COST BENEFIT ANALYSIS
BENEFIT
• 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.
COST
• Any negative effect on an
organisation resulting from the
implementation of the project.
• Examples:
• Maintenance costs.
• Environment
• Research and development.
• Labour costs.
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.
CONCEPT OF CBA
• The ultimate aim of a business organization is to make profits.
Therefore, any system in the organization must produce more
benefits as compared to its costs for the organization to survive.
• It is a tool which is adopted by modern financial analysts before
undertaking any financial operation or commercial activity.

BENEFITS > COSTS

 PRINCIPLES OF CBA

PRINCIPLE 1 PRINCIPLE 2

PRINCIPLES
There must be a common CBA valuations should
of the measurement. represent Producers or
Consumers.

PRINCIPLE 3
Benefits are usually
measured by Market
Choices.
 GENERAL STEPS FOR CBA
STEP 1: STEP 2:
Specifying the project Describe quantitatively the
clearly. inputs and outputs of the
program.

STEP 4: STEP 3:
Compare these benefits and Estimate the social cost and
costs. benefits of these inputs and
outputs of the program.
 STEP 1: Specify clearly the project
• The first step is to decide on the perspective from which the study is to be done.

• When we have decided on the perspective on the main elements of the projects such as, the
study of the location, timing, group involved, the connection with other program, etc, should
be considered.
• When the project is fixed the following two program are involved:

1. Physical project: These projects are physical in nature, which is done when an area is
polluted. E.g.: Public waste treatment plans, hazardous waste removal, etc.

2. Regulatory project: This project regulates the amount of pollution in the society. E.g.:
Enforcement of environmental law and regulation, water disposal practice, restrictions of
land for certain activities, etc.
 STEP 2: Describe quantitatively the inputs
and outputs of the project.
• For some projects it is easy to identify the input and output.
• For eg.,if we are planning a waste water treatment project, the staffs of that program will be
able to provide a full physical specification 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 disposition of nuclear
waste.
• Because a restriction on development in a particular area can be expected to detect
development elsewhere into the surrounding areas.
STEP 3: Estimatethe 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.

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..
DEMERITS MERITS
1. The government is
1. The CBC analysis may
not completely aware
be applicable for both
of all the cost and
the new as well as old
benefits associated
projects.
with the program.

2. It is based on accepted
social principle that is
on individual
preferences.
3. This method also
2. This approach does
encourages the
not clearly states that
development for new
who should bear the
techniques for the
population control
valuation of social
cost
benefits.
 CONCLUSION
• Performing a CBA is critical to the continuation of a development project.
• Superficial attention to its development may result in erroneous
conclusions which will lead a company down a path to disaster.
• It is important that both costs and benefits be thoroughly defined.
 THANKYOU!!
Presented By: Simran Aggarwal | MURP-I (2020-22)
Faculty of Planning, SUPVA