Drafting CBA study (cost-benefit)
Cost and Benefit Analysis (CBA)
Cost and benefit analysis is an analytical tool used to evaluate investment decisions and to estimate the benefit gains that can be attributed to them and contribute to project targets. The purpose of cost and benefit analysis is to enable more efficient resource allocation, demonstrating the usefulness of a particular investment for the company in relation to possible alternatives.
The cost benefit analysis is based on a set of predefined project targets, giving monetary value to all positive (benefits) and negative (cost) effects of intervention on welfare. These values are discounted and then summed to calculate the net total benefit. The overall performance of the project is measured by indicators, namely Economic Net Present Value (ENSV), expressed in monetary value and Economic Return Rate (ESR), enabling comparison and ranking of competitive projects to choose the most optimal.
Cost benefit analysis focuses on the future and decision should be based on the expected costs and benefits of the proposed alternatives.
Standard cost and benefit analysis is structured in seven steps:
- Content Description
- Define Targets
- Identification of the project
- Technical feasibility & ecological sustainability
- Financial analysis
- Economic analysis
- Risk assessment