Cost-benefit Analysis

Cost-benefit Analysis

Cost bene�t analysis compares the projected or estimated costs and bene�ts to enable leaders to make better decisions. While this is a good idea and

works well when people are honest about the costs and bene�ts, it is not unusual for politicians to exaggerate projected bene�ts and understate

projected costs. This is done to encourage people to be for whatever the politicians are trying to do.

Generally employed when a program begins, this method will di�erentiate di�erent options by evaluation and comparison.

Harvard Business School Online  gives the following steps for performing a cost-bene�t analysis.

• Establish a framework for the analysis

• Identify costs and bene�ts in separate lists.

• Assign a dollar value to each cost and bene�t

• Total the value of each and compare.

Future costs and bene�ts are not easy to determine, as many variables can exist. For example, a proposal to tax a speci�c good in order to fund a

certain product may because people change their behaviors. They may not buy as much of that good, buy the good elsewhere, or buy an alternative

good. Any of these things (or several others) would cause the projected amount of the funding to decrease.



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