Cost-benefit analysis is an umbrella term for various analyzes that compare the benefits and costs. Cost -benefit analyzes are used in many areas of public interest for decision support. So committed in Germany about 7 § Federal Budget Code, the public authorities to carry out a feasibility study prior to an issue; Cost -benefit analyzes are one such form of economic study.
Forms of cost -benefit analysis in a broader sense
- Cost-benefit analysis / cost-benefit analysis ( CBA)
- Cost - minimization studies / cost - Minimization Studies (CM )
- Medical expenses studies / cost-of- illness studies (COI )
- Cost-effectiveness Analysis / Cost Effectiveness Studies (CEA )
- Cost-utility analysis / cost - utility analysis ( CUA)
The cost -benefit analysis in the strict sense
The cost -benefit analysis is a tool to determine whether the result ( benefit ) of an action whose cost ( the cost ) is justified. The cost -benefit analysis is the central tool of welfare economics. If the benefits and costs occur not sure whose expectation values are determined. Are effects in more than one time period to expect, the cost and benefit streams are discounted to the net present value of the project to determine. If the benefits outweigh the costs of action to perform, because they obtained a potential Pareto improvement over the initial state. As a decision criterion acts in general, the Kaldor -Hicks criterion.
The expected benefits and costs are measured in monetary units, in order to make them comparable. Problems arise especially in the evaluation of non-market traded goods ( life, time, many environmental goods, etc. ) and also with difficult -to-quantify qualitative benefits ( image, customer satisfaction, quality, employee satisfaction, climate, etc.).
Use of cost-benefit analysis in economics
In economics, the cost -benefit analysis is used as an evaluation tool for government intervention in the market. Since all government interventions are grounded welfare theory, they must be justified by a welfare gain. In current ( utilitarian ) view represents a welfare gain, that the benefits of state intervention outweigh the costs, so this could compensate (potential Pareto improvement ). However, this does not actually happen. So the cost-benefit analysis assesses state projects and evaluates the costs and benefits in monetary units and adds this. If this results in an excess benefit, the state project complies with the requirements of the utilitarian welfare theory and should therefore be performed. Not always can the benefit of a project in monetary units expressed. Benefits can also be non-monetary, such as socio -economic or socio - environmental benefits. A shadow price of the effect is then often used for the analysis.
Another problem is that cost -benefit analysis of the distribution aspect of a priori ignored. It establishes market prices or, if not available, implied market prices ( benefit estimates ) from. Distribution aspects must be explicitly judgmental, introduced taken into account.
Use of cost-benefit analysis in the BWL
In business economics, the cost -benefit analysis is used particularly for estimates, based on which the personnel and resource planning and offer prices may be calculated. At the same time the analysis values are used to control dates to identify variances. In projects, the cost - benefit analysis can provide decision-making and talking points. Here it comes, whether the project can be realized in itself, by whatever means or methods and which alternatives should be carried out.
A practical example is the change in a company from one operating system to another. On the cost side fall training costs of employees to and costs for additional hours to port data. The benefits, cost savings on license fees and administrators hours are attributed to.