We should take account of the following in a "Cost-Benefit-Analysis" :

D. both

d. costs and benefits

Main Stages in the Cost Benefit Analysis Approach

At the heart of any investment appraisal decision is this basic question – does a planned project lead to a net increase in social welfare?

Stage1(a) Calculation of social costs & social benefits. This would include calculation of:

Tangible Benefits and Costs (i.e. direct costs and benefits)

Intangible Benefits and Costs (i.e. indirect costs and benefits – externalities)

This process is very important – it involves trying to identify all of the significant costs & benefits

Stage1(b) - Sensitivity analysis of events occurring – this relates to an important question - If you estimate that a possible benefit (or cost) is £x million, how likely is that outcome? If you are reasonably sure that a benefit or cost will ‘occur’ – what is the scale of uncertainty about the actual values of the costs and benefits?

Stage2: - Discounting the future value of benefits - costs and benefits accrue over time. Individuals normally prefer to enjoy the benefits now rather than later – so the value of future benefits has to be discounted

Stage3: - Comparing the costs and benefits to determine the net social rate of return

Stage4: - Comparing net rate of return from different projects – the government may have limited funds at its disposal and therefore faces a choice about which projects should be given the go-ahead

Both items to be considered

d:answer