Catalog
method#Governance#Product#Delivery#Reliability

Cost–Benefit Analysis

A methodical approach to systematically compare costs and benefits of an intervention to support evidence-based decision making.

Cost–Benefit Analysis is a structured evaluation method that systematically compares monetary and non-monetary effects of projects or interventions.
Established
Medium

Classification

  • Medium
  • Business
  • Organizational
  • Intermediate

Technical context

Financial planning systems and budgeting toolsBusiness intelligence and reporting platformsStandardized Excel or modeling templates

Principles & goals

Transparency of all assumptions and sourcesConsideration of the time value of moneyComparability through consistent evaluation frameworks
Discovery
Enterprise, Domain

Use cases & scenarios

Compromises

  • Missing data can lead to biased results
  • Overreliance on point estimates
  • Political influence on benefit valuation
  • Transparent documentation of all assumptions and sources
  • Perform systematic sensitivity and scenario analyses
  • Include qualitative and distributional effects

I/O & resources

  • Detailed cost breakdowns (CapEx/OpEx)
  • Estimates of expected benefits and revenues
  • Discount rate, analysis horizon and assumptions
  • Metrics (NPV, BCR, payback period)
  • Recommendation with sensitivity analysis
  • Documented decision basis and assumptions

Description

Cost–Benefit Analysis is a structured evaluation method that systematically compares monetary and non-monetary effects of projects or interventions. It quantifies costs and benefits over a defined timeframe, including discounting and distributional considerations, enabling comparable appraisal of alternatives to support rational investment and policy decisions. Uncertainties are addressed via sensitivity analysis.

✔

  • Improved traceability of investment decisions
  • Enables prioritization of limited resources
  • Supports stakeholder communication with quantitative metrics

✖

  • Monetization of non-monetary effects can be uncertain
  • Results are sensitive to assumptions and parameters
  • Not always suitable for very small or purely qualitative decisions

  • Net Present Value (NPV)

    Discounted sum of expected benefits minus costs over the analysis period.

  • Benefit-Cost Ratio

    Ratio of discounted benefits to the sum of discounted costs.

  • Payback period

    Time span until cumulative benefits cover the initial costs.

Public infrastructure appraisal

Assessment of construction projects including direct user benefits and wider societal impacts.

IT migration project

Cost-benefit comparison between legacy operation and migration to a modern platform.

Regulatory impact assessment

Quantitative evaluation of regulatory proposals to support agency decision making.

1

Define scope, objectives and alternatives.

2

Identify relevant cost and benefit categories.

3

Collect data and document assumptions.

4

Perform calculations (NPV, BCR) and apply discounting.

5

Conduct sensitivity analyses and derive a decision.

⚠️ Technical debt & bottlenecks

  • Unmaintained spreadsheets with undocumented formulas
  • Outdated assumptions in reused models
  • Lack of versioning and traceability of analyses
Data availabilityBudget approvalMethodological expertise
  • Using CBA for trivial day-to-day decisions
  • Presenting unverified assumptions as facts
  • Completely ignoring externalities
  • Wrong choice of discount rate skews results
  • Double-counting identical benefit items
  • Excessive precision implying non-existent accuracy
Fundamentals of financial mathematics and discountingExperience in cost and benefit quantificationKnowledge of sensitivity and scenario analyses
Transparent decision documentationAvailability of reliable cost and benefit figuresRepeatable evaluation processes
  • • Limited time for analyses
  • • Incomplete or uncertain data
  • • Organizational rules and regulatory framework