Cost-Benefit Analysis (CBA) is a method that compares, in monetary terms, all the costs and benefits of a project over a defined reference period. It consists of a financial analysis, which works with actual cash flows and is expressed through the FNPV and FRR indicators, and an economic analysis, which adds societal benefits and externalities to these – time saved, reduced emissions, or lower accident rates – and is expressed through the ENPV, ERR and the benefit-to-cost ratio. All flows are discounted to present value at a set rate so they are comparable over time. For projects generating net revenue, CBA performs one further function: using the funding gap method, it determines what portion of the eligible expenditure can be covered by the non-repayable financial contribution so that the project is not over-financed. Overstated benefits or understated operating costs are among the most common reasons for evaluators' objections.
See also: Feasibility study, Project budget, Eligible expenditure.
