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COST & BENEFIT ANALYSIS (CBA)

COST & BENEFIT ANALYSIS (CBA). Hatice Gökçen AKKOYUN 2010503003 Industrial Engineering Department, Dokuz Eylül University, Turkey. WHAT IS COST & BENEFIT ANALYSIS?.

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COST & BENEFIT ANALYSIS (CBA)

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  1. COST & BENEFIT ANALYSIS(CBA) Hatice Gökçen AKKOYUN 2010503003 Industrial Engineering Department, Dokuz Eylül University, Turkey

  2. WHAT IS COST & BENEFIT ANALYSIS? • Cost&benefit analysis is a technique for assessing the monetary social cost and benefits of a capital investment project over a given time period.

  3. THE PARTICULAR CBA MODEL • The basic idea behind the model is to: • Take the benefits and costs and disaggregate them into their constituent parts,

  4. Apply unequal weights to those component that have a different social significance from others.

  5. DESCRIPTION OF THE TECHNIQUE • The technique used is based on: • Forecasting the economic effects for a project. • Quantifying them by means of appropriate measuring procedures.

  6. Using conventional techniquesfor monetizing economic effects . • Calculating the economic return.

  7. USE CBA TO DETERMINE • Whether a solution/project is economically feasible,

  8. Which of two or more projects provides the best return on investment, • What is the optimal point in time to start a project?

  9. CBA CATEGORIES • In performing CBA, it is important to identify cost and benefit factors.

  10. Cost and benefits can be categorized into the following categories:

  11. 1.TANGIBLE AND INTANGIBLE CBA • Tangible cost&benefit can be measured and identify. • Hardware costs, salaries for professionals and software costs are all tangible cost.

  12. Intangible cost&benefit whose value cannot be measured. • More customer satisfaction, improved company status are all intangible benefits.

  13. Both tangible and intangible costs and benefits should be considered in the evaluation process.

  14. 2. DIRECT AND INDIRECT CBA • Direct cost&benefit are attributable to a given project. • Insurance, maintenance, heat, light and airconditioning are all indirect cost.

  15. 3. FIXED AND VARIABLE CBA • Fixed cost&benefit don’t change. • Depreciation of hardware, insurance are all fixed cost&benefit.

  16. Variable costs are incurred on regular basis. • Recurring period may be weekly or monthly.

  17. STEPS IN CBA

  18. STEPS IN CBA

  19. STRENGTHS • Compares costs and benefits using equal terms. • Simplifies complex concepts and processes.

  20. Accepted by society more readily than other economic methods. • Can be carried out at many level(local, regional, national and international…)

  21. LIMITATIONS • Can be difficult to determine accurately the discount rate of future cost and benefits, as well as indirect impact. • Costs are easier to estimate than benefits.

  22. Can be a time-consuming and expensive process. • Does not always consider the source of the costs and benefits, needs to consider factors such as environmental, justice and indirect impact.

  23. USES OF CBA • Investment planning, • Commercial policy, • Development policy broadly.

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