What is Cost Benefit Analysis | CBA
Cost-Benefit Analysis is a simple way to decide if something is worth doing by comparing:
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What it costs (money, time, effort) vs.
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What to get out of it (money saved, profits, time saved, improved service, etc.)
How to calculate cost benefit analysis with examples 🔢:
Net Benefit = Total Benefits − Total Costs → This shows how much “extra value” is obtained
CBA Ratio = Total Benefits / Total Costs → A ratio greater than 1 means benefits are bigger than costs
Real-World Examples:
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New Software Tool: Cost = $5,000/year; Benefit = $10,000/year in time saved and fewer errors
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CBA Ratio = 2 → a great deal!
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Marketing Campaign: Cost = $20,000; Benefit = $18,000 in extra sales
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CBA Ratio = 0.9 → costs more than it brings in, probably not worth it
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Why Does CBA Matter?
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Helps make smart decisions
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Compares options in a clear, logical way
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Saves time, money, and effort
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Useful for big and small decisions (from government projects to office upgrades)