cost-benefit analysis | Definition

Doc's CJ Glossary by Adam J. McKee
Course: Introduction / Criminology

Cost-benefit analysis is the systematic weighing of positive consequences against negative consequences in decision-making.


Cost-benefit analysis is a decision-making tool that is used to evaluate and compare the potential costs and benefits of different alternatives. It is widely used in business, government, and policy-making to help decision-makers choose the most efficient and effective course of action.

The basic principle of cost-benefit analysis is to weigh the costs of an action or policy against its benefits. In doing so, it takes into account both the monetary costs and the non-monetary benefits that will result from the action. The aim is to determine whether the benefits of an action outweigh its costs.

Cost-benefit analysis involves identifying all of the costs and benefits associated with a particular action or policy. This can include direct costs, such as the cost of implementing the policy, as well as indirect costs, such as the impact of the policy on other industries or sectors of the economy. Similarly, the benefits of action may be direct or indirect and can be measured in both monetary and non-monetary terms.

Once all of the costs and benefits have been quantified, they are compared to determine whether the benefits of the action outweigh its costs. If the benefits exceed the costs, the action or policy is considered to be cost-effective. If the costs exceed the benefits, the action or policy is not cost-effective and may need to be reconsidered.

One of the advantages of cost-benefit analysis is that it allows decision-makers to compare different options objectively based on their actual costs and benefits. This can help to ensure that resources are allocated efficiently and effectively and that decisions are based on the best available evidence.

However, there are also some limitations to cost-benefit analysis. One of the main challenges is assigning a monetary value to non-monetary benefits, such as improved quality of life or environmental preservation. Another limitation is that cost-benefit analysis is based on assumptions and estimates, which may not always be accurate or reliable.

Despite these limitations, cost-benefit analysis remains a valuable tool for decision-making in a wide range of contexts, including government policy-making, business planning, and social impact assessment. By weighing the costs and benefits of different options, decision-makers can make informed choices that maximize the positive outcomes and minimize the negative consequences.


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Last Modified: 04/08/2023

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