Cost Benefit Analysis – Accounting Assignment Help

Cost Benefit Analysis can be described as a decision making process or a method that aids in taking decisions and includes assessing the costs and advantages of one or more actions in order to select the best and the most profitable option. The advantages should outweigh the costs for a project or idea to materialize. The analysis needs that the costs and benefits related with the project be expressed in monetary terms for the aim of assessing the appropriateness of the project. Monetary values are as well assigned to less tangible items also like loss of reputation, risks involved, etc before reaching at a decision. Usually, this method is used when the company has two or more options to select from. It does a cost benefit analysis of several options to conclude on the best possible option. Note that cost benefit analysis is and can be completed for single project also.

The costs and benefits stated in monetary terms are adjusted for time value of money for the aim of analysis. The present value of costs and benefits are obtained to assess the viability of the project or decision.

One of the major considerations in performing the cost benefit analysis is to make sure that all costs and benefits are identified and quantified in monetary values. Frequently, intangible aspects of a decision making process are ignored as it becomes hard to assign any monetary value to such costs. The method of assigning costs to such intangibles as well makes this exercise a subjective one. This is one of the main disadvantages of this. In order to prevent the subjective nature, companies just take the financial costs and benefits which are enthusiastically measurable for carrying out cost benefit analysis. Missing the costs and benefits that might influence the decision making process may defeat the aim of this exercise. Another area of caution is to make sure that double counting of costs and benefits are avoided.

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