Question

When doing a CBA analysis is it important if the

party paying the cost does not enjoy the benefit?

Answer 1

A Cost Benefit Analysis(CBA) is a process of identifying the benefits and costs of a project/ an activity and then subtracting the costs from benefits. By using cost benefit analysis organizations take decisions regarding resource allocation, purchase decision, hiring of new employees and also providing increments to existing employees.

In a CBA analysis all factors should be expressed in terms of money. It's so because in this analysis one has to determine the cost of the object/action and symultaneously it's benefits, then deduct cost from benefits so that we can access the importance of that object or how beneficial is that object.

When doing a CBA analysis it is essential that a party who is paying cost must enjoy the benefit. For exa, people are paying taxes and in return they are enjoying the benefits of road, education, hospitals, parks and other social benefits. But when a person is donating for a social group or for the education of poor children then in that case he is not enjoying monetary benefits. He is just bearing the cost and getting happiness & self-satisfaction. In an organization, the employer donates a part of his revenue towards the development of weaker sections of the society, as a part of its corporate social responsibility. In this case, the cost benefit analysis has no relevance, because there is no monetary benefits in this analysis. But in business the CBA analysis matters a lot, because depending on the costs and benefits of business, a businessman takes decisions regarding various phases of business. In business or in our day to day life we need benefits in return of paying costs.