Also known as: CBA, benefit-cost analysis

Cost-Benefit Analysis

ConceptualFrameworksFinance

Definition

Cost-Benefit Analysis: Cost-benefit analysis systematically compares the costs and benefits of a decision, project, or policy. By quantifying both sides in comparable terms (usually monetary), CBA reveals whether benefits justify costs and enables comparison between alternatives. It forces explicit consideration of trade-offs.

Example Usage

“CBA showed our custom integration would cost $200K to build but save customers $500K annually. The 2.5x return justified the investment.”

Common Misconceptions

Only count financial costs and benefits. Include time, opportunity cost, risk, and intangible factors.

All benefits are measurable. Some benefits are qualitative; acknowledge them even if not quantified.

CBA is always worth doing. For small decisions, intuition is faster; reserve CBA for significant choices.

Related Terms

Opportunity Cost

Opportunity cost is the value of the best alternative you give up when making a choice. Every decision—to build a feature, hire a role, pursue a marke...

ConceptualFrameworksFinance

Weighted Scoring

Weighted scoring evaluates options by rating them against multiple criteria, with each criterion assigned a weight based on importance. Scores are mul...

ConceptualFrameworksOperations

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Cost-Benefit Analysis

Definition

Example Usage

Common Misconceptions

Related Terms

Opportunity Cost

Weighted Scoring

Related Tools

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