Cost-benefit analysis – what is it?
Cost-benefit analysis is the process of evaluating all the costs and benefits associated with a particular business decision. The purpose of this analysis is to determine whether a decision is profitable and what effects it will have in the long term.
The analysis identifies various categories of costs, such as direct, indirect, fixed and variable costs, and benefits, which can range from financial gains to intangible benefits, such as improved service quality or increased customer satisfaction.
Cost-benefit analysis is often used in investment projects, when introducing new products or services, and in decision-making processes for resource allocation. By conducting such analysis, organizations can better understand the potential risks and benefits, allowing them to make more informed decisions.
Frequently asked questions
1 What are the benefits of conducting a cost-benefit analysis?
Benefits include a better understanding of the potential impact of decisions, optimization of resources, and increased operational efficiency.
2) What are the challenges of cost-benefit analysis?
Challenges include accurately estimating costs and benefits and considering all factors influencing the decision.
