How to Do a Cost-Benefit Analysis

A practical, step-by-step guide to do a cost-benefit analysis. Cost-Benefit Analysis is the concept behind it — here is how to do it in practice.

For the full concept, see Cost-Benefit Analysis.

Steps

1. Define the scope and the options being compared (including doing nothing).
2. Identify and quantify all costs — one-off and ongoing, direct and indirect.
3. Identify and quantify all benefits, including, carefully, intangible ones.
4. Discount future costs and benefits to present value using an appropriate rate.
5. Compare: compute net benefit / benefit-cost ratio / NPV and recommend accordingly.