Cost benefit analysis

Cost Benefit Analysis
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1. COST BENEFIT ANALYSIS

2. BENEFIT COST
•Any negative effect on an
organisation resulting from the
implementation of the project.
•Examples:
•Maintenance costs.
•Environment
•Research and development.
•Labour costs.
•A benefit is any positive effect
on the organisation resulting for
the implementation of the
project.
•Examples:
•Increase in productivity.
•Reduction in costs.
•Saving time.

3. WHAT IS COST
BENEFIT ANALYSIS?
•CBA is an economic evaluation
technique that measures all the positive
(beneficial) and negative (costly)
consequences of a program.
•CBA has been established primarily as a
tool for use by the government in making
their social and economic decisions.
•CBA is a decision making device for
evaluating activities that are not priced by
the market.
•CBA attempts to stimulate the market
result in areas where the market does not
operate to establish the prices.

4. CONCEPT OF CBA
•Theultimateaimofabusinessorganizationistomakeprofits.
Therefore,anysystemintheorganizationmustproducemore
benefitsascomparedtoitscostsfortheorganizationtosurvive.
•Itisatoolwhichisadoptedbymodernfinancialanalystsbefore
undertakinganyfinancialoperationorcommercialactivity.
BENEFITS>COSTS

5. PRINCIPLES OF CBA
PRINCIPLE 3
Benefits are usually
measured by Market
Choices.
PRINCIPLE 2
CBA valuations should
represent Producers or
Consumers.
PRINCIPLE 1
There must be a common
of the measurement.
PRINCIPLES

6. GENERAL STEPS FOR CBA
STEP 2:
Describe quantitatively the
inputs and outputs of the
program.
STEP 3:
Estimate the social cost and
benefits of these inputs and
outputs of the program.
STEP 1:
Specifying the project
clearly.
STEP 4:
Compare these benefits and
costs.

7. STEP 1: Specify clearly the project
•Thefirststepistodecideontheperspectivefrom whichthe study istobe done.
•Whenwehave decidedonthe perspectiveon themain elementsof the projects suchas,the
studyofthelocation,timing, groupinvolved, the connectionwith otherprogram,etc, should
beconsidered.
•Whentheprojectisfixedthefollowingtwoprogramareinvolved:
1.Physicalproject:Theseprojectsarephysicalinnature,whichisdonewhenan areais
polluted.E.g.:Publicwastetreatmentplans,hazardouswasteremoval, etc.
2.Regulatoryproject:Thisprojectregulatestheamountofpollutioninthesociety.E.g.:
Enforcementofenvironmental law andregulation,waterdisposal practice, restrictions of
landforcertainactivities,etc.

8. STEP 2: Describe quantitatively the inputs
and outputs of the project.
•Forsomeprojects itiseasy toidentifytheinputand output.
•For eg.,if we are planning a waste water treatment project, the staffs ofthatprogramwillbe
abletoprovide afullphysicalspecification of the plant, together with the inputs required to
build it and keep it running.
•However, it is harder to predict the externalities caused by the dispositionofnuclear
waste.
•Becausearestrictionondevelopmentinaparticularareacanbeexpectedtodetect
developmentelsewhereintothesurroundingareas.

9. STEP 3: Estimate the cost and benefit of these
inputs and outputs.
•Put the values on input and output flows.
(i.e.) to measure costs and benefits.
Note*: the units should be same.

10. STEP 4: Compare these cost and benefit.
•Comparison between cost incurred and benefit derived from the project.
(i.e.) TOTAL COST –TOTAL BENEFIT = NET BENEFIT.
Note*: if net benefit is positive then cost benefit is positive and vice versa..

11. DEMERITS
1.The government is
not completely aware
of all the cost and
benefits associated
with the program.
2.This approach does
not clearly states that
who should bear the
population control
cost
MERITS
1.The CBC analysis may
be applicable for both
the new as well as old
projects.
2.It is based on accepted
social principle that is
on individual
preferences.
3.This method also
encourages the
development for new
techniques for the
valuation of social
benefits.

12. CONCLUSION
•Performing a CBA is critical to the continuation of a development project.
•Superficial attentionto its development may result in erroneous
conclusionswhich will lead a company down a path to disaster.
•It is important that both costs and benefits be thoroughly defined.

13. THANKYOU!!
Presented By: Simran Aggarwal | MURP-I (2020-22)
Faculty of Planning, SUPVA