Cost-Benefit Analysis (CBA) in Decision Making Research

Finance
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CBA in Decision Making
Cost benefit analysis as known by many evaluates whether a decision by an organization is viable by comparing its costs with its benefits. Organizations use it to help them in financial decisions to determine whether an investment is sound and provide a basis for comparing projects in a company. Organizations face a lot of challenges including an unclear understanding of return on investment (ROI) when adopting projects. Although the financial organizations provide programs that offset significant costs, companies are less likely to invest in projects without clearly understanding its ROI. To embrace a project, stakeholders will need an assurance that adopting it will have a positive impact in their business. Therefore, cost-benefit analysis is an effective approach that will enable them to make a sound financial decision.
Cost-benefit analysis is the best approach that stakeholders use in making financial decisions. It evaluates and totals all the benefits and costs of the project to determine whether the project is viable. The approach involves the following four steps:
* Determining the overall goals of the project.
* Estimating the costs and benefits of the project.
* Discounting the costs and benefits using an appropriate rate.
* Completing the analysis by calculating the ROI of the project using any of the decision-making methods such as net present value (Hansen, Mowen, and Guan, 2007).
In an organization that wants to adopt HER project, the overall goals of CBA will be to establish the project will bring profits to the organization.
Like any project, HER will also generate cash flows into the organization. An initial investment is required at the start of the project which will be followed by annual expendit...