How To Evaluate Costs vs. Benefits for Business Decisions
The term “cost-benefit analysis” may sound complicated, but the idea is simple: it's a process of examining information to help you determine the likelihood that you’ll benefit from a business decision. You’ll also hear the term “Return on Investment” or ROI, which is a similar concept, but primarily only focuses on the financial impact of a decision.
With a cost-benefit analysis, you can also take into account some of the wrap-around or intangible benefits of a decision. These are benefits that have an impact but can't be specifically measured. One example of an intangible benefit might be better work-life balance.
Considering both tangible, financial implications as well as intangible, wrap-around factors through a cost-benefit analysis, you gain a broader and more complete picture of the impact of your decision. You could use this technique for all different types of decisions like buying a new machine, moving into a new space, or hiring a new employee. (Visit MOBI's Hiring and Firing session to learn how to use cost-benefit analysis to decide whether you can afford to hire a worker for your business.)
MOBI provides a free downloadable Cost-Benefit Analysis Template (Excel file) to help you get started. A screenshot of this template is featured below.
