ADVANTAGES AND LIMITATIONS OF COST BENEFIT ANALYSIS

ADVANTAGES OF COST BENEFIT ANALYSIS      

1. Easy to use and understand
   Whilst many WHS professionals might not claim to be experts in CBA, with a bit of effort, it’s a very easy tool to master.  The other benefit is that a well presented CBA is very easy to understand.  In fact it’s hard to beat as a way of explaining what might be quite a technical idea in a ‘money and sense’ language that everyone understands.
2. Establishes organisational support & buy-in
   Having a CBA helps to ensure that once the decision to move forward is made, the initiative will be better supported.  It will have senior management support and organisational transparency – and therefore great momentum.
3. Educates the business
   A CBA can be a fantastic way of explaining to the wider organisation the value of health & safety - and the true cost when things go wrong.  Many organisations have a very naïve appreciation of the true cost of a health & safety incident.  CBA offers a way of addressing that.
4. Provides objectivity
   Being numbers-based, a CBA translates what is otherwise a subjective argument into something far more objective. It also helps you to more easily compare various initiatives against each other because you have adopted a common model.
5. Demonstrates maturity
   Completing a CBA demonstrates that the costs and benefits of the initiative have been clearly thought out.  It shows maturity of thinking and a command of the true business drivers.  It also looks at the overall impact on the business – not just on the basis of WHS alone.

 

LIMITATIONS OF COST BENEFIT ANALYSIS

1. A CBA always requires guesswork based on the best past and present data available. 

2.The further into the future you look, the more error prone the estimation will be. 

3.Converting intangible benefits (and costs) into money values can also be a challenge.

A cost-benefit analysis can still, however, serve as a valuable decision tool, as well as a good way to clearly define project objectives and measure project success.

This video gives brief idea about advantages and disadvantages of CBA :

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