📌 Cost-Benefit Analysis Summary
Cost-benefit analysis is a method used to compare the costs of a decision or project with its expected benefits. It helps people and organisations decide whether an action is worthwhile by weighing what they must give up against what they might gain. This process involves identifying, measuring, and comparing all the positives and negatives before making a decision.
🙋🏻♂️ Explain Cost-Benefit Analysis Simply
Imagine you are deciding whether to buy a new bike. You list all the good things, like being able to ride to school, and all the bad things, like how much it costs. If the good things are worth more to you than the bad things, you might decide to buy the bike. This is how cost-benefit analysis works, by helping you make smart choices.
📅 How Can it be used?
Cost-benefit analysis can help decide if building a new community park is worth the investment based on expected use and maintenance costs.
🗺️ Real World Examples
A local council wants to build a new sports centre. They use cost-benefit analysis to compare the construction and running costs with the expected benefits, such as improved health for residents and increased community engagement. After weighing the costs and benefits, they decide whether the project should go ahead.
A business considers upgrading its computer systems. By performing a cost-benefit analysis, it calculates the upfront expense against potential benefits like faster processing, reduced downtime, and improved employee productivity. The company uses this information to decide if the upgrade is a smart investment.
✅ FAQ
What is cost-benefit analysis and why is it useful?
Cost-benefit analysis is a way to help people or organisations decide if a project or decision is worth pursuing. By comparing what you have to spend against what you might gain, it makes it easier to see if the advantages outweigh the disadvantages. This approach saves time and resources by helping you make more informed choices.
How do you actually carry out a cost-benefit analysis?
To carry out a cost-benefit analysis, you start by listing all the costs and all the potential benefits of a decision or project. Next, you try to put a value on each of these, even if some are harder to measure than others. Once you have everything down, you compare the total costs to the total benefits to see which side comes out on top. This helps you decide if going ahead makes sense.
Can cost-benefit analysis be used for everyday decisions?
Yes, cost-benefit analysis is not just for big organisations or governments. It can help with everyday choices, like deciding whether to buy a new appliance or take a holiday. By thinking about what you will spend versus what you will gain, you can make choices that suit your needs and budget.
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