By Madhurima Tiwari
WHAT IS A COST-BENEFIT ANALYSIS?
A cost-benefit analysis is the process of comparing the projected or estimated costs and benefits (or opportunities) associated with a project decision to determine whether it makes sense from a business perspective.
Generally speaking, cost-benefit analysis involves tallying up all costs of a project or decision and subtracting that amount from the total projected benefits of the project or decision. (Sometimes, this value is represented as a ratio.)
If the projected benefits outweigh the costs, you could argue that the decision is a good one to make. If, on the other hand, the costs outweigh the benefits, then a company may want to rethink the decision or project.
There are enormous economic benefits to running these kinds of analyses before making significant organizational decisions. By doing analyses, you can parse out critical information, such as your organization’s value chain or a project’s ROI.
Cost-benefit analysis is a form of data-driven decision-making most often utilized in business, both at established companies and startups. The basic principles and framework can be applied to virtually any decision-making process, whether business-related or otherwise.