Cost-Benefit Analysis

Cost-Benefit Analysis is a systematic approach to estimating the strengths and weaknesses of alternatives used to determine options which provide the best approach to achieving benefits while preserving savings (for example, in transactions, activities, and functional business requirements). A Cost-Benefit Analysis is also known as a benefit-cost analysis.

Overview

A Cost-Benefit Analysis involves the calculation and comparison of the costs and benefits of a project or decision. It is a tool used by businesses and governments to evaluate the desirability of a given intervention. It is an analysis of the expected balance of benefits and costs, including an account of foregone alternatives and the status quo.

Methodology

The process involves monetary value of initial and ongoing expenses vs. expected return. Constructing plausible measures of the costs and benefits of specific actions is often very difficult. In practice, analysts try to estimate costs and benefits either by using survey methods or by drawing inferences from market behavior.

Applications

Cost-Benefit Analysis is often used by organizations to appraise the desirability of a given policy. It is an analysis of the cost effectiveness of different alternatives in order to see whether the benefits outweigh the costs. The aim is to gauge the efficiency of the intervention relative to the status quo.

Limitations

The main limitation of Cost-Benefit Analysis is that it requires the calculation of the present value of future costs and benefits. This is often difficult to do accurately. Moreover, it can be difficult to quantify in monetary terms some types of intangible costs and benefits.

See also

• Cost-Effectiveness Analysis
• Health Economics
• Healthcare Quality
• Healthcare Reform
• Health Policy

Cost-Benefit Analysis Resources
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