Cost Benefit Analysis(CBA)
A systematic approach comparing costs and benefits of a decision, project, or procurement to determine the optimal course of action.
Overview
Cost Benefit Analysis (CBA) is a decision-support tool used across government to evaluate whether the anticipated benefits of a procurement, program, or policy justify its projected costs. Analysts quantify both tangible and intangible factors, discount future values, and present findings to leadership for informed resource allocation.
Why It Matters in GovCon
Federal agencies rely on CBAs to justify funding requests and select between competing solutions. Contractors who understand CBA methodology can frame their proposals in terms of return on investment, total cost of ownership, and value delivered—language that resonates with acquisition professionals.
Key Details
- OMB Circular A-94: Provides federal guidelines for conducting benefit-cost and cost-effectiveness analysis.
- Net Present Value: Future costs and benefits are discounted to present value for fair comparison.
- Sensitivity Analysis: Tests how changes in key assumptions affect the outcome.
- Alternatives Comparison: A CBA typically evaluates multiple options, including a status-quo baseline.
- Non-Monetary Benefits: Factors like improved safety, public trust, or environmental outcomes are often included qualitatively.
Related Terms
- Life Cycle Cost Estimate (LCCE)
- Best Value Determination
- Independent Government Cost Estimate (IGCE)
- Budget Justification
More Finance Terms
A guarantee submitted with a bid that ensures the bidder will enter into a contract if selected and provide required performance and payment bonds.
The government's internal estimate of what a procurement should cost, used to evaluate the reasonableness of contractor proposals.
The projected cost to finish remaining work on a contract or project based on current status.
Overhead costs that support the overall organization rather than direct contract performance.
Costs that cannot be traced to a single contract but are allocated across projects via indirect rates.
The total cost of owning, operating, maintaining, and disposing of a system or product over its entire useful life.
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