Which analysis method focuses on the benefits received relative to costs incurred, often used in public sector projects?

Benefit-cost analysis is a systematic approach for evaluating the anticipated benefits of a project against its costs. This method is particularly prevalent in public sector projects where resources are limited and decisions must be made about which projects to fund. By quantifying both the expected benefits (both monetary and non-monetary) and the costs associated with a project, decision-makers can assess whether a project is worth pursuing.

The essence of benefit-cost analysis lies in its ability to provide a clear metric that indicates whether the benefits outweigh the costs, which is crucial in public decision-making regarding large-scale projects that require taxpayer funding and stakeholder support. This analysis aids in identifying the project with the maximum societal net benefit, ensuring that public funds are allocated efficiently.

Other analysis methods focus on different aspects. Cash flow analysis emphasizes the timing and amounts of cash inflows and outflows, which can be important for cash management but does not directly evaluate benefits relative to costs. Cost-effectiveness analysis compares the relative costs and outcomes (effects) of different courses of action, but it is typically used when benefits cannot be easily quantified in monetary terms. Net present value analysis calculates the present value of cash flows over time, providing insight into the profitability of an investment, but it does not directly relate those figures