Law Essay Paper on Benefits and risks associated with cost-benefit analysis

Benefits and risks associated with cost-benefit analysis

Cost-benefit analysis is the process through which a business decision is analyzed, the benefits of a given scenario or business related actions are added up, and the related cost associated with the activity are deducted. It also estimates the strength and weakness of alternatives systematically. It is vital to carry out this analysis to avoid the risk of accepting unprofitable tasks and wasting time and money (White & VanLandingham, 2015). In taking into account the CBA (cost benefit analysis), it is crucial to be aware of the costs incurred such as preventive pollution cost, pollution damage cost, and welfare damage cost. This implies the cost spent by the firm to wholly or partially prevent infection. Health cost value that results in damaging the well-being of the society. These pollution costs are opportunity costs because if the contamination has not taken place, this cost could be spent for other activity which generates welfare to the community.

            The direct and indirect revenues and intangible benefits of CBA include an increase in production from improved employee safety and morale, sales increase from customer goodwill, and development of new technology for the evaluation of social effects. However, the firm may not be aware of the total costs and benefits associated with the program (White & VanLandingham, 2015). The method of collecting data for this analysis is biased and does not state who should bear the pollution control costs. The CBA may also fail to take into account vital financial concerns such as interest rates, inflations, varying cash flow and the present value of money. The intangible cost which represents various expenses such as losses in productivity, customer good will or drops in employee morale are also risks associated with CBA.

References

White, D., & VanLandingham, G. (2015). Benefit-Cost Analysis in the States: Status, Impact, and Challenges. Journal Of Benefit-Cost Analysis6(02), 369-399. http://dx.doi.org/10.1017/bca.2015.39