ECONOMICS

Cost Benefit Analysis

Cost Benefit Analysis

Introduction

The important issue in making evaluation of airport projects is common to every cost benefit analysis, which is one of the major investments in transportation. Cost benefit analysis is a great way for any project team or a company, as it can effectively and easily weigh the benefits and cost of proposed action, whereas, there are certain disadvantages associated with this methodology, which needs to be considered equally before passing any particular decision over the results of cost benefit analysis. Cost benefit analysis is utilized to evaluate the overall anticipated cost of project compared to the expected benefits, it helps in determining either the proposed project should accept or rejected. It is important that project coordinator should evaluate the complete necessities and goals of a project and compare them with the priorities of potential disadvantages, it helps in making sure that is cost benefit analysis is worthwhile investment of resources and time.

Discussion

The Disadvantages of a Cost Benefit Analysis

The potential disadvantages of cost benefit analysis include potential inaccuracies in quantifying and identifying costs and benefits, increasing subjectivity for intangible cost and benefits, A Cost Benefit Analysis Might Turn in to a Project Budget and Inaccurate Calculations of Present Value Resulting in Misleading Analyses. Cost benefit analysis covers all benefits and cost which requires appropriate quantification, whereas, human error results in some well known errors of cost benefit analysis, it includes omitting of certain benefits and cost because of inability to forecast indirect causal relationships. Moreover, the uncertainty and ambiguity includes the assigning and quantification of monetary value in terms of intangible that leads to an inaccurate cost benefit analysis. This kind of tendency may lead to inaccurate analysis, which might increase inefficient decision making and risk.

Another disadvantage of cost benefit includes the amount of subjectivity, which involves quantification, identification and estimation of cost and benefits, although various cost is non monetary, which includes increasing employee and customer satisfaction, it often includes assigning of subjectively that increases the monetary nature value for purposes it weight up the overall financial benefits in particular endeavor. This forecasted estimation particularly based on expectation and experiences, which can be found biased in various situation (Wee 2008).

Cost benefit analysis might result in inaccurate calculations of present value, which might lead to the misleading analysis, an evaluation method estimating the costs and benefits analysis for a project over a time period, it is important to calculate the net present value for making any investment decisions particularly of huge development projects such as airport or railway projects. Many a times it might lead to results, which are not realistic, because of present value is accurate than there is a possibility that discount rate utilized in this calculation is realistic. Lastly, cost benefit analysis might result into insufficient project budget, it can take place during cost benefit analysis, in this possibility of evaluative mechanism turns into a proposed budget, it takes place when project manager gives cost benefit analysis and define a leadership team, selected ...