Cost-Benefit Analysis

Loading the player...

What is a 'Cost-Benefit Analysis'

A cost-benefit analysis is a process by which business decisions are analyzed. The benefits of a given situation or business-related action are summed and then the costs associated with taking that action are subtracted. Some consultants or analysts also build the model to put a dollar value on intangible items, such as the benefits and costs associated with living in a certain town. Most analysts will also factor opportunity cost into such equations.

BREAKING DOWN 'Cost-Benefit Analysis'

Prior to erecting a new plant or taking on a new project, prudent managers will conduct a cost-benefit analysis as a means of evaluating all of the potential costs and revenues that may be generated if the project is completed. The outcome of the analysis will determine whether the project is financially feasible, or if another project should be pursued.

RELATED TERMS
  1. Shadow Pricing

    1. The actual market value of one share of a money market fund. ...
  2. Intangible Cost

    An unquantifiable cost relating to an identifiable source. Intangible ...
  3. Cost Of Carry

    Costs incurred as a result of an investment position. These costs ...
  4. Cost Test

    A standard test applied to a process to determine if the net ...
  5. Cost Of Revenue

    The total cost of manufacturing and delivering a product or service. ...
  6. Tangible Cost

    A quantifiable cost related to an identifiable source or asset. ...
Related Articles
  1. Economics

    How to Do a Cost-Benefit Analysis

    The benefits of a given situation or business-related action are summed and then the costs associated with taking that action are subtracted.
  2. Executive Compensation

    Project Manager: Job Description & Average Salary

    Discover more about the specific tasks that project managers are responsible for and the average salary that can be expected in such a position.
  3. Term

    What is a Feasibility Study?

    A feasibility study analyzes a company’s ability to complete a project.
  4. Investing

    What's a Hurdle Rate?

    Hurdle rate has two meanings. In the business world, a business typically makes a decision on a capital project based on the net present value approach. To determine the net present value, the ...
  5. Professionals

    Style Matters In Financial Modeling

    If you're looking to get a job as an analyst, you'll need to know how to work it.
  6. Budgeting

    Consulting - Everybody's Doing It, Should You?

    Fancy yourself a problem solver? Management consulting might be right for you.
  7. Economics

    What Are The Different Types Of Costs In Cost Accounting?

    Cost accounting measures several different types of costs associated with a company’s production processes.
  8. Professionals

    Career Advice: Financial Analyst Vs. Financial Consultant

    Read an in-depth comparison between working as a financial analyst or a financial consultant, including how to determine which career to choose.
  9. Professionals

    What Exactly Do Project Managers Do?

    While supervision is one important part of the job, a lot more goes into project management than just watching everyone work.
  10. Investing

    Opportunity Cost

    Every action has a cost, even the ones you don't pursue. Find out how this is calculated.
RELATED FAQS
  1. What is the difference between marginal analysis and cost benefit analysis?

    Read about the differences between marginal analysis and cost-benefit analysis, and why marginalism is a crucial concept ... Read Answer >>
  2. What are common use cases for marginal analysis?

    Read about some of the common uses of marginal analysis, including cost-benefit decisions in business or deciding how to ... Read Answer >>
  3. How do companies use marginal analysis?

    Find out how and why companies rely on marginal analysis, particularly when developing a cost-benefit approach for future ... Read Answer >>
  4. How reliable or accurate is marginal analysis?

    Learn why predictive marginal analysis is limited by human knowledge and reason, but reflective marginal analysis can always ... Read Answer >>
  5. How do you use the profitability index rule when scoping out a project?

    Understand the parameters of the profitability index rule and how this rule is used in corporate capital allocation to determine ... Read Answer >>
  6. What are typical examples of capitalized costs within a company?

    Learn examples of capitalized costs such as expenses incurred to put fixed assets to use as well as software development ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center