Cost-Benefit Analysis
Cost-Benefit Analysis (pronunciation: kɒst ˈbɛnɪfɪt əˈnælɪsɪs) is a systematic approach to estimating the strengths and weaknesses of alternatives used to determine options which provide the best approach to achieving benefits while preserving savings (for example, in transactions, activities, and functional business requirements). The term originated from the field of Economics and Business Management.
Etymology
The term "Cost-Benefit Analysis" is derived from the English words "cost" and "benefit" combined with "analysis". The term "cost" comes from the Latin costa meaning "rib" or "side". The term "benefit" comes from the Latin bene meaning "good" and facere meaning "to do". The term "analysis" comes from the Greek analusis meaning "a breaking up" or "an untying".
Definition
A Cost-Benefit Analysis involves a systematic process for calculating and comparing benefits and costs of a project, decision or government policy (hereafter, "project"). It has two purposes:
- To determine if it is a sound investment/decision (justification/feasibility),
- To provide a basis for comparing projects. It involves comparing the total expected cost of each option against the total expected benefits, to see whether the benefits outweigh the costs, and by how much.
Related Terms
- Cost-Effectiveness Analysis
- Net Present Value
- Internal Rate of Return
- Payback Period
- Discounted Cash Flow
See Also
References
External links
- Medical encyclopedia article on Cost-Benefit Analysis
- Wikipedia's article - Cost-Benefit Analysis
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