Cost-Benefit Analysis evaluates financial pros and cons of decisions by comparing expected costs and benefits, aiding in resource allocation. It offers a quantifiable decision-making basis, enhancing transparency and effectiveness, despite challenges in estimating costs and predicting future conditions.
Methodology:
- Define the scope and objectives,
- List alternatives,
- Identify costs and benefits,
- Quantity costs and benefits,
- Calculate net present value,
- Conduct sensitivity analysis,
- Make recommendations,
- Document and communicate findings.
Benefits:
- Objective decision-making,
- Comprehensive evaluation of alternatives,
- Critical thinking and discussion.
Limitations:
- Quantifying intangible benefits and costs,
- Uncertainty of risk,
- Potential for bias in selection and interpretation.