What is the main objective of cost-benefit analysis?

The main objective of cost-benefit analysis is to compare the expected costs and benefits of decisions. This analytical tool is essential in financial planning and management as it helps decision-makers evaluate whether a particular project or action is financially viable. By quantifying the potential costs and anticipated benefits, stakeholders can weigh the overall value and feasibility of various options.

In practice, costly decisions require thorough analysis to ensure that the benefits justify the expenditures. This method not only aids in making informed choices but also provides a structured framework for prioritizing projects based on their potential return on investment. The clarity of this comparison allows organizations to allocate resources more effectively and maximize their operational impact.

Understanding the costs versus benefits is crucial in various contexts, such as project management, public policy evaluation, or personal finance decisions, highlighting why this approach is fundamental to sound financial planning.