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Cost-benefit analysis (CBA), sometimes called benefit-cost analysis (BCA), is an economic decision-making approach, used particularly in government and business. CBA is used in the assessment of whether a proposed project, programme or policy is worth doing, or to choose between several alternative ones. It involves comparing the total expected costs of each option against the total expected benefits, to see whether the benefits outweigh the costs, and by how much.
In CBA, benefits and costs are expressed in money terms, and are adjusted for the time value of money, so that all flows of benefits and flows of project costs over time (which tend to occur at different points in time) are expressed on a common basis in terms of their "present value."
Closely related, but slightly different, formal techniques include cost-effectiveness analysis, cost-utility analysis, economic impact analysis, fiscal impact analysis and Social Return on Investment (SROI) analysis.
Cost--benefit analysis is often used by governments and others, e.g. businesses, to evaluate the desirability of a given intervention. It is an analysis of the cost effectiveness of different alternatives in order to see whether the benefits outweigh the costs (i.e. whether it is worth intervening at all), and by how much (i.e. which intervention to choose). The aim is to gauge the efficiency of the interventions relative to each other and the status quo.
The costs of an intervention are usually financial. The overall benefits of a government intervention are often evaluated in terms of the public's willingness to pay for them, minus their willingness to pay to avoid any adverse effects. The guiding principle of evaluating benefits is to list all parties affected by an intervention and place a value, usually monetary, on the (positive or negative) effect it has on their welfare as it would be valued by them. Putting actual values on these is often difficult; surveys or inferences from market behavior are often used.
One source of controversy is placing a monetary value of human life, e.g. when assessing road safety measures or life-saving medicines. However, this can sometimes be avoided by using the related technique of cost-utility analysis, in which benefits are expressed in non-monetary units such as quality-adjusted life years. For example, road safety can be measured in terms of 'cost per life saved', without placing a financial value on the life itself.
Another controversy is the value of the environment, which in the 21st century is sometimes assessed by valuing it as a provider of services to humans, such as water and pollination. Monetary values may also be assigned to other intangible effects such as loss of business reputation, market penetration, or long-term enterprise strategy alignments.