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Explaining Definitions, Meaning, Applications


When the business case is called "cost benefit" analysis, the purpose is simply to weigh the total costs from an action or decision against the total benefits. This usually includes both financial and nonfinancial costs and benefits..

Cost benefit analysis compares likely costs from an investment or action with the resulting business benefits.

What is a Cost-Benefit Analysis?

The term cost benefit analysis is used frequently in business planning and decision support. The term, however, has no precise or standard definition beyond the idea that both positive and negative consequences of a proposed action are going to be summarized and then weighed against each other.

 The term also has no universally agreed spelling. It is written as cost benefit, cost/benefit, cost-benefit, or benefit/cost for instance. Because the term "cost benefit analysis" does not refer to any specific approach or methodology, the business person who is asked to produce one should take care to find out exactly what is expected or needed.

The term cost benefit analysis covers several varieties of business case analysis, such as:

All of these approaches to cost benefit analysis attempt to predict the financial impacts and other business consequences of an action. All these approaches have the same structural and procedural requirements for building a strong, successful business case. They differ primarily in terms of:

  • How they define "cost" and "benefit" in practical terms.
  • Which costs and benefits are included for analysis.
  • Which financial metrics are important for decision makers and planners.

For more on business benefits, including financial and nonfinancial benefits, see the entry business benefit.

For practical guidance on cost benefit analysis and other business case issues, see

For working examples and spreadsheet templates of financial metrics used in cost benefit analysis, see Financial Metrics Pro.