COST-BENEFIT ANALYSIS

AND ITS TYPE

COST-BENEFIT ANALYSIS

IS CONCERNED WITH ECONOMIC CHOICE AND ENDEAVORS

TO ASSISTS DECISION MAKERS IN MAKING CHOICES
CONCERNING SCARCE RESOURCES.

IS A COMMON BUSINESS PLANNING TOOL THAT INVOLVES

COMPARING THE LIKELY COSTS AND BENEFITS OF
POTENTIAL PROJECTS TO CHOOSE THOSE THAT OFFER
THE GREATEST NET BENEFIT.
TYPES OF COSTS AND BENEFITS
Private Cost vis-à-vis Private Benefit
Private cost is any negative effect on an
organization resulting from the implementation of
the project while any positive effect is private
benefit.

Private Cost is the cost to the producers

Private Benefit is the profit the producers get in the
production process
External Cost vis-à-vis External Benefit

External Cost occurs when producing or

consuming good or service that imposes a cost to
other party.

External Benefit occurs when producing or

consuming a good or service imposes a benefit to
a third party.
Social Cost vis-à-vis Social Benefit
Social Cost is the sum of the private cost and
external cost.
Social Benefit private benefits gained by the
individuals directly involved in a transaction
together with the external benefits gained by the
third parties not directly involved in the
transaction.