Cost-benefit analysis is a tool that businesses use to understand the potential impact of decisions or investments. It puts a dollar value on the inputs, outputs, and risks associated with a project in order to evaluate whether or not it is worth pursuing. Here are the 5 steps you should follow when conducting a cost-benefit analysis:
Step 1: Identify Goals – Define what outcomes you wish to achieve with your analysis.
Step 2: Estimate Inputs – Estimate the costs needed to complete the project and identify any resources required.
Step 3: Estimate Outputs – Calculate the expected benefits of completing the project.
Step 4: Compare Inputs to Outputs – Calculate the difference between expected costs and expected income.
Step 5: Decide if the Analysis Recommends Moving Forward – Use your comparison to determine whether or not this investment makes sense for your business.