Cost-Benefit Analysis - Assessing the Financial Implications of Decisions
Ajaybhaalaji Thulasingam
HRD & Organizational Transformation | Certified Behavioral & Soft Skills Trainer
Definition and Importance
What is Cost-Benefit Analysis?
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Definition: Cost-Benefit Analysis (CBA) is a systematic approach to estimating the strengths and weaknesses of alternatives. It is used to determine options that provide the best approach to achieving benefits while preserving savings.
Purpose: To assess the economic value of decisions by comparing the costs and benefits, ensuring that resources are allocated efficiently.
Importance of CBA: Informed Decision Making: Helps in making well-informed decisions by considering all financial implications.
Resource Allocation: Ensures optimal allocation of resources by weighing the costs against the benefits.
Risk Management: Identifies potential financial risks and benefits associated with a decision.
Accountability and Transparency: Provides a transparent framework for evaluating and justifying decisions.
Key Concepts
Net Present Value (NPV): The difference between the present value of benefits and costs.
Return on Investment (ROI): A measure used to evaluate the efficiency or profitability of an investment.
Payback Period: The time it takes for an investment to generate an amount of money equal to the cost of the investment.