Description
The cost-benefit analysis is about comparing the costs and benefits of a project or a major activity and using this comparison as a basis for decision-making for the implementation of the project/activity. The costs and benefits are in most cases described in monetary terms to allow comparison. However, it is sometimes difficult to express welfare gains, for example, as a monetary unit. If at the end of the analysis the benefit is higher than the total cost, a project/activity should be implemented. Experience and expected values are used to determine costs and benefits in advance.
Effort
Medium
Complexity
Medium
Method Type
Quantitative
ISO 31000
Risk Evaluation
Prerequisites
Experts who determine the expected values for the benefits and costs
Basic Approach
1. Calculate/estimate total costs or determine expected value
2. Determine/estimate benefit or determine expected value
3. Comparison of benefits and costs
4. positive result --> execute project/activity
5. negative result --> withdraw project/activity
Advantages
- Simple method
- Clear presentation
- Easy to interpret
Disadvantages
- Expected values may be too imprecise
- No precise indication of welfare gain in monetary units
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