|Basically, this means evaluating whether, over a given time frame, the benefits of the new investment, or the new business opportunity, outweigh the associated costs. |
Before beginning any cost/benefit analysis, it's important to understand the cost of the status quo. You want to weigh the relative merits of each investment against the negative consequences, if any, of not proceeding with the investment. Don't assume that the costs of doing nothing are always high: in many cases, even when significant benefits could be gained from a new investment, the cost of doing nothing is relatively low.
Cost/benefit analysis of a particular investment involves the following steps:
Once that's done, you're ready to begin the evaluation phase using one or more of the following analytical tools:
Wednesday, May 5, 2010
What Is Cost/Benefit Analysis?