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.
