Cost-Benefit Analysis: Ma. Rossana H. Fernandez Educ 202 - Statistics

Cost-
Benefit
Analysis
MA. ROSSANA H. FERNANDEZ
E D U C 2 0 2 - S TAT I S T I C S
Content
Q1 Q2 Q3 Q4
WHEN TO SAMPLE SAMPLE CONCEPTUAL
USE THE STATEMENT DATA SET FRAMEWORK
TEST OF THE OF THE
PROBLEM CHOSEN
VARIABLE
Content
Q5 Q6A Q6B Q7
ASSUMPTION SPSS STEPS APPROPRIAT TIPS TO
S OF THE TO RUN THE E REPORT THE
STATISTICAL DATA TRIAGULATI FINDINGS
TEST ON TO USE
(QUALITATIV
E DESIGN)
Cost–benefit analysis (CBA)
• a systematic cataloguing of impacts as benefits (pros)
and costs (cons)
• valuing in dollars with assigned weights
Definition
• determining the proposal relative to the status quo by
the
• net benefits - benefits minus costs
• benefit–cost ratio - divide benefits by costs
Source:
The origin of cost–benefit analysis: a comparative view of France and the United States
Jiang and Marggraf, 2021
Cost–benefit analysis (CBA)
• To help social decision making and to allocate scarce
resources more efficiently
• To determine if the project business case is sound,
Purpose justifiable and feasible by figuring out if its benefits
outweigh costs.
• To offer a baseline for comparing projects by
determining which project’s benefits are greater than
its costs.
Source:
https://www.projectmanager.com/blog/cost-benefit-analysis-for-projects-a-step-by-step-guide
Application
Source:
Research
Areas
Source:
 engineering
 environmental sciences ecology
Research  computer science
Areas  business economics

 energy fuels
 health care sciences services
 internal medicine
Source:
Countries &
Regions using
CBA
Source:
 United States of America
Countries &  England
Regions using  People’s Republic of China
CBA  Canada
 Australia
 Germany
Source:
When to use?
 In governmental planning and  In business, it is equivalent to the
budgeting, it is an attempt to practice of cost-budgeting analysis
measure the social benefits of a
proposed project in monetary
terms and compare them with its
costs.
Source:
https://www.britannica.com/topic/cost-benefit-analysis
When to use?
 Considerations in evaluating the  Considerations in evaluating the
COSTS BENEFITS
 Direct costs  Direct
 Indirect costs  Indirect
 Intangible costs  Total Benefits
 Opportunity Costs  Net Benefits
 Costs of potential risks
Source:
https://www.projectmanager.com/blog/cost-benefit-analysis-for-projects-a-step-by-step-guide
When to use?
 Other Considerations:
 TIME FACTOR
 VARIABLE INTEREST
 TYING-UP OF FUNDS
 DISRUPTION OF NORMAL CASH
FLOW
Source:
When to use?
 COST-BENEFIT RATIO High Benefit-Cost Ratio
PROJECT BENEFITS VS.
PROJECT COST Low Benefit-Cost Ration
Qualitative Social
Quantitative Programs
Source:
Deconstructing a
Cost-Benefit
Analysis Case Study
Deconstructing a Cost Benefit
Analysis Example
Source:
https://www.wallstreetmojo.com/cost-benefit-analysis-examples/
Case Sample
Sports International limited is planning to expand its business, and
for that, it will require four new employees in the organization. For
analyzing whether the expansion is beneficial or not, the management
of the company decides to use the cost-benefit analysis. The
following are the information available related to benefits and costs
related to expansion:
Given
• Within the time frame of one year, it is expected that if the company hires four
employees for the expansion, then the revenue of the company will increase by 50
%, i.e., the revenue benefit will be around $ 250,000.
• Also, due to the new hiring, the company value of the business will increase,
which would result in additional revenue of $ 30,000.
• The salary of the new employees is estimated to be $ 160,000.
• The additional cost of hiring is estimated to be $ 15,000.
• The cost of additional hardware and software required will come at around $
25,000
 Will it be beneficial for Sports International Ltd. to
expand its business, which will require hiring four new
employees in the organization?
Statement of
the Problem
Source:
 Total benefit from the project = Increase in revenue from expansion
 Total benefit from the project = $ 250,000 + $ 30,000 = $ 280,000
 Total Cost from expansion = Salary of new employees + Cost of

