MANAGEMENT

Environmental Management

Environmental Management

Introduction

Cost-benefit analysis (CBA) is a tool for comparing the costs of an action with its benefits in order to aid decisions and choices between alternative courses of action. CBA is useful to green businesses because it enables them to integrate environmental and economic goals in their operations and ensure that environmental and social costs are taken into consideration in their purchasing or investment decisions.

Costs and benefits include those in the market, those outside the market, long-term impacts of varying probability, and externalities—costs and benefits external to the parties involved in producing, marketing, and consuming a product. While the simplest form of a CBA may simply ask “is the cost of these energy conservation measures worth the savings on our electricity bill,” more complicated CBAs look at situations that have multiple costs and benefits, such as the decision of a company to become a green business(Johansson ,1993).

Discussion

CBAs are especially associated with large public or private sector endeavors, where the costs and benefits are numerous and may not all be apparent without significant investigation. Indeed, CBAs are now a formal requirement of many large-scale projects undertaken by private enterprises, such as those in the mining sector and the building industry(Philip ,2007).

Cost-effectiveness analysis (CEA) is a decision-making tool that tends to be used in cases where CBA techniques are undesirable or go into unnecessary depth, particularly when the choices analyzed do not amount to “do we do this or not,” but “how shall we do this?” For instance, it is used to analyze the various methods by which a legally required action may be enacted, or by which an existing standard of service can be maintained. It is broadly similar to CBA, in that it compares the results of multiple courses of action, but it is specifically concerned with accomplishing a ...