INTERNATIONAL JOURNAL OF LATEST TECHNOLOGY IN ENGINEERING,
MANAGEMENT & APPLIED SCIENCE (IJLTEMAS)
ISSN 2278-2540 | DOI: 10.51583/IJLTEMAS | Volume XIV, Issue XI, November 2025
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Cost-Benefit Analysis: A Short Literature Review
Dr. Mohasin Abbas Tamboli
1
, Mrs. Aditi Rohan Kulkarni
2
1
Associate Professor and Research Guide, PIRENS Institute of Business Management and
Administration, Loni, MS, India
2
Assistant Professor, Guru Gobind Singh College of Engineering and Research Centre, Nashik, MS,
India
DOI: https://doi.org/10.51583/IJLTEMAS.2025.1411000033
Received: 10 November 2025; Accepted: 20 November 2025; Published: 04 December 2025
ABSTRACT
Cost–benefit analysis (CBA) is a fundamental decision-making tool used to evaluate the financial and strategic
viability of projects by comparing expected costs with anticipated benefits. Originating from the work of Jules
Dupuit and later refined by scholars such as Alfred Marshall and the U.S. Corps of Engineers, CBA
incorporates both tangible and intangible factors to determine whether a project is worthwhile. In today’s
dynamic and competitive business environment, firms increasingly rely on CBA to guide strategic choices,
enhance performance, and allocate resources effectively. This conceptual paper reviews key scholarly
literature to explore how the principles of CBA can contribute to improved firm performance, particularly
within the context of twenty-first-century organizational challenges. The study also highlights the relevance of
applying strategic management accounting perspectives to CBA and proposes hypotheses for future research.
The paper is especially significant for Iraq and other socioculturally connected Middle Eastern economies,
offering theoretical and methodological insights into the relationship between strategic CBA applications and
firm performance.
Keywords: Cost-benefit Analysis, Firm Performance, Management Accounting, Business Environment
INTRODUCTION
Cost–benefit analysis (CBA) is commonly understood as a systematic and structured approach for comparing
the expected or estimated costs of an action with its anticipated benefits. In essence, it serves as a decision-
making tool that helps determine whether a particular project or strategic choice is economically justified from
a business perspective. The basic logic behind CBA is straightforward: all relevant costs associated with a
decision are identified, quantified, and aggregated, after which this total is compared with the combined value
of all anticipated benefits. In some cases, the comparison is expressed in terms of net benefits, while in others
it may be represented as a benefit–cost ratio. If the benefits exceed the associated costs, the decision is
generally regarded as sound and worthy of implementation. Conversely, if the costs outweigh the benefits, the
organization may need to reconsider, revise, or abandon the initiative.
The importance of carrying out such evaluations before making significant organizational decisions cannot be
overstated. CBA provides a structured framework through which firms can obtain critical information about
the potential financial and strategic implications of their choices. It offers insights into key metrics such as the
value chain of the firm, the likely return on investment of a project, operational efficiencies, opportunity costs,
and trade-offs between alternative courses of action. Because it relies heavily on quantitative assessment and
evidence-based reasoning, CBA represents one of the most widely adopted forms of data-driven decision-
making in both established organizations and entrepreneurial ventures. In today’s globalized environment, the
relevance of CBA has grown substantially. Globalization and international business have become defining
characteristics of the twenty-first century economy. As noted by Maresova et al. (2017), heightened economic
INTERNATIONAL JOURNAL OF LATEST TECHNOLOGY IN ENGINEERING,
MANAGEMENT & APPLIED SCIENCE (IJLTEMAS)
ISSN 2278-2540 | DOI: 10.51583/IJLTEMAS | Volume XIV, Issue XI, November 2025
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volatility and periodic downturns have increased the need for organizations to pay closer attention to firm
performance, efficiency in business processes, cost optimization, and measurable returns on investment.
Overall, the literature suggests that CBA remains a vital tool for improving organizational decision-making,
enhancing firm performance, and navigating the increasingly complex global business environment. Its
structured approach, emphasis on measurable outcomes, and flexibility across different types of decisions
make it indispensable for both private firms and public institutions.
LITERATURE REVIEW
Researchers across disciplines have long attempted to develop reliable and comprehensive measures of firm
performance. Despite decades of inquiry, the concept of performance remains contested, and the academic
literature continues to show gaps, inconsistencies, and ongoing debate. Numerous approaches have been
proposed to evaluate or enhance firm performance, yet many of these frameworks have been sharply criticized
by scholars for their narrow focus, methodological weaknesses, or limited applicability in real business
settings. Among the various tools available, cost-benefit analysis (CBA) has emerged as one of the more
prominent and frequently discussed methods.
