The benefit-cost model: An alternative approach to project life cycle analysis

Abstract

The benefit-cost model (BCM) is a method for assessing a project or investment. Generally, we denote our measure of costs with the sign C and our measure of benefits with the symbol B. Benefit-cost analysis aims to achieve many goals. First, a project's economic viability can be assessed using BCM. Second, competing projects can be compared using the outcomes of a number of benefit-cost evaluations. Business decisions, the value of public investments, the wisdom of managing natural resources, and the effects of changing environmental circumstances can all be evaluated using BCM. In the end, BCM seeks to investigate possible courses of action with the goal of enhancing social welfare. All benefit-cost studies share a number of characteristics, regardless of their purpose. A BCM starts with an issue that needs to be resolved. For instance, reducing poverty in a region can be a community's objective. Next, a number of projects that could potentially address the specific issue are identified. Alternative initiatives to reduce poverty in a region could, for instance, provide farmers with inputs, agricultural financing, or a successful marketing system. These projects' costs and benefits would be determined, computed, and contrasted. The model emphasizes the spectrum of benefits and cost from the project conceptualization to its „death". It involve five identifiable phases, namely; conception, investment. growth, maturity and decline. Its main advantages over the convectional approach is that it consider the behaviour and magnitude of the project"s gross benefit and cost streams over time, thus provides a basis for cash flow analysis, fund phasing and making realistic projections.