Definition

cost-benefit analysis (CBA)

Part of the Business terms glossary:

Cost-benefit analysis (CBA) is an analytical tool for assessing and the pros and cons of moving forward with a business proposal. 

A formal CBA tallies all of the planned project costs, quantifies each of the tangible benefits and calculates key financial performance metrics such as return on investment (ROI), net present value (NPV), internal rate of return (IRR) and payback period. The costs associated with taking action are then subtracted from the benefits that would be gained. As a general rule, the costs should be less than 50 percent of the benefits and the payback period shouldn't exceed 12 months.

A CBA is considered to be a subjective (as opposed to objective) assessment tool because cost and benefit calculations can be influenced by the choice of supporting data and estimation methodologies. Sometimes its most valuable use when assessing the value of a business proposal is to serve as a vehicle for discussion. 

Cost-benefit analysis is sometimes called benefit-cost analysis (BCA).

This was last updated in August 2011
Posted by: Margaret Rouse

Related Terms

Definitions

  • transparency

    - Transparency, in the context of governance, means being open and honest in all official activities. The implication is that all activities are scrupulous enough that they could bear public scrutiny. (WhatIs.com)

  • accountability

    - Accountability means being held responsible or answerable for one's actions (or perhaps lack of action where one should have been taken). Accountability and transparency are generally considered th... (WhatIs.com)

  • third party

    - A third party is an entity that is involved in some way in an interaction that is primarily between two other entities. The third party may or may not be officially a part of the transaction betwee... (WhatIs.com)

Glossaries

  • Business terms

    - Terms related to business, including definitions about project management and words and phrases about human resources, finance and vertical industries.

  • Internet applications

    - This WhatIs.com glossary contains terms related to Internet applications, including definitions about Software as a Service (SaaS) delivery models and words and phrases about web sites, e-commerce ...

Ask a Question About cost-benefit analysis (CBA)Powered by ITKnowledgeExchange.com

Get answers from your peers on your most technical challenges

Tech TalkComment

Share
Comments

    Results

    Contribute to the conversation

    All fields are required. Comments will appear at the bottom of the article.