what is a cost benefit analysis 
a cost benefit analysis cba is a process of comparing the projected costs and benefits of a decision to determine its feasibility businesses can determine whether a decision is worthwhile by summing up the potential rewards expected from an action and subtracting the associated costs consultants or analysts may also create models to assign a dollar value to intangible factors such as the benefits and costs of living in a particular town 1michela buttignol investopediaunderstanding cost benefit analysiscost benefit analysis cba estimates and assesses the value of a project s benefits and costs to determine whether or not its worth pursuing originating from the work of jules dupuit and alfred marshall and developed further by the u s corps of engineers in the 1930s cba involves comparing all current and future monetary costs and benefits of a project 2before taking on a new project prudent managers perform a cba to evaluate all the potential costs and revenues it might generate the analysis s outcome determines whether the project is financially viable or whether a company should consider other alternatives many cba models also factor opportunity cost into the decision making process opportunity cost represents the potential benefits a business misses out on when choosing one alternative over another it accounts for the value of the next best option that isn t selected highlighting the trade offs involved in any decision 3 opportunity cost can make the decision making process more comprehensive and effective finally a manager will quantitatively compare the aggregate costs and benefits to determine if the benefits outweigh the costs if they do the rational decision is to proceed with the project if not the business reviews the project to see if adjustments can be made to increase benefits or decrease costs to make it viable otherwise the project should likely be avoided with cost benefit analysis there are a number of forecasts built into the process and if any of the forecasts are inaccurate the results may be called into question the cost benefit analysis processthere is no single universally accepted method of performing a cost benefit analysis however every process usually has some variation of the following five steps the first step in a cost benefit analysis is understanding the current situation identifying goals and establishing a framework to define the project scope begin by determining the purpose of the cost benefit analysis for example the purpose might be to decide whether to expand to increase market share or to evaluate the benefits of renovating the company website in this initial stage the project planning takes place including setting the timeline identifying necessary resources understanding constraints determining required personnel and selecting evaluation techniques at this point a company should assess whether it s equipped to perform the analysis such as having the technical staff needed for an adequate assessment during the project scope development phase key stakeholders should be identified notified and given a chance to provide their input depending on the findings it may be wise to include those most impacted by the analysis s outcome e g if the outcome is to renovate a company s website it may be required to hire multiple additional staff and should be consulted with the framework behind you it s time to start looking at numbers the second step of a cost benefit analysis is to determine the project costs these costs can be categorized as follows 