cost benefit analysis

Question 1

what is CBA

Answer 1

cost benefit anyalsis is used by often public sector businesses when arranging a large scale project, it is the only decision making model that consideres the impact on the public as well as internal costs/ benefits- it is used to decide whethere the costs outwight the benefits

Question 2

internal/ external

Answer 2

internal strength involves private monetary costs and benefits to the firm itself

external= external costs and benefits monetary and non monetary to society CREATED BY THE PROJECT

Question 3

private/ public c/b

Answer 3

private costs involves any monetary costs to the business completing the project e.g. training, raw materials recreuitment, capital, marketign

private benefits are the rewards/ gains from the businessc making investmens/ costs - such as increased productivity, lower costs, increased prodit margin

public costs are impacts to the public/ environment as a result of the project/ investment
- enviro, noise e.g. knocking down houses, increases traffic

public benifits are benefits to the public due to the INVESTMENT e.g. creaition of jobs increased convenience, tax to governemnt

Question 4

formula

Answer 4

social benefits- social costs

Question 5

advantages

Answer 5

• able to rank in terms of the largest net benefit to society

-only decision making model that considers impact on society

– puts a value on external c/b which private businesses normally ignore

• ensures limited often gov finaces are allocated to project with highest net benefit
• prevents wasteful spending

Question 6

disadvantages

Answer 6

• may include biases which could lead misallocation of resources to the wrong project which doesnt have the largest benefit to society - for example the individual calculating the CBA may inflate benefits to make the project go ahead in their favour
• may change over time and may not be the best decision for example public costs and private costs may increase once project has started
• depends on accuracy of the CBA and the experience of the individual carrying out it, subjective
• hard to put a value on an intangible thing e.g. pollution
• hard tp consider all stakeholders therefore some may not be considered and lead to negative concquences
• inclide valur judgment one persons may differ greatly from anothers different ideas on what is important

Question 7

eval/ conclusion

Answer 7

better to do CBA than not although there are lots of uncertianties that can make it innacurate