Question

Advanced Engineering Economy

1. What is benefit-cost analysis?

Answer 1

Whenever people determine if the benefits of a particular action are likely to outweigh their disadvantages, they participate in a process of benefit-cost analysis (BCA). In the public sphere, systematic BCA is also a divisive method for a detailed and clear evaluation of the pros and cons of future policy changes. Actually, it is an effort to define and describe in dollar terms all the consequences of proposed government policies or programs. While it is not meant to be the sole basis for decision-making, BCA can be a valuable resource to policy makers.

Although it is commonly thought that they are calculated differently, the benefits and costs are actually side-by - side with the same coin. Benefits are calculated by the ability of individuals to pay for the performance of the program or initiative in question. The correct calculation of costs is the amount of compensation required to compensate for the negative consequences. The willingness to pay or reimburse required would also be the dollar sum that will leave also person as well off after the policy has been enforced as before.

Cost benefit analysis ( also known as benefit cost analysis) is a method in which companies can analyze actions, processes or programs or assess intangible value. The model is constructed by defining the benefits of the operation as well as the associated costs and by subtracting the costs from the benefits. If done, a cost-benefit analysis may yield objective findings that can be used to draw fair conclusions regarding the effectiveness and/or advisability of a decision or circumstance.

Organizations rely on cost-benefit analysis to guide decision-making by presenting an agnostic, evidence-based view of the topic being assessed — without the impact of opinion, politics, or prejudice. Through offering a straightforward picture of the implications of a decision, cost-benefit analysis is an important method for designing a strategic plan, assessing new employees, or making decisions on the allocation of resources or acquisitions.

Although there is no "standard" method for conducting cost-benefit analysis, there are certain key elements that will be present in almost all analyzes. Using the system that is ideally suited to your situation or industry
Establish a structure to describe the research parameters
Identify costs and benefits so that they can be classified by form and purpose.
Calculate costs and benefits over the planned life of a project or initiative
Compare costs and benefits using quantitative details
Analyze the findings and make a final informed decision.