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Cost-benefit Analysis

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Cost-benefit Analysis 

Evaluation of a program in terms of its total costs compared to its total benefits, expressed in monetary terms. 

Pal, 2006, p. 321 


The basic steps involved in a cost-benefit analysis include: deciding on the accounting unit (whose costs and benefits are being weighed), indexing costs and benefits that will be accrued over time, attaching a monetary value to those costs and benefits, subtracting operating costs, and determining net social benefits.

It is important for opportunity costs to also be taken into account, as benefits of one activity may be foregone by pursuing another. Pal (2009) argues that cost-benefit analyses of public programs tend to better estimate program and budget costs than social benefits, due to the latter often being less tangible. In addition, when benefits are often not seen until several years down the road, problems associated with evaluation and accurate measurement of benefits also emerge.

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School of Public Policy and Governance