Cost-benefit analysis
- Slovak term: Slovenský termín
- A form of evaluation where all the costs and consequences are expressed in money terms (WHO 2009).
- In economics, evaluation method for determining the opportuneness of a project merely by setting a monetary value on its costs and benefits (United Nations 1992).
See also economic evaluation
Explanation
In principle, this form of analysis enables one to assess whether a particular objective is worth achieving. However, estimation difficulties often reduce cost-benefit analysis to a consideration of those costs and consequences that are easy to express inmoney terms. The analysis allows for a level of subjectivity as to the issues that are considered as externalities, and often the social aspects (including health) are not part of the equation (WHO 2009).
Analysis seeks to determine whether predicted favourable results of a given alternative (e.g., of a proposed or actual project) are sufficient to justify the predicted or existing costs of pursuing that alternative. Such analysis is widely used in connection with capital projects. An important tool of cost-benefit analysis is the benefit-to-costs ratio, which is the total monetary cost of the benefits or outcomes divided by the total monetary costs of obtaining them. Another tool for comparison in cost-benefit analysis is the net rate of return, which is basically total costs minus the total value of benefits. The idea behind cost-benefit analysis is simple: if all inputs and outcomes of a proposed alternative can be reduced to a common unit of impact (e.g., dollars), they can be aggregated and compared. If people would be willing to pay dollars to have something, presumably it is a benefit; if they would pay to avoid it, it is a cost. In practice, however, assigning monetary values to inputs and outcomes in social programmes is rarely so simple or appropriate (UNTERM).
Example
References
- WHO (2009) Health impact assessment glossary: E-learning modules
- United Nations (1992) Terminology Bulletin No 344 on Environment and Development
