Question

What is the difference between cost/benefit evaluation and cost-effectiveness evaluation? When would you use each, and why? the answer needs to be 200-word count, please

Answer 1

Both Cost benefit evaluation and Cost effectiveness evaluation are essential methods for making critical business decision. They help to compare the present situation with future prospects and decide on equipment or programs that must be purchased so as to help in meeting future demand. They are part of strategic decision making and help in long term benefits.

Cost effectiveness evaluation is carried out when there is a long list of choices. It helps to narrow down the options basis comparison between different options. The cost involved in procuring the new equipment or program is compared and the best option is chosen which fulfills the requirement along with being cost effective. Cost benefit evaluation is a method in which company makes a call whether to adopt new equipment and program or continue with the existing setup. In this, return on investment and payback period is computed. If it is as per company's policy, then they opt for new equipment else prefer to continue with existing one only.

Thus, cost effectiveness is more detailed and complex study than cost benefit as lot of factors are evaluated and compared. But the final decision is basis the cost benefit evaluation. Hence, both are crucial for organization