What is the purpose of a cost-benefit analysis?

A cost-benefit analysis is a systematic approach used to evaluate the financial advantages and disadvantages associated with a particular decision or project. The primary focus is on quantifying the expected revenues and costs so that decision-makers can assess whether the benefits outweigh the costs, thereby guiding them in making informed choices.

By systematically comparing the expected benefits (such as increased revenue or cost savings) against the potential costs (including investments, operational costs, or potential risks), organizations can prioritize projects and allocate resources more efficiently. The outcome of this analysis supports strategic planning and helps in justifying decisions based on financial metrics.

In contrast, measuring employee performance is typically conducted through performance reviews or evaluations, which focus on individual contributions rather than financial evaluations. Comparing different market products involves analyzing features, quality, and price points rather than a direct financial cost-benefit perspective. Determining pricing strategies may involve market analysis, competition, and consumer behavior considerations, but these strategies are part of broader marketing practices rather than a focused evaluation of costs and benefits tied to a specific decision.