Advanced Terminology

What is Cost-Benefit Analysis in Project Management?

A cost-benefit analysis (CBA) is a tool to evaluate the costs vs. benefits in an important business proposal. A formal CBA lists all project expenses and tangible benefits, then calculates the return on investment (ROI), internal rate of return (IRR), net present value (NPV), and payback period. Then, the difference between the costs and the benefit from acting is calculated. A general rule of thumb is the costs should be less than 50% of the benefits, and the payback period should not exceed a year. Some people also refer to cost-benefit analysis as benefit-cost analysis (BCA).

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