Cost Benefit Analysis (CBA) is an economic tool to aid social decision-making. It is a systematic approach to estimating the strengths and weaknesses of alternatives that satisfy transactions, activities or functional requirements for a business. The guiding principle is to list all of the parties affected by an intervention, and place a monetary value of the effect it has on their welfare as it would be valued by them. As the name suggests, you simply add up the value of the benefits of a course of action, and subtract the costs associated with it. Costs are either one-off, or may be ongoing. Benefits are most often received over time. We build this effect of time into our analysis by calculating a payback period.
Here, we do the complete cost benefit analysis of the projects where monetary values may also be assigned to less tangible effects such as the various risks which could contribute to partial or total project failure, loss of reputation, market penetration, long-term enterprise strategy alignments, etc. This is especially true when governments use the technique, for instance to decide whether to introduce business regulation, build a new road or offer a new drug on the state healthcare.