Cost–benefit analysis compares the costs and benefits of options within a defined scope. It can support an appraisal, but a calculation is only as useful as its assumptions, evidence and treatment of effects that cannot be captured in money.
Define the comparison
Identify the decision, alternatives, baseline, affected groups and time period. Use a consistent scope for each option. A private organisation’s cash flows and a public-sector appraisal of wider effects are different perspectives. State which the assignment asks you to use rather than combining them without explanation.
List effects before assigning values
Identify costs and benefits systematically, including when they occur and whom they affect. Distinguish one-off expenditure from recurring costs. Check for double counting, such as including both the price of an output and an overlapping measure of the same benefit. Record the evidence for an estimate and label assumptions clearly.
Use the method required by the brief
Where effects occur at different times, the course may require discounting and a present-value comparison. Use the method and parameters specified, and show the workings. Do not import a current policy rate into an unrelated task without justification. Explain significant non-monetised effects alongside the numerical result instead of treating them as zero.
Test sensitivity to important assumptions
Change a key assumption, such as demand, cost or delivery time, and explain how the comparison changes. A sensitivity test is not a new confirmed forecast. It shows how much the recommendation depends on uncertain inputs. Consider plausible scenarios where the assignment requires them, and identify the assumption most likely to change the decision.
Interpret the result in context
State what the calculation supports and what it leaves unresolved. Include distributional effects, feasibility and relevant risks rather than declaring an option universally best from one ratio. UK public-sector coursework may use the Green Book; follow the relevant guidance and your module’s instructions. This article explains an academic approach rather than recommending a financial investment.
Sources and further reading
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For general study guidance, visit the knowledgebase. Follow your own course requirements when applying this article to assessed work.