Cost-Benefit Analysis:

This is an operation that is conducted in a business and it forms the basis on which business decisions are analyzed. In any business venture the costs that are associated with that business are subtracted from the benefits. This helps to asses the monetary social costs and benefits of a business where capital has been invested over a given period of time.

Principles of cost-Benefit Analysis:

a.  Appraisal of a project; it is a technique that is used in appraising a business venture or project.

b.  Bringing externalities into the picture; these are external ventures that are taken into consideration when doing the analysis. This may include private costs and other social impacts to the project.

c.  Time; time is of economic importance in costs benefit analysis; this is sometimes referred to as discounting.
Uses of Costs-benefit analysis:

It is important in assessing the viability of a particular business or project and can also be applied in evaluating returns from an investment. But it is a costly process and may not be applied in small business ventures who may not afford.

Stages in cost benefit analysis:

i.  Calculating the social costs and social benefits; this may include the tangible benefits and costs and intangible benefits and costs to a business project. In this all the costs and benefits are identified.

ii.  Discounting the future value of benefits; this is where the value of future benefits must be discounted in order for one to enjoy now not in the future.

iii.  Comparison of costs and benefits; this is done to ascertain the net social rate or return.

iv.  Comparison of net rate of return; after costs benefit analysis, one is able to make a choice/decision on the projects to run and which one to leave out.

Therefore cost benefit analysis process able to find, quantify and add all the positive factors to a business and on the other hand it identifies, quantifies and subtracts all the negatives and costs in a business venture thus the difference between the two will determine the way forward.



 


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