Cost Benefit Analysis
CBA is an effective tool for decision-making in organizations wherein it helps in analyzing the positive and negative aspects of an idea before implementing it. Though the method is powerful to create cost- effective alternatives for a given situation leading to long term social gains and cost cutting but it is still debatable as many arguments arise against this methodology.
1. Firstly, the method takes into consideration only calculating hard dollar costs that are visible and quantifiable unlike other soft dollar assets which are invisible. For eg: R&D .
2. Secondly, CBA takes into consideration financial benefits but over looks the intagible benefits that can be derived over a time period.
3. It does not take into consideration the qualitable aspects of analyzing strategies such as in social programs like quality of life, time value etc.
4. It is not always necessary that the least expensive alternative is always the best alternative.
5. CBA can provide estimates about the benefits and cost of a program before implementing it but provide no information about its impact on other ideas/ programs which is a big risk. Risk is an important factor and its effects cannot be quantified. Thus, CBA does not completely justify he accuracy of its result.
6. At times there are certain strategic investments wherein the intangible benefits overweigh the financial benefits. Thus, CBA falls behind in justifying the fact that it is the most accurate method for analyzing the +ve and -ve aspects of a program before implementing it as it neglects many aspects which are intangible. but yet important.
1. Firstly, the method takes into consideration only calculating hard dollar costs that are visible and quantifiable unlike other soft dollar assets which are invisible. For eg: R&D .
2. Secondly, CBA takes into consideration financial benefits but over looks the intagible benefits that can be derived over a time period.
3. It does not take into consideration the qualitable aspects of analyzing strategies such as in social programs like quality of life, time value etc.
4. It is not always necessary that the least expensive alternative is always the best alternative.
5. CBA can provide estimates about the benefits and cost of a program before implementing it but provide no information about its impact on other ideas/ programs which is a big risk. Risk is an important factor and its effects cannot be quantified. Thus, CBA does not completely justify he accuracy of its result.
6. At times there are certain strategic investments wherein the intangible benefits overweigh the financial benefits. Thus, CBA falls behind in justifying the fact that it is the most accurate method for analyzing the +ve and -ve aspects of a program before implementing it as it neglects many aspects which are intangible. but yet important.
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