Given its structured approach to decision-making, CBA offers a systematic way to compare the potential
advantages and drawbacks of strategic actions, investments, and operational changes within a firm. However,
its use in the context of firm performance has also raised theoretical and practical questions. To understand the
relationship between CBA and organizational outcomes more clearly, this section reviews the existing
literature under three major themes: the conceptual foundation of cost-benefit analysis, the evolving
understanding of firm performance, and the application of cost-benefit analysis as a tool for assessing and
improving firm performance. Each theme highlights key scholarly contributions while also identifying gaps
that remain in current research.
History of CBA
Benjamin Franklin (1772) described one of the earliest systematic approaches to decision-making, in which he
proposed listing all advantages on one side and disadvantages on the other, and then eliminating items that
held equal weight. At times, this meant striking out several minor advantages against a more significant
disadvantage, or the reverse. Once the balancing process was complete, the remaining items revealed the
stronger choice. Franklin acknowledged that the “weight of reasons” could never be measured with the
precision of mathematics, yet he believed that evaluating each reason individually and comparatively led to
clearer judgment. His method highlights a key aspect of rational decision-making: the need to determine the
relative importance of the factors involved. Modern analytical tools build on this same principle. Most
techniques that systematically weigh pros and cons fall under two broad categories—multi-criteria analysis
(MCA) and cost–benefit analysis (CBA). Both methods quantify impacts and assign weights—what Franklin
called “algebraic quantities.” In MCA, these weights are typically assigned by analysts, policymakers, or
experts. In contrast, CBA bases its evaluation on the preferences of individual citizens, often expressed
through their willingness to pay for different outcomes (Sen, 1979). Franklin’s method may be seen as a
simplified form of MCA because he assigned importance himself, without using numerical values. In CBA,
however, the importance of impacts is determined through monetary valuation, reflecting what society—
citizens and firms—is willing to pay for the changes a project produces.
Today, nearly all Western nations require CBA for significant regulatory reforms, and many have developed
detailed guidelines for its implementation. Government agencies in these countries continue to refine these
frameworks, as documented by Boardman et al. (2018), ensuring that CBA remains a central tool for
evaluating public policies, major investments, and regulatory changes
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Conceptualizing Firm Performance
Taouab and Issor (2019) explore the evolving understanding of firm performance and note that the concept has
become increasingly central in strategic management research, where it is frequently used as a dependent
variable. Despite its popularity, scholars still struggle to reach consensus on how firm performance should be
defined or measured. Because no single operational definition has gained universal acceptance, researchers
often interpret the term through their own disciplinary lenses, resulting in varied and sometimes conflicting
explanations. As a result, the idea of firm performance is often described in ways that are broad, ambiguous, or
conceptually abstract.
Some authors attempt to clarify the concept by linking it to organizational capability. Le (2005), for example,
defines firm performance as the organization’s ability to utilize both human and material resources effectively
in pursuit of its goals. This perspective aligns with arguments made by Truong and Tran (2009) and Nguyen et
al. (2021), who suggest that firm performance should also reflect how efficiently a company applies its
business resources throughout the production and consumption processes. Their views reinforce the idea that
firm performance is not only about outcomes but also about the processes and managerial practices that
contribute to those outcomes.
Riegg and Edwin (2015) extend this discussion by examining two evaluation tools that help assess the value of
programs and interventions: cost–benefit analysis (CBA) and cost-effectiveness analysis (CEA). They explain
that CEA evaluates how the costs of a program compare to the key outcomes it generates, making it useful
when benefits cannot easily be expressed in monetary terms. CBA, in contrast, goes further by attempting to
convert both costs and a broad range of benefits into monetary values, thereby allowing direct comparison
between the two. Their chapter outlines both methods, highlights the practical challenges involved in
estimating and calculating program costs and benefits, and describes a series of common steps shared by CEA
and CBA. The authors place particular emphasis on social or economic forms of CBA rather than purely
financial analyses, and they illustrate the application of these tools through a ten-step evaluation of a high
school dropout reduction program designed for at-risk students.
Conceptualizing Cost Benefit Analysis
Cost–benefit analysis (CBA) refers to the process of comparing the expected costs and the likely benefits of a
project or decision to determine whether it is worthwhile from a business perspective (Mishan & Quah, 2020).
