What is the primary purpose of a cost-benefit analysis?

The primary purpose of a cost-benefit analysis is to weigh the costs against the benefits of an action. This analytical tool allows decision-makers to evaluate the financial viability and potential effectiveness of different options by comparing what resources (costs) will be expended against the returns or advantages (benefits) that will be gained. By systematically assessing both sides, stakeholders can make more informed decisions about whether a project, investment, or policy is worth pursuing.

In practice, conducting a cost-benefit analysis involves identifying all relevant costs and benefits, quantifying them as much as possible, and analyzing whether the anticipated benefits outweigh the costs. This method is particularly valuable in business, public policy, and project management, where limited resources necessitate careful prioritization of initiatives and investments. In this context, prioritizing informed decision-making is crucial, especially when determining the financial and social impacts of various choices.