Cost–benefit analysis (CBA), sometimes called benefit–cost analysis (BCA), is a systematic process for calculating and comparing benefits and costs of a project, decision or government policy (hereafter, "project"). CBA has two purposes:
- To determine if it is a sound investment/decision (justification/feasibility),
- To provide a basis for comparing projects. It involves comparing the total expected cost of each option against the total expected benefits, to see whether the benefits outweigh the costs, and by how much.
CBA is related to, but distinct from cost-effectiveness analysis. In CBA, benefits and costs are expressed in monetary terms, and are adjusted for the time value of money, so that all flows of benefits and flows of project costs over time (which tend to occur at different points in time) are expressed on a common basis in terms of their "net present value." Closely related, but slightly different, formal techniques include cost-effectiveness analysis, cost–utility analysis, economic impact analysis, fiscal impact analysis, and Social return on investment (SROI) analysis.
At the 2003 Austrian Scholars Conference, Butler Shaffer delivered a 48-minute Murray N. Rothbard Memorial Lecture, "A Cost-Benefit Analysis of the Human Spirit: The Luddites Revisited". Dmitry Chernikov wrote about the question of "Why People Walk on Stairs and Sometimes Stand on Escalators". A step taken on the escalator saves just as much time as a step taken on the stairs, but people are still more likely to walk on the stairs than the escalator because the cost of not taking the step (in terms of never reaching one's destination) is greater on the stairs than on the escalator.
- Schaffer, Butler (2003). "A Cost-Benefit Analysis of the Human Spirit: The Luddites Revisited". http://mises.org/media/1112/A-CostBenefit-Analysis-of-the-Human-Spirit-The-Luddites-Revisited.
- Chernikov, Dmitry (15 August 2007). "Why People Walk on Stairs and Sometimes Stand on Escalators". Mises Economics Blog. http://archive.mises.org/6993/why-people-walk-on-stairs-and-sometimes-stand-on-escalators/.