What is the fundamental purpose of a cost/benefit analysis?

The fundamental purpose of a cost/benefit analysis is to measure value in relation to expenditure. This analytical tool evaluates the financial implications of a particular decision or project by comparing the expected benefits with the costs involved. Through this analysis, organizations can determine if a proposed action is worthwhile and whether the benefits gained justifies the costs incurred.

Understanding the value derived from expenditures is crucial for making informed decisions, ensuring that resources are allocated efficiently, and pursuing initiatives that will yield the highest returns. Effective cost/benefit analysis not only highlights potential profitability but also assists in prioritizing investments based on quantifiable benefits, thus facilitating strategic planning and risk management.

While increasing company profits, ensuring the safety of physical assets, or mitigating employee risks may be related outcomes of the analysis, they are not the primary focus. The essence of the cost/benefit analysis lies in its ability to provide a clear metric for evaluating financial decisions.