Cost Benefit Analysis – Article Example

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IntroductionSound decisions have to be made based on the underlying requirements of the different stakeholders. Numerous factors influence the decision process and also the significance of any project. However, safety and health are some of the important variables associated with the cost-benefit analysis. Cost-benefit analysis is a systematic approach that is used to estimate the weaknesses and strengths of alternatives that satisfy functional, activities or transactions requirements of business. Numerous components are used in determining costs and benefits and include cost savings, time, and labor. However, the extent of application fluctuates based on situation and requirements of the analysis.

Nevertheless, cost-benefit analysis is an approach which is used to compare the benefits and costs of a project and usually influence policy direction. The purpose of cost-benefit analysis includes providing a basis for projects comparison and justifying investments. The analysis is possible through comparing the expected benefits and cost of the project and uses the methodology to determine the most appropriate approach. The aspect of benefit, further, introduces the value of preventing a fatality. The aim of the paper is to discuss cost-benefit analysis and value of preventing a fatality.

Cost Benefit Analysis In a cost-benefit analysis, the costs and benefits are grouped based on the same unit of measurement, and commonly monetary value is used, to enable effective comparison resulting in effective analysis of the different options. According to Reynolds et al. (2011) cost-benefit analysis (CBA) is a methodology that is used to value costs and benefits that enable comparison resulting in a reduction of risks associated with the safety on a consistent basis while also defining the decision making an approach.

The purpose of CBA is to create a mechanism for reducing risks ‘so far as is reasonably practicable’ (SFAIRP). However, CBA is not the only methodology or determinant used in SFAIRP. Furthermore, CBA should not be used to remove the current good practice or control measures. Hence, numerous justifications are required before making a judgment. In making decisions on the adjustment of judgments, attentions should be concentrated on certain sections. Elsler et al. (2010) present the attention should be applied to the potential safety consequences and uncertainty in safety benefits and assessment of costs.

Furthermore, reliance on commercial benefits to result in small safety benefits is no allowed. Nevertheless, the decision taken should be targeted to schemes resulting in reasonably practicable modifications contributing to the improvement of safety. What is the cost? The CBA costs are the net costs that the duty holder of the program/project benefits; for example, the cost of introducing a given safety measure. The costs directly associated with safety measure that us being assessed should only be included in the analysis. The costs include any additional maintenance, training, operation, installation and other indirect costs that result because of suspension of a given service.

Jallon, Imbeau and de Marcellis-Warin (2011) post, the cost that the duty holder incurs should be included in the analysis but not costs incurred by other stakeholders such as the public. Nevertheless, the costs of mitigation measures; for instance, compensation should be included in the analysis. Other costs that should not be included are the use of alternative means to address inconveniences caused. For example, if it is a railway project, the cost of using a motor vehicle for transportation purpose should not be included; other costs including ongoing revenue loss and allowance for optimism bias.

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