What is a cost-benefit analysis and its importance in capital planning?

A cost-benefit analysis (CBA) is a financial tool used to evaluate the economic feasibility of a project by comparing the total expected costs against the total expected benefits. In capital planning, this analysis is crucial, as it helps organizations determine whether a proposed investment is worthwhile and aligns with their strategic goals.

The importance of a CBA in capital planning lies in its ability to provide a clear picture of the economic impacts of a project, therefore aiding decision-makers in allocating resources effectively. By evaluating financial returns against project costs, stakeholders can prioritize initiatives based on their value and sustainability, ensuring that public funds are used efficiently and effectively. This systematic approach assists in making informed decisions that can lead to better project outcomes and overall fiscal responsibility.

Other options, while related to project evaluation, do not capture the primary financial metric assessed in capital planning as effectively as option B. For example, comparing project designs for aesthetic appeal does not address economic viability or benefits, measuring direct labor efforts focuses on operational aspects rather than a comprehensive cost-benefit scope, and considering long-term legal implications, while important, does not directly influence the cost-benefit ratio of an investment. Thus, option B most accurately reflects the essence of cost-benefit analysis in capital planning.