Investopedia — Economics

Cost-Benefit Analysis Explained: Usage, Advantages, and Drawbacks

Cost‑benefit analysis (CBA) is a systematic method that quantifies both tangible and intangible costs and benefits to assess a project’s feasibility. It follows a five‑step workflow—defining scope, estimating costs, estimating benefits, performing calculations, and issuing recommendations—often using tools like net present value and benefit‑cost ratios. While CBA provides data‑driven insight and highlights opportunity costs, its reliability depends on the accuracy of forecasts and assumptions. Consequently, firms may forgo CBA for smaller initiatives due to its time and resource intensity.