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Definition

Cost Benefit Analysis

Cost benefit analysis examines the relationship between the costs of a program and its benefits.

Costs included in these calculations are classified in several ways. Direct costs are those that are used to implement the program, such as the cost of selection tests or training materials. Indirect costs are those that an organization absorbs, such as the trainee’s time away from work. Indirect costs are often unrecognized, and sometimes are not included in cost-benefit analyses.

Most programs can be subjected to a cost-benefit analysis if hard data are available, or the value of a program can be estimated from soft measures such as supervisors' estimates of productivity.

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