Business Case Writing Cost-Benefit Analysis Techniques 2

Question 1

Which CBA technique is most appropriate when benefits are difficult to monetize but can be clearly defined?

Accepted Answer

Cost-effectiveness analysis

Answer

Cost-effectiveness analysis compares costs to non-monetary outcomes (e.g., lives saved, emissions reduced) when benefits resist dollar quantification.

Question 2

In a business case, 'lifecycle cost analysis' ensures that decision-makers consider:

Accepted Answer

All costs from acquisition through disposal over the asset's full life

Answer

Lifecycle cost analysis prevents decisions based solely on initial price by accounting for ongoing operations, maintenance, upgrades, and disposal costs.

Question 3

Which analytical error occurs when a CBA double-counts the same benefit in two different categories?

Accepted Answer

Double counting

Answer

Double counting inflates projected benefits by recording the same value twice under different labels, overstating the investment's appeal.

Question 4

When comparing options with different useful lives in a CBA, analysts should use:

Accepted Answer

Equivalent Annual Annuity (EAA) or a common time horizon

Answer

EAA or a common time horizon ensures apples-to-apples comparison when options have different durations, avoiding misleading conclusions.

Question 5

In a CBA, a 'willingness to pay' approach is used to estimate:

Accepted Answer

The monetary value of benefits that users cannot directly pay for

Answer

Willingness to pay surveys or models estimate how much beneficiaries value non-market goods or services, enabling their inclusion in the CBA.

Business Case Writing Practice Test

Business Case Writing Practice Test

Business Case Writing Cost-Benefit Analysis Techniques 2