Cost-Benefit Analysis


Definition: Cost-Benefit Analysis is a weighing-scale approach for decision making.
All positive elements (cash-flows and other intangible benefits) are put on one side of the balance and all the negative elements (the costs and disadvantages) are put on the other.
Whichever weighs the heavier, wins.
A CBA may or may not include non-financial (intangible) costs and benefits. Especially in more strategic investments, frequently the intangible benefits outweigh the financial benefits.
A CBA may or may not include the time value of money and take into account associated risks.


More on individual decision making: Anchoring Bias, Bayesian Theory, Black Swan Theory, Bounded Rationality, Cognitive Bias, more...


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