Cost Benefit Analysis

"Cost-benefit analysis is a term that refers both to:

helping to appraise, or assess, the case for project or proposal, which itself is a process known as project appraisal and
an informal approach to making economic decisions of any kind.

Under both definitions the process involves, whether explicitly or implicitly, weighing the total expected costs against the total expected benefits of one or more actions in order to choose the best or most profitable option. The formal process is often referred to as either CBA (Cost-Benefit Analysis) or BCA (Benefit-Cost Analysis).

Benefits and costs are often expressed in money terms, and are adjusted for time value of money so that all flows of benefits and flows of project costs over time (which tend to occur at different points in time) are expressed on a common basis in terms of their present value. Closely related, but slightly different, formal techniques include cost effectiveness analysis, economic impact analysis, fiscal impact analysis and Social Return on Investment (SROI) analysis. The latter builds upon the logic of cost-benefit analysis, but differs in that it is explicitly designed to inform the practical decision-making of enterprise managers and investors focused on optimizing their social and environmental impacts. Cost-benefit Analysis is also used in Decision Architecture to justify investment decisions."

The basic concept of Cost Benefit Analysis is well known. The issues of benefits can be troublesome because an organization does not always have a good idea on changing trends in:

On the costing side of this equation, the problems deal with how you calculate costs. Those organizations who use traditional department costing often over cost or undercost which can lead to poor decision. Those organizations who use activity based costing are more likely to come up with more accurate costs than traditional costing?

Email below or call John Antos or Jim Brimson at 972-980-7407 to find out how to improve your costing.