Cost benefit analysis is a method of comparing the costs and benefits of different options, usually expressed in money terms, to identify the option that offers the best value.
In construction, cost benefit analysis is used to support investment decisions and business cases, for example when choosing between refurbishing or replacing a building, or between different scheme options. Costs normally include capital costs, operating and maintenance costs and, where relevant, disposal costs; benefits may include income, savings and wider social or environmental gains. Because costs and benefits occur at different times, future values are usually discounted to a present value. For public sector projects in the UK, appraisal follows HM Treasury’s Green Book guidance.
- The result is often expressed as a net present value or a benefit to cost ratio.
- Results are sensitive to the assumptions and discount rate used.
Related terms: business case, net present value, life cycle costing, options appraisal.