hiring + Cost of additional hardware and software
Data Set  Total Cost from expansion = $ 160,000 + $15,000 + $25,000
 Total Cost from expansion = $ 200,000
Source:
 Total benefit from the project = Increase in revenue from expansion
 Total benefit from the project = $ 250,000 + $ 30,000 = $ 280,000
 Total Cost from expansion = Salary of new employees + Cost of

hiring + Cost of additional hardware and software
Data Set  Total Cost from expansion = $ 160,000 + $15,000 + $25,000
 Total Cost from expansion = $ 200,000
Source:
Data Set
Source:
Data Set
Positive Effect
Source:
 Value is based on how much money an affected individual is
willing to pay or accept for the outcome.
Understanding  Generally assume individuals are the best (most legitimate) judge of
the Conceptual their own welfare (“consumer sovereignty”); not paternalistic.
Framework  Describes extent to which individuals are willing, as members of a
society, to reduce their consumption of other goods and services to
achieve particular policy outcomes.
Source:
https://cdn1.sph.harvard.edu/wp-content/uploads/sites/2447/2019/07/Robinson-Concepts-and-
Framework-2019.07.14-workshop.pdf
 In terms of Benefit-Cost ratio, which is 1.40, the benefit outweighs
the cost.
Conceptual  For every 4200,000 worth of investment, the company will be able
Framework of to generate an additional income of $80,000.
the Case Study  The expansion will increase the market share of the company.
 One of the qualitative benefit is increased employment rate and

correspondingly a decrease in unemployment.
Source:
 Rely on market data where possible for valuation.
 Presumably, if an individual chooses to buy a good or service, he or she
Assumptions values it more than the other things the money could buy
of the  For nonmarketed goods, use stated or revealed preference methods.
Statistical Test  Stated preferences ‐ ask respondents to indicate what they would be
willing to pay under hypothetical scenarios (contingent valuation,
choice experiments).
 Revealed preferences – use data on market transactions or observed
behavior to estimate value, controlling for other attributes statistically
Source:
Conceptual
Framework of
the Case Study
Source:
 What does SPSS stand for?
 Statistical Packages for the Social Sciences
 What types of data are analyzed using SPSS?

SPSS to run  Survey results
the Data  Organization customer database

 Google Analytics
 Scientific research results
 Server log files.
 What SPSS is used for Cost Benefit Analysis?

 Face to face assistance
 Use Excel
 SurveyMonkey
 EpiData Entry (free)
 PSPP a clone of SPSS (free)
Source:
Appropriate
Triangulation
to Use
Source:
Tips to Report the Findings
Source:

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Cost-

Research  computer science

Areas  business economics

Countries &  England

Regions using  People’s Republic of China

PROJECT BENEFITS VS.

PROJECT COST Low Benefit-Cost Ration

 Total benefit from the project = $ 250,000 + $ 30,000 = $ 280,000

 Total Cost from expansion = Salary of new employees + Cost of

 Total Cost from expansion = $ 200,000

 Total benefit from the project = $ 250,000 + $ 30,000 = $ 280,000

 Total Cost from expansion = Salary of new employees + Cost of

 Total Cost from expansion = $ 200,000

 One of the qualitative benefit is increased employment rate and

of the  For nonmarketed goods, use stated or revealed preference methods.

 What types of data are analyzed using SPSS?

the Data  Organization customer database

 What SPSS is used for Cost Benefit Analysis?

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