Cost-Benefit Analysis definition

Cost-benefit analysis is a useful, widespread method for weighing up the benefits of a course of action against the costs in order to determine if the action is a worthwhile use of resources or not. Since the benefits are rarely felt immediately, the results of a cost-benefit analysis are often presented as a ‘Payback period,’ which is the time it takes for the value of the benefits to outweigh the costs.

Cost-benefit analysis is typically used for decisions that are not mission-critical – in these cases a more advanced calculation is more commonly used, such as Internal Rates of Return.