S W 0 1 0 3 0 1 - P L A N N I N G A N D I M P L E M E N TAT I O N O F D E V E L O P M E N T
PROJECT
MODULE – 4
UNIT – 11
Cost Benefit Analysis
PRESENTED BY
MERIN MARIA
MS W – 2ND YE AR
Introduction
• A cost-benefit analysis is a process used in businesses to analyse
decisions.
• The business or analyst sums the benefits of a situation or action
and then subtracts the costs associated with taking that action.
• A cost benefit analysis (CBA) should begin with compiling a
comprehensive list of all the costs and benefits associated with
the project or decision.
Purpose
There are two main purposes in using CBA:
• To determine if the project business case is sound, justifiable and
feasible by figuring out if its benefits outweigh costs.
• To offer a baseline for comparing projects by determining which
project’s benefits are greater than its costs.
Need
• Focuses on data-driven decision-making
• Discovers hidden costs
• Makes some decisions easier
• Provides a competitive advantage
Some important needs include :
• To evaluate whether a capital investment is worth it.
• To decide whether to hire new employees.
• To determine whether a project or operating change is feasible.
• To develop a benchmark for comparing projects.
• To weigh up one marketing initiative against another.
• To appraise the desirability of a proposed policy.
• To prioritize investments, so you’re focusing on the actions that return the most value first.
• To quantify the effects that a change initiative would have on stakeholders.
• To establish goals for the project itself, for example, to set time, productivity or cost restraints on
a project you’ve analyzed and approved.
Methodology Used In The CBA
Define options:
Identify costs and benefits
Identify the distribution of impacts
Quantify costs and benefits in physical units:
Value costs and benefits in monetary units:
Calculate present values
Calculate the net present value (NPV):
Calculate the benefit cost ratio (BCR) and internal rate of return (IRR)
Conduct sensitivity analysis
Select option:
Use the results:
Conclusion
• In conclusion, cost-benefit analysis is a vital tool for businesses,
project managers, and policymakers to make informed decisions.
By evaluating the costs and benefits of a project or decision,
organizations can determine the feasibility and potential return
on investment.
