4. Record the Total Value of Benefits and Costs and Compare.

Once every cost and benefit has a dollar amount next to it, you can tally up each list and compare the two.

The total benefits of going ahead with your decision may outweigh any potential losses- but if they do not, this means that there is no business case for proceeding at all. To work out whether or not your project will succeed in meeting its goals, go back through what was agreed on during step one; does the analysis show you reaching these markers?

In short If total costs outnumber total benefits, then you may want to reconsider the proposal.

If you’ve reached a point where the costs outweigh the benefits, ask yourself if there are alternatives to your proposal that haven't crossed your mind. Additionally, you may be able to identify cost reductions which will allow for an even more affordable plan while still being effective.

Now let us see the Pros and Cons of a Cost-Benefit Analysis.

Pros: Cost Benefit analysis is used to evaluate the different choices that will help in making a decision, and it helps measure all the benefits that come with each choice. It also emphasizes on cost efficiencies which makes it easier for organizations or businesses to choose an option even if they are not sure of its final outcome. The other advantage of this type of evaluation is that it enables people who do not have any experience in finance or accounting to understand what these disciplines entail.

Cons: There can be many drawbacks associated with using Cost Benefit analyses because sometimes one cannot easily determine the monetary values of some items. It can also be difficult to compare different projects and decide which one is better for a business or organization.

There are many positive reasons a business or organization might choose to leverage cost-benefit analysis as part of their decision making process. There are also several potential disadvantages and limitations that should be considered before relying entirely on a cost-benefit analysis, but the overall benefits outweigh these setbacks in most cases.

Here we are listing the advantages and limitations of Cost-Benefit Analysis.

Advantages of Cost-Benefit Analysis:

Cost-benefit analysis is a data driven, objective method for evaluating decisions or potential projects.
It offers an evidence based evaluation and can simplify the decision making process by reducing it to costs versus benefits.
The cost-benefit analysis provides a simple way to make decisions, which is why it's often used in business.
It forces you to think about all the possible costs and benefits of any given project before choosing one over another. This can be especially helpful if there are less obvious factors that haven't been considered yet, such as intangible or indirect ones like time spent on special projects versus general tasks at work for example.

Limitations of Cost-Benefit Analysis:

It is difficult to predict all variables: While cost-benefit analysis can help you outline the projected costs & benefits associated with a business decision, it’s challenging to predict all the factors that may impact the outcome. Changes in market demand, materials costs, and global business environment are occasionally fickle and unpredictable especially in long term periods.
If your data isn't accurate or complete; then your output will be inaccurate as well!
For projects or business decisions that involve longer timeframes, cost-benefit analysis has greater potential of missing the mark for several reasons.
It typically becomes more difficult to make accurate predictions the further out you go. This is because it removes the human element from economic decision making; while a desire to make profit drives most companies there are other, nonmonetary reasons an organization might decide pursue a project or decision. In these cases reconciling moral and “human” perspectives can be very hard in such instances where calculating costs versus benefits doesn't yield clear cut outcomes.

In the end, cost-benefit analysis should not be the only tool or strategy that you use in determining how to move your business into a better future. It is but one of many options at your disposal.

Also read: Top 4 project monitoring steps

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