WHAT IS CBA?
Cost-Benefit Analysis (CBA) is a systematic process used to evaluate the economic feasibility of a project or investment by comparing its costs with the anticipated benefits. The primary goal of CBA is to determine whether the benefits of a project outweigh its costs, thereby guiding decision-makers in resource allocation and project selection.
In a CBA, both tangible and intangible costs and benefits are identified, quantified, and expressed in monetary terms wherever possible. This includes initial investments, operating expenses, and potential risks as costs, while benefits may encompass revenue generation, cost savings, and social or environmental impacts.
The analysis typically involves:
Identifying Costs and Benefits: Listing all relevant costs (direct and indirect) and benefits associated with the project.
Quantifying: Assigning monetary values to the identified costs and benefits to facilitate comparison.
Discounting Future Values: Considering the time value of money by discounting future benefits and costs to present value.
Calculating Net Present Value (NPV): Determining the difference between the present value of benefits and the present value of costs to assess overall value.
Sensitivity Analysis: Evaluating how changes in key assumptions or variables affect the outcomes of the analysis.
CBA is widely used in various fields, including public policy, environmental assessments, and project management, as it provides a clear framework for understanding the economic implications of decisions and helps ensure that resources are used effectively and efficiently.
 
WHY WE NEED CBA?
Conducting a Cost-Benefit Analysis (CBA) is essential for several reasons:
Informed Decision-Making: CBA provides a systematic approach to evaluate the economic viability of a project or investment, helping decision-makers understand potential returns versus costs.
Resource Allocation: It assists organizations in prioritizing projects by comparing their costs and benefits, ensuring resources are allocated to the most beneficial initiatives.
Risk Assessment: CBA helps identify and quantify risks associated with a project, allowing for better risk management strategies.
Transparency: It promotes transparency and accountability by providing a clear rationale for funding decisions and project selection.
Performance Measurement: CBA can be used to assess the effectiveness and efficiency of completed projects, informing future investments.
Stakeholder Engagement: Presenting a CBA can facilitate discussions with stakeholders by clearly outlining the expected impacts and financial implications of a project.
Long-term Planning: CBA encourages long-term thinking by considering future benefits and costs, rather than focusing solely on immediate impacts.