Cost-benefit analysis (CBA) is a decision-making tool used to evaluate the costs and benefits of a proposed project or decision. It is a process of weighing the expected costs of an action against the expected benefits in order to determine whether the action is worthwhile.
CBA involves identifying all relevant costs and benefits associated with a project or decision, estimating their monetary value, and comparing them to determine whether the project or decision is economically viable.
The benefits of a project may include increased revenue, improved efficiency, or enhanced social welfare. The costs of a project may include direct costs such as labor and materials, as well as indirect costs such as lost productivity or environmental impact.
Once all costs and benefits are identified and quantified, they are compared and a decision is made based on whether the benefits outweigh the costs or vice versa. If the benefits outweigh the costs, the project or decision is considered economically viable and may be pursued. If the costs outweigh the benefits, the project or decision may not be pursued or may be modified to reduce costs or increase benefits.
CBA is commonly used in business, government, and non-profit organizations to evaluate projects and decisions. It is a useful tool for making informed decisions based on an objective evaluation of costs and benefits.
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