Explain cost-benefit analysis with suitable examples.

A cost-benefit analysis is a systematic process that businesses use to analyze which decisions to make and which to forgo. The cost-benefit analyst sums the potential rewards expected from a situation or action and then subtracts the total costs associated with taking that action. Some consultants or analysts also build models to assign a dollar value on intangible items, such as the benefits and costs associated with living in a certain town.

Cost Benefit Analysis Examples

Example 1

In our first example, a financial technology startup is expanding and adding two new programmers. The CEO of the company decides to run a cost benefit analysis to determine whether the decision will be beneficial to the company - and to what degree.

The company is analyzing a time horizon of one year, and estimates that revenue would increase some 50% if the two programmers were hired.

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