Cost Benefit Analysis, popularly known as CBA is a tool for estimating the total money value incurred accumulating the benefits and costs together in a particular project. It is essential to evaluate CBA in order to get a clear idea on whether it is worthwhile to attend or not. CBA can be used in any type of projects such as highway development, dam maintenance, training programs or health care support in a remote location. The main principle of CBA helps in taking the right action based on getting extra benefits by spending extra cost.
The benefits of CBA are as follows.
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CBA helps in getting a clear and profitable view of a project. Thus it directly helps in getting appraisal for such a profitable project. This is a specially designed economic technique used worldwide in all business and government funded projects.
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External factors such as social and environmental impact of a particular project can be taken into account using CBA. This is very important taking decision with an ethical approach. This technique is essentially used to evaluate social welfare side of a project and thereby identifying the true fate of an investment.
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CBA can take control of discounting. It is a term used for economic study of time. This is like predicting the environmental impact of a particular project in the long run. CBA can certainly evaluate the impacts accurately for projects with longer duration.
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This technique helps in determining the NPV (Net Present Value) of a project. NPV can be determined for both the cost and benefit integers. The present value of the cost and benefit carries higher weightage as compared to the future values.
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The benefits are normally measured according to the market choices. Therefore, it is easy for the investors and consumers to identify whether they are getting more benefits in exchange of money. CBA helps tremendously in building a B2B and B2C relation with result oriented information.
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CBA helps determining future prospect of a large scale project such as mining, automobile manufacturing and high speed transport service. Large scale projects require hefty sum of investments. Therefore, determining the future prospect is necessary in order to serve the consumer in a better way while cutting down unreasonable costs. Moreover, CBA is a proven technique that helps in strengthening any business or government sectors by touching lucrative and welfare oriented projects and avoiding potential risks of investments. Indirectly, it helps in building a growing economy, necessary for a developed society.
CBA was previously used in the large scale public sectors and government funded projects. Now, it is applied for health care services, transport services, automobile industries and other medium scale industries. Its proven methods always provide accurate results and it is one of the compulsory parameter in the decision making process. Evaluation total benefits over total cost simplifies the project estimation process to a great extent. The techniques mentioned in the CBA can be easily applied to any business, public or government sector project and it is still relevant in the age of information technology.
