1. COST & BENEFIT ANALYSIS (CBA)
8/25/2019
COST & BENEFIT ANALYSIS (CBA)
Hatice Gökçen AKKOYUN
Industrial Engineering Department, Dokuz Eylül University, Turkey
25 August 2019

2. WHAT IS COST & BENEFIT ANALYSIS?
Cost & benefit analysis is a technique for assessing the monetary social cost and benefits of a capital investment project over a given time period.
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3. THE PARTICULAR CBA MODEL
The basic idea behind the model is to:
Take the benefits and costs and disaggregate them into their constituent parts,
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4. Apply unequal weights to those component that have a different social significance from others.
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5. DESCRIPTION OF THE TECHNIQUE
The technique used is based on:
Forecasting the economic effects for a project.
Quantifying them by means of appropriate measuring procedures.
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6. Using conventional techniques for monetizing economic effects .
Calculating the economic return.
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7. USE CBA TO DETERMINE
Whether a solution/project is economically feasible,
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8. Which of two or more projects provides the best return on investment,
What is the optimal point in time to start a project?
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9. CBA CATEGORIES
In performing CBA, it is important to identify cost and benefit factors.
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10. Cost and benefits can be categorized into the following categories:
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11. 1.TANGIBLE AND INTANGIBLE CBA
Tangible cost & benefit can be measured and identify.
Hardware costs, salaries for professionals and software costs are all tangible cost.
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12. Intangible cost & benefit whose value cannot be measured.
More customer satisfaction, improved company status are all intangible benefits.
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13. Both tangible and intangible costs and benefits should be considered in the evaluation process.
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14. 2. DIRECT AND INDIRECT CBA
Direct cost & benefit are attributable to a given project.
Insurance, maintenance, heat, light and air conditioning are all indirect cost.
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15. 3. FIXED AND VARIABLE CBA Fixed cost & benefit don’t change.
Depreciation of hardware, insurance are all fixed cost & benefit.
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16. Variable costs are incurred on regular basis.
Recurring period may be weekly or monthly.
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17. STEPS IN CBA
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18. STEPS IN CBA
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19. STRENGTHS Compares costs and benefits using equal terms.
Simplifies complex concepts and processes.
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20. Accepted by society more readily than other economic methods.
Can be carried out at many level (local, regional, national and international…)
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21. LIMITATIONS
Can be difficult to determine accurately the discount rate of future cost and benefits, as well as indirect impact.
Costs are easier to estimate than benefits.
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22. Can be a time-consuming and expensive process.
Does not always consider the source of the costs and benefits, needs to consider factors such as environmental, justice and indirect impact.
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23. USES OF CBA Investment planning, Commercial policy,
Development policy broadly.
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24. 25 August 2019