the objective – Clearly state the decision or project scope.
   
   
2. Identify costs and benefits – List all tangible and intangible factors.
   
   
3. Assign monetary values – Estimate the value of each cost and benefit.
   
   
4. Calculate net benefit – Subtract total costs from total benefits.
   
   
5. Make a decision – Proceed if benefits outweigh costs.
   

3. How to calculate CBA?

The basic formula for Cost Benefit Analysis is:

Net Benefit = Total Benefits – Total Costs

If the net benefit is positive, the project is considered financially viable. For long-term projects, discounting future values using Net Present Value (NPV) is often included for more accurate assessment.

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