What does a cost-benefit analysis evaluate?

A cost-benefit analysis serves as a crucial tool for decision-making, specifically aimed at evaluating the financial advantages and disadvantages associated with a project or investment. It involves quantifying the expected benefits and comparing them to the anticipated costs, thus enabling stakeholders to assess the feasibility and profitability of a proposed initiative. This method systematically identifies potential returns on investment, helping organizations determine if the benefits outweigh the costs before proceeding.

In the context of project evaluation, understanding the costs and potential gains is essential for making informed financial decisions. This analysis aids in prioritizing projects based on their net value, ensuring resources are allocated effectively to endeavors with the highest expected returns.

Other options entail important business assessments, but they do not capture the essence of what a cost-benefit analysis encompasses. Evaluating employee turnover focuses more on human resources metrics than financial assessments, analyzing marketing campaigns centers on effectiveness rather than a direct financial comparison, and examining supply chain efficiency deals with operational performance, which is not the primary focus of a cost-benefit analysis.