I have been doing cost benefit analyses for a few years now. The concept is deceptively simple but provides a solid framework for insightful decision making.
It is a tool used to assess potential costs and benefits of a decision or project, usually in monetary terms. It is commonly used to evaluate the feasibility and potential impact of projects, policies and regulations.
Recently I have been thinking about the usefulness of the approach given that many major project often seem to float past this analysis.
Here are five epiphanies that might help CBA evangelists:
The true value of a decision lies not just in its financial cost and benefit, but also in its impact on people and the environment.
CBA forces us to weigh the pros and cons, but it’s important to remember that some benefits and costs are difficult to quantify and may have long-term effects that are not immediately apparent.
It should not be the sole factor in decision-making, as there may be intangible or ethical considerations that cannot be easily measured in financial terms.
CBA is a useful tool, but it is important to remember that it does not account for future uncertain events. Therefore, it should be used in conjunction with other decision making tools for a comprehensive evaluation.
Cost-benefit analysis can be misleading if it only looks at short-term financial gains and ignores long-term social and environmental costs. A more holistic approach should be used that accounts for all the potential impacts of a decision.
These are just some of the insights about CBA, but there are more that might be organisational or project relevant.
Is CBA a key driver of your organisation’s project appraisal process or just another compliance element in developing business cases?
Lytton Advisory 