Get Cost-Benefit Analysis*

Cost analysis allows professionals to make decisions regarding future projects by allowing them to weigh their costs against their profits. If the project cost is higher than the predicted earnings, professionals can make the necessary changes to the project to increase the earnings or lower expenses.

Benefit-Cost Ratio = ∑ Present Value of Future Benefits / ∑ Present Value of Future Costs.

The output of cost benefit analysis will show the net benefit (benefits minus cost) of a project decision. For example: Build a new product will cost 100,000 with expected sales of 100,000 per unit (unit price = 2). The sales of benefits therefore are 200,000.

Cost Benefit Analysis. A decision-making process that weighs the pros and cons of different alternatives to see if the benefit outweigh the costs. Criteria. A principle or standard by which something may be judged or decided.

What Are the 5 Steps of Cost-Benefit Analysis? The broad process for a cost-benefit analysis is to set the analysis plan, determine your costs, determine your benefits, perform analysis of both costs and benefits, and to make a final recommendation. These steps may vary from one process to another.

For example: Build a new product will cost 100,000 with expected sales of 100,000 per unit (unit price = 2). The sales of benefits therefore are 200,000. The simple calculation for CBA for this project is 200,000 monetary benefit minus 100,000 cost equals a net benefit of 100,000.

The BCR is calculated by dividing the proposed total cash benefit of a project by the proposed total cash cost of the project.

You can use these steps to calculate a cost analysis ratio: Determine the reason you need a cost analysis. ... Evaluate cost. ... Compare to previous projects. ... Define all stakeholders. ... List the potential benefits. ... Subtract the cost from the outcome. ... Interpret your results.