A Beginner’s Guide to Cost-Benefit Analysis

Posted by Ellaria Sandy on May 21st, 2021

In today’s competitive world, every business (small, medium or large) uses cost-benefit analysis to make better decisions about its operations. If you are a student of finance or management, you are more likely to learn about this topic in your curriculum. However, if you want to stay ahead of your peers by developing a basic understanding of the topic beforehand, this blog is just for you. (Product Churn)

What Is Cost Benefit Analysis?

Cost-benefit analysis can be described as a process that organisations use to analyse decisions, systems or projects, or find a value for intangibles. The process involves determining the benefits of a particular action and the associated cost and then subtracting the costs from benefits. This analysis yields concrete results which help make crucial business decisions, including the ones regarding foreign direct investments. (Corporate Strategy Assignment Help)

Why Is Cost Benefit Analysis Used?

Most organisations rely on cost-benefit analysis to support their decision-making process. They rely on this process as it offers an agnostic, evidence-based view of the issue that is being evaluated, without any biasness. The process allows the organisations to have a proper idea of the consequences of the decision they are about to make. As you may realise, the cost-benefit analysis can be a great tool for developing brand management strategies. (Dissertation Abstract, Online Shopping Cart System)

How to Do a Cost Benefit Analysis?

While there is no particular format to perform a cost-benefit analysis, a few core elements are presented across almost all analyses. Think of it as a dissertation structure. You need to pick the analysis structure that best works for your organisation. Once you have decided on the structure, you will have to perform a few basic steps:

       i.          Set up a framework to outline the parameters of the analysis

     ii.          Determine costs and benefits so that they can be segmented by type and intent

   iii.          Calculate costs and benefits across the assured life of a project

   iv.          Have a comparison of costs and benefits using aggregate information

     v.          Analyse results and make your informed, final recommendation

It is important that you perform all these steps properly and not base assumptions on opinions or best guesses. You also need to make sure that your analysis is as comprehensive as possible. This way, you are more likely to get the correct results.