How can I analyze costs and benefits?
The cost and benefits of the CBA abbreviation begin with the correct framing of the research question. This includes the determination of all potential positive effects of a particular potential investment decision and then transfer them to monetary values. The same process is then adhered to for all costs associated with the project concerned. After calculating both sets of values, they can be easily compared. Projects whose benefits exceed their costs should be carried out, while those whose costs exceed their benefits should be reworked or canceled.
This type of analysis is ideal for certain types of problems. Any projects that can be easily framed by the currency value are a good selection for such an analysis. Projects whose costs or benefits are difficult to convert to this type of valuation is difficult to analyze with cost and benefits analysis. Cost and benefits analysis requires projects that are limited in both time and space or calculation of costs and benefits is impossibleNo. If useful results are to be achieved, it is necessary to choose these limits carefully.
One factor that can affect this decision is an impact on the environment that is notorious to assign a reasonable and widely accepted cost, since the costs are long -term and widely distributed. Others are the cost of human life that can be calculated, but not always in a way that is without controversy. The standard method for determining the value of human life for the purposes of analyzing costs and benefits relies on the elections that people will become in determining the prices of death or injury compared to economic reward.
Calculation of costs and benefits analysis involves simply determining the monetary value of all expenses needed to implement the project. Specific expenditure on capital and work is easy to appreciate. Other, less obvious costs must be appreciated as well and sometimes weighted probabilityThey will happen. Building an airport can store small but serious potential costs in the form of aerial accidents, and this must be calculated.
The valuation of potential benefits takes place in the same way as potential costs. It is possible to consider physical and intangible benefits. Corporations that use cost and benefits analysis usually use models of prices on the market to determine the relative value of each unit of benefits that tend to decline from unit to unit, because consumers are less interested in obtaining more specific goods.
When calculating costs and benefits, the time must also be taken into account in the decision -making process. The money that must be spent in the future is less valuable than the money that must be spent immediately because it can be expected that this money will gain interest in interim. As a result, future expenses in Curse will be cheaper money and the greater the time before the investment, the greater the effective discount. For the success of this technique is essential careful andConservative calculation of the rate at which future costs are reduced.