What does benefit-cost analysis compute?

What does benefit-cost analysis compute?

• A. Comparison between revenues and expenses
• B. Ratio of benefits to costs
• C. Assessment of customer satisfaction
• D. Evaluation of employee performance

Answer: (B)

Benefit-cost analysis computes the ratio of benefits to costs, providing a quantitative measure to evaluate the economic viability of projects or initiatives. This method helps decision-makers understand whether the benefits derived from a project justify the costs incurred in its implementation. By calculating this ratio, organizations can prioritize projects, ensuring that resources are allocated to those that promise the highest net benefit or return on investment. This analytical approach is crucial in project management and organizational planning, as it aids in making informed and strategic decisions regarding resource allocation. The other options, while relevant in different contexts, do not accurately describe the purpose of benefit-cost analysis. For instance, comparing revenues and expenses typically pertains to financial performance rather than the evaluation of benefits versus costs of a specific project. Assessing customer satisfaction and evaluating employee performance are both important aspects of organizational quality but fall outside the framework of benefit-cost analysis.

Benefit-cost analysis computes the ratio of benefits to costs, providing a quantitative measure to evaluate the economic viability of projects or initiatives. This method helps decision-makers understand whether the benefits derived from a project justify the costs incurred in its implementation.

By calculating this ratio, organizations can prioritize projects, ensuring that resources are allocated to those that promise the highest net benefit or return on investment. This analytical approach is crucial in project management and organizational planning, as it aids in making informed and strategic decisions regarding resource allocation.

The other options, while relevant in different contexts, do not accurately describe the purpose of benefit-cost analysis. For instance, comparing revenues and expenses typically pertains to financial performance rather than the evaluation of benefits versus costs of a specific project. Assessing customer satisfaction and evaluating employee performance are both important aspects of organizational quality but fall outside the framework of benefit-cost analysis.