Cost Benefit Analysis (CBA)

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Describe in broad terms how cost benefit analysis should be carried out. How can it help in the process of decision making about public expenditure? Will it always be used for major projects? Illustrate your discussion with examples. Introduction: Cost benefit analysis (CBA) is a process of identifying, measuring and comparing the benefits and costs of a program or investment project. (Campbell and Brown, 2003). Cost benefit analysis (CBA) sometimes referred to as Benefit Cost Analysis (BCA) is a systematic method used to compare costs and benefits of a project or program determining the strengths and weaknesses of a project hence creating alternatives and objectives for decision makers (Chakravarty, Sukhamoy (1987)). CBA is a common assessment…show more content…
Distinction must be made between social welfare and private welfare and thats why CBA is important as it gives an assessment of an impact of a social value of a public good allowing gains and losses to be viewed by all members of the society and these gains and losses are the social benefits and costs. Economists advance the principle that CBA is relevant to public decisions which involve allocation of scarce resources and generate a good and /or bad consequence for social welfare and as i have explained above this is usually the public sector and hence helpful in that…show more content…
It provides information on monetary intensity and society’s willingness to make tradeoffs exchanging money for goods and services. Is the CBA ineffective? The use of CBA is debatable. Makowaky and Wagner (2009) noted that analysts have deep practical concerns about using CBA in dealing with discount rates, opportunity costs, prices and distributional weights and evaluation criteria. The analysis involves estimating certain costs and benefits for example one shall estimate the benefits a health care program upon completion will bring and this exposes one to a risk of approving projects as viable yet in actual sense the benefits calculated are in actual sense inaccurate. It is prone to misuse and misunderstanding particularly regarding the intent for its use as most economists have argued that CBA cannot stand alone in the decision making process but can be used to support investment decisions in response to changing demands. How CBA is carried

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