Benefit-cost ratio

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A cost-benefit ratio (BCR) is an indicator, used in a cost-benefit analysis, which attempts to summarize the overall value for the project or proposal money. BCR is the benefit ratio of the project or proposal, expressed in monetary terms, relative to its cost, also expressed in monetary terms. All benefits and costs must be expressed in the discounted present value. BCR can be an index of profitability in a nonprofit context. Benefit cost ratio (BCR) takes into account the amount of monetary gains realized by doing the project versus the amount of cost to implement the project. The higher the BCR, the better the investment. The general rule is that if the benefits are higher than the cost of the project is a good investment.

Inversions are the profit-and-loss ratio (CBR).

Video Benefit-cost ratio

Rationale

In the absence of funding constraints, the best value for the money project is the highest net present value. Where there is a budget constraint, the NPV to expense ratio falling within the range should be used. In practice, the ratio of future net benefit benefits to expenditures is expressed as BCR. (NPV-to-investment is BCR net.) BCR has been used most widely in the field of transport cost-benefit assessment. The NPV should be evaluated during the project's life.

Maps Benefit-cost ratio

Problem

Long-term BCRs, such as those involved in climate change, are very sensitive to the discount rate used in current net present value calculations, and there is often no consensus about the right level to use.

Handling non-monetary impacts also presents a problem. They are usually included by estimating them in monetary terms, using measures such as WTP (willingness to pay), although this is often difficult to assess. An alternative approach includes the framework of the New Appraisal Approach in the UK.

Further complications with BCRs concern the exact definition of benefits and costs. This may vary depending on the funding agency.

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Calculation

BCR = Value of discount of additional allowances ÃÆ' Â · Discount value of incremental cost

Accept all projects with BCR greater than 1, when costs and benefits are discounted on capital opportunity costs.

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See also

• Benefit benefits
• Cost-benefit analysis
• The cost is flooded
• Business efficiency
• Price-performance ratio

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Note

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References

• Jennifer Greene, Andrew Stellman (2007). "The first PMP leader," O'Reilly , (330)

Source of the article : Wikipedia