Cost-Benefit Analysis Calculator

Cost-benefit analysis (CBA) is a decision-support technique: it answers "should we do this at all?" by comparing everything you expect to spend against everything you expect to gain, without necessarily converting either side into a precise rate of return.

The Formulas

• Total Costs = sum of all cost items (discounted to present value if a rate and years are given)
• Total Benefits = sum of all benefit items (same treatment)
• Net Benefit = Total Benefits − Total Costs
• Benefit-Cost Ratio (BCR) = Total Benefits ÷ Total Costs

When a discount rate and per-item year are supplied, each amount is converted to present value first using PV = Amount ÷ (1 + rate)^year, before the totals and BCR are computed. This matters because a $10,000 benefit received in year 3 is worth less today than $10,000 received in year 1 — ignoring that would overstate a project's benefits if they arrive later than its costs.

Reading the Ratio

BCR > 1 means the benefits, in present-value terms, exceed the costs — the project clears the bar on paper. BCR < 1 means the reverse. A BCR of exactly 1 is the break-even point. Note that BCR says nothing about the size of the project or the time value beyond what you've explicitly discounted — a tiny project with a BCR of 3 isn't automatically better than a large one with a BCR of 1.5 if the large one produces far more absolute net benefit.

This vs. NPV / IRR

Cost-benefit analysis is a screening tool for go/no-go decisions and comparing alternatives on qualitative and quantitative grounds together — it isn't a substitute for a rigorous financial return calculation. If you specifically need Net Present Value or Internal Rate of Return on a cash-flow stream, use the NPV Calculator instead — it's built for that purpose and handles irregular cash flows more precisely than a simple BCR.

FAQ

Q: Do I need to fill in the Year field?
A: Only if your costs and benefits happen at different points in time and you want them discounted to a common present value. For a single-period decision, leave every year at 0 or leave the discount rate blank — the calculator will just add the raw amounts.

Q: What discount rate should I use?
A: Organizations often use their cost of capital, a government social discount rate for public projects, or a required hurdle rate. There's no universal number — it should reflect what you'd otherwise do with the money.