MicroNugget: What is Cost-Benefit Analysis?

In this video, Chris Ward and Steve Caseley cover a crucial exam tip on cost-benefit analysis. This is going to help you when you’re getting ready for any of the project management exams that are related to the Project Management Professional (PMP) or Certified Associate of Project Management (CAPM) certificates.

Cost-benefit analysis is an absolute cornerstone of project management, and it appears in every PM exam in some shape, form, or fashion.

Let’s think about it logically: cost is the amount of money we’re going to spend, while a benefit is the advantage we gain from spending it. This could be financial, it could take the form of tangible results, or the benefit could be defined by some other deliverable that’s a priority at the time.

Chris and Steve will outline some of the key terms you’ll need to know that tie into an effective cost-benefit analysis. These include sunk costs, payback period, ROI, cost-benefit ratio, constrained optimization, net present value (NPV), and the internal rate of return (IRR).

They’ll dig into each of these concepts and explain how being able to effectively calculate them can help you become a better project manager.

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