Valuation Criteria for Cost Benefit Analysis
Valuation Criteria for Cost Benefit Analysis
1. Principles of Cost Benefit Analysis
Cost benefit analysis(CBA) is a process which is used to understand the monetary social costs as well as advantages of a capital investment project over a given time period.
The principles of cost benefit analysis are based on three principles. The first is the appraisal of any specific project: This is an economic technique which is used by organizations as well as projects being handled by the government. For instance, if an organization invests in upgrading their new information system then it is known as appraisal of the project. Cost benefit analysis can include the economics of time. This is called discounting and takes into account environmental factors which can affect the project in the years to come. If needed, this type of analysis can include social and environmental impacts and private economic costs and benefits. Therefore, cost benefit analysis takes into account social welfare effects of an investment.
2. Common Unit of Measurement
To come to the conclusion regarding the desirability of a project, all its facets, and positive as well as negative need to be expressed through a common unit. In most cases, the common unit used is money. This implies that all costs as well as benefits associated with a project need to be measured in terms of their equivalent money value. This type of a program can provide long term advantages which may not be expressed in dollars but through a specific amount of money which the people receive would consider as useful as the project's benefits.
3. CBA Valuations Criteria
-As revealed by actual behavior
The value of costs and benefits need to reflect the preferences disclosed by choices which have been taken. For instance, improvements in transportation are necessary in order to save time. So how is the financial value of money of the saved time period calculated? The value of time should not be what transport
1. Principles of Cost Benefit Analysis
Cost benefit analysis(CBA) is a process which is used to understand the monetary social costs as well as advantages of a capital investment project over a given time period.
The principles of cost benefit analysis are based on three principles. The first is the appraisal of any specific project: This is an economic technique which is used by organizations as well as projects being handled by the government. For instance, if an organization invests in upgrading their new information system then it is known as appraisal of the project. Cost benefit analysis can include the economics of time. This is called discounting and takes into account environmental factors which can affect the project in the years to come. If needed, this type of analysis can include social and environmental impacts and private economic costs and benefits. Therefore, cost benefit analysis takes into account social welfare effects of an investment.
2. Common Unit of Measurement
To come to the conclusion regarding the desirability of a project, all its facets, and positive as well as negative need to be expressed through a common unit. In most cases, the common unit used is money. This implies that all costs as well as benefits associated with a project need to be measured in terms of their equivalent money value. This type of a program can provide long term advantages which may not be expressed in dollars but through a specific amount of money which the people receive would consider as useful as the project's benefits.
3. CBA Valuations Criteria
-As revealed by actual behavior
The value of costs and benefits need to reflect the preferences disclosed by choices which have been taken. For instance, improvements in transportation are necessary in order to save time. So how is the financial value of money of the saved time period calculated? The value of time should not be what transport