Cost Benefit or Benefit Cost Analysis

It is rare for an organization to have unlimited resources; they must choose the best of all the opportunities available to them. One of the ways organizations make decisions is by using cost-benefit analysis.

This technique is also applicable to deciding on a new action.

Cost-benefit analysis is the most popularproject selection technique; it’s also known as a “Benefit-Cost Analysis.” This topic has a vast scope. I will be giving a basic understanding of this method; covering it all in one blog post would be very difficult.

什么是成本效益分析（CBA）？

Cost-benefit analysis is a benefit measurement method that is usually performed by top management. They gather data and analyze all projects. Then they try to find which project is more profitable.

Once this process completes, they develop the项目章程.

成本效益分析提供了有价值的信息，例如：

• Expected Profit
• 利润的时间价值
• The basis to compare the projects

Expected Profit

In the cost-benefit analysis, you find and convert the benefits into monetary values. Afterward, you subtract the investment costs from the benefits to get the result.

You can proceed if the result is positive, but if it is not, you should abandon the idea.

For instance, assume your company is involved with manual bookbinding, and you propose that management buy equipment to improve the efficiency.

Before submitting the proposal, you will perform the cost-benefit analysis. You will list the cost of the investment. For example:

• 机器成本
• Maintenance cost
• Cost of electricity used by these machines

Then you will identify the benefits, such as

• Profit from improved production
• Cost of reduced workforce
• Cost of the better quality product

您将找出成本投资和福利的货币价值。

You will then perform the cost-benefit analysis by subtracting the cost of investment from the benefits. Show this figure to management and justify your proposal.

利润的时间价值

在成本效益分析中，您可以计算支出和预期利润。了解，几年后赚取的利润将与今天的价值相同，在分析成本时考虑通货膨胀。通货膨胀侵蚀了金钱的价值。

For example, assume a 5% inflation yearly. What you can buy for 100 USD today will cost 105 USD after one year.

计算当前价值

假设您将100,000美元投资于一个项目。您预计一年后会赚取10,000美元的利润。

Considering a yearly inflation of 5%, what will the current value be?

The formula to find the Current Value is

FV = CV(1+r/100)^n

Here,

FV = Future Value

CV = Current Value

r = Inflation

n = time

Given values,

FV = 10,000美元

r = 5

n = 1

Putting these values in the formula,

10,000 = CV（1+0.05）^1

CV = 10,000/1.05

CV = 9,523.80

Therefore, the current value of your profit is 9,523.80 USD.

比较项目的基础

Cost-benefit analysis helps you select the best project when there are many many. Here you compare the profit earned from each project in current value and you will choose the one with the highest profit.

If it is a multiyear project, you cannot see the profit in today’s value. You may think you will get a profit from it; however, a Net Present Value (NPV) analysis could be eye-opening.

The Advantages of Cost-Benefit Analysis

成本效益分析具有许多优势。它可以帮助组织从许多选择中选择。当组织采取新的行动方案时，这也很有用。该分析具有几个基本优势：

1. It justifies selecting a project.
2. 它有助于比较投资成本和收益。
3. 它提供了比较可用选项的基线。
4. It compares the future earnings with today’s dollar value.
5. 它有助于选择最有利可图的项目。

成本效益分析的局限

该技术有一些局限性。

It is useful for small projects with shorter durations. As the duration increases, this technique becomes more complex. Bigger projects are more difficult; converting intangible costs are not easy and this technique is not useful.

As the project becomes bigger and more complex, intangible costs and benefits rise. Converting these costs and benefits into monetary form is not an easy task. Inflation plays an important role in longer projects. Also, the greater the duration, the greater the risks.

概括

The cost-benefit technique is a systematic approach to calculating the investment cost and received benefits. You can use this when you have to select a project among many options. This technique also helps you when taking new action, but becomes more difficult as the duration of the project or cost increases, this technique becomes more difficult.

您如何在组织中使用成本效益分析？请在评论部分中分享您的想法。