The roots of this idea can be traced to the work of Jules Dupuit, who argued that any choice among multiple
alternatives should be based on a careful examination of the total cost of each option relative to the benefits it
is expected to deliver. His view established the foundation for evaluating competing courses of action using
economic reasoning.Over the years, several scholars have elaborated on this concept. Kenton (2018) describes
CBA as a technique for identifying all expenses linked to a business proposal and comparing them with the
potential gains it could generate. Similarly, Kevin et al. (2010) explain that CBA provides a systematic way to
assess the strengths and weaknesses of projects by weighing their anticipated benefits against the costs
required to carry them out. John (2009) views CBA as a practical analytical tool that offers managers essential
information about the financial viability of new investments, whether they involve constructing a facility or
launching a new activity. Robert (2014) further notes that although CBA can assist in evaluating almost any
type of decision, its most common use is in determining whether large expenditures or significant
commitments are justified.
Robinson (1993) highlights that CBA is one of the most comprehensive forms of economic evaluation and can
be applied using different approaches. The first is the human capital approach, which assigns value to
individuals’ contributions based on their earnings. The second is the preference-based approach, which relies
on either observed or stated preferences to estimate how much individuals are willing to pay for a particular
service or accept as compensation for increased risk.
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Cost Benefit Analysis CBA versus Economic impact analysis EIA
Economic Impact Analysis (EIA) is one of the most frequently applied analytical tools for understanding how
specific decisions, policies, or projects influence the broader economy. Whether used by governments, public
agencies, or large organizations, EIA helps identify how an intervention affects various economic indicators
that reflect overall economic health and activity. These indicators typically include changes in competitiveness,
gross domestic product (GDP), unemployment levels, wages, business profits, investment flows, and economic
output across different sectors of the economy. Such impacts are often illustrated through structured economic
models, diagrams, or frameworks, as shown in Figure 1 of many analytical reports.
A distinctive feature of EIA is that, unlike cost–benefit analysis (CBA) or multi-criteria analysis (MCA), it
does not merge impacts into a single summary value or overall score. In CBA, for instance, all costs and
benefits are converted into monetary terms and aggregated to determine whether benefits exceed costs. MCA
similarly scores and weights different criteria to derive an overall ranking of alternatives. EIA, by contrast,
presents each impact separately and does not attempt to combine them into one unified measure. Aside from
aggregate figures—such as total change in GDP or total employment—EIA treats each economic indicator
independently. This approach enables decision-makers to observe the distribution and magnitude of economic
effects across regions, industries, and demographic groups rather than reducing them to a single figure.
Another characteristic of EIA is that its focus is largely on macro- and meso-level economic outcomes rather
than on individual or household welfare. With the exception of unemployment or employment-related changes,
most household-level impacts such as changes in consumer surplus, living standards, or private well-being are
typically not included in the analysis. This reflects EIA’s primary purpose: to identify how economic activity
shifts across sectors, industries, and regions rather than evaluating personal financial gains or losses.
According to Weisbrod (2008), EIA plays a crucial role in supporting public policy and strategic planning
because it helps identify the winners and losers of economic decisions, the magnitude of expected economic
shifts, and the sectors that stand to benefit or face challenges. For this reason, EIA is widely used in
infrastructure planning, environmental regulation, transportation projects, industrial development, zoning
decisions, and economic development programs.
Figure 1 Different elements in CBA and Economic Impact Analysis
source: Weisbrod et al. (2008)
Cost Benefit Analysis and Firm Performance
Studies such as Chan et al. (2012) show that firms often rely on cost–benefit analysis to compare alternative
projects and strengthen their decision-making. Srhoj and Walde (2020) add that this process requires a careful
review of all possible costs and potential income before a project is approved. The outcome of the analysis
helps a firm decide whether a new initiative is financially sound or whether expected returns will fall short of
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covering costs. Similarly, Aigbogun et al. (2017) note that companies use cost–benefit analysis to estimate
future gains and losses, while also considering opportunity cost—what might be lost when one option is
chosen over another.
AL-Obaidi and Salman (2019) emphasize that comparing total project costs with expected benefits can signal
the financial value of a project and also reflect the accounting competence of those conducting the evaluation.
Kelman (1990) takes a broader view, describing cost–benefit analysis as a structured way of thinking through
decisions. He argues that decisions should generally not be taken unless benefits exceed costs, and that
expressing all costs and benefits in a common measure, even when no market value exists, supports clearer
judgment.
CONCLUSION
The literature reviewed shows that how well a firm performs often depends on its ability to weigh project costs
against expected benefits. Cost–benefit analysis (CBA) serves as a practical method for this purpose because it
helps compare different choices in clear monetary terms. By estimating the financial value of both costs and
gains, firms can judge the real worth of a proposed project and decide whether it should move forward.
However, the method still involves some important judgement calls. Choosing an appropriate discount rate, for
example, can change the outcome because it affects how future benefits are valued today. After completing the
analysis, firms may apply different decision rules—such as accepting any option with positive net benefits or
selecting the one that promises the highest overall return.
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