Cost benefit analysis

Cost benefit analysis is an assessment of the potential costs of an action, relative to the potential benefits of that action. In its simplest form, cost benefit analysis is carried out using only financial costs and financial benefits (eg the price of resources needed to run a fundraising campaign, compared with the potential income that might be generated by it).

More sophisticated models of cost benefit analysis (eg the Social Return on Investment) aim to take into account social or environmental benefits as well. These benefits are often translated into a financial value to enable a comparison with cost.

Benefits

It helps organisations to assess the value of a service in tangible terms, or to compare different services.

Limitations

If you are taking into account social and environmental elements as well as financial ones, attaching a value to these more intangible elements can seem too subjective or impossible for some. Whatever type of value you are counting, it can take a lot of effort to convert and count all the units. Make sure your findings really will be useful before you start the process.

When to use it

You can use this tool to help assess your strengths and weaknesses before you begin to open up choices, and to help weigh up options for the future.

What are your experiences of using this tool? Share your triumphs and tribulations with our network members or write your own tips by commenting on this page.

More information about this tool is included in our guide Tools for Tomorrow.

An introduction to Social Return on Investment is available from the SROI Network.

Last updated at 17:54 Mon 12/Apr/10.

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