How can cost-benefit analysis help with decision-making?

1 What is CBA?

CBA is a process of identifying, measuring, and comparing the costs and benefits of different alternatives or scenarios. Costs are the negative consequences or expenses that result from an option or action, while benefits are the positive outcomes or revenues that result from an option or action. The goal of CBA is to find the option or action that maximizes the net benefit, which is the difference between the total benefits and the total costs.

3 What are the benefits of CBA?

CBA can assist with decision-making by offering a clear and consistent framework for evaluating and comparing different options or actions. This can help to enhance the transparency and accountability of the decision process, as well as improve communication and understanding amongst stakeholders. In addition, CBA can support the allocation of scarce resources and the prioritization of competing needs, while reducing the risk of overlooking or underestimating the costs and benefits of your decision.

4 What are the challenges of CBA?

CBA is not a perfect or foolproof method of decision-making and it has some challenges and limitations that you need to be aware of. Identifying and quantifying all relevant costs and benefits can be difficult, particularly intangible, non-monetary, or indirect ones. Additionally, future costs and benefits are uncertain and variable due to the many factors and assumptions that may change over time. Subjectivity and bias can also arise from the values and preferences used to measure and compare costs and benefits. Moreover, ethical and social implications may arise when assigning monetary values to human lives, health, environment, or culture. Finally, there is the possibility of overlooking or neglecting the distributional effects or equity issues of your decision.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?