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cost-benefit analysis (AD); cost-benefit analysis (A technique of constructing a balance sheet of the consequences of a project or activity. By definition, it is a method of assessment which uses monetary units. When used by a private company it is essentially a way of calculating what profit or loss can be expected, but it goes beyond simple versions of such a calculation by insisting on a ‘full balance sheet'. On the cost side, for example, this would include the ‘opportunity cost' of the resources involved, including the income which might be derived from investing available money in assets which carry the minimum risk. Benefits might include good publicity for the company, so that a nominal loss on a project might be shown by cost-benefit analysis to be a real gain. In the sphere of public investment, cost-benefit analysis takes on extra dimensions of complexity, since it is required to assess the full range of costs and benefits not just to the municipal or nationalized company involved, nor even to the government, but to the whole population. In such a calculation all social costs and benefits must be assessed, including those which are ‘external' to the transactions involved, which would not be considered by a private company. CODP Alexander Demidov) |
