Pros And Cons Of Cost Benefit Analysis

Cost benefit analysis, abbreviated as CBA, is a tool derived from utilitarianism to help businesses compare the costs of carrying out and the benefits that result from a decision. It lays down a set of guidelines that help businesses compare the costs and benefits of each available option and figure out which is the best option to choose. (Velsaquez, 63) A simple scenario utilizing cost benefit analysis is judging the production value of item “x”. If the “benefits” or the revenue made from selling “x” is high enough to cover the monetary costs, the costs of the time spent on the product, and produce profit, then cost benefit analysis would state that “x” is worth making because the benefits cover the costs of the item. On the other hand,

Although the most common and easiest method is converting each different cost and benefit into a monetary value (as risk cost benefit analysis does), it inevitably ends up prompting the question of how does one put a value on goods “whose value is such that no quantity of any economic good is equal in value”, such as “life, love, freedom, equality, health, and beauty”, or “noneconomic goods”. (Velasquez, 65) This makes CBA very limiting in its application because each individual or group using it must then come up with their own system of evaluating the different types of goods in its situation. This means that the value of certain goods can fluctuate wildly because it depends on the opinions of the group using cost benefit analysis to evaluate it. Other criticisms expand further on the dilemma cost benefit analysis’s lack of a standard system of measurement by asking how one can even put an accurate measurement on costs and benefits that “cannot be reliably predicted” (and thus, “cannot be adequately measured”) (Velasquez, 64). The main response to these criticisms is that when these immeasurable goods absolutely must be taken into the equation, they should be given as accurate of a value as possible in order to factor them into cost benefit analysis. The response expands on this by stating that goods that are “considered valuable only because they lead to other good things” (ex. money), “under most circumstances, must not take priority over life and health”. (Velasquez, 66). It should be noted that it’s not elaborated what types of circumstances where the first type of good could take priority over the