Question
The key components of a Cost-Benefit Analysis (CBA) are costs and benefits. Costs include direct costs (like materials and labor) and indirect costs (like opportunity costs). Benefits include direct benefits (like revenue) and indirect benefits (like improved customer satisfaction). Each cost and benefit is assigned a monetary value. The net benefit (total benefits minus total costs) is calculated. If the net benefit is positive, the investment is considered worthwhile. The CBA helps identify the optimal return on investment by comparing the net benefits of different investment options and choosing the one with the highest net benefit.
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Once the lists of all costs and benefits are completed, a dollar amount must be assigned to each of them. Direct costs and benefits will be the easiest to assign a dollar amount to. Indirect and intangible costs and benefits, however, can be more challenging to quantify. To calculate indirect and intangible costs and benefits, research and use special software.
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