Framework
Cost-Benefit Analysis
Put a number on every side of the decision.
- Best for
- Financial or resource-heavy choices
- Time needed
- 45 minutes
- Origin
- Jules Dupuit, 1848; formalised in US federal policy in the 1930s.
A CBA turns costs and benefits into comparable units (usually money and time) so you can see net value. Its power isn't the number — it's the discipline of naming every hidden cost.
Use it when
- Large purchases, hires, or investments.
- Comparing two quantifiable options.
- You need to justify the choice to someone else.
Skip it when
- The most important factors resist quantification (meaning, identity, relationships).
- You're using it to disguise a moral choice as a financial one.
The steps
- 01
List every cost
Include one-time, ongoing, opportunity, and hidden costs.
- 02
List every benefit
Direct revenue, saved time (priced), risk reduction, optionality.
- 03
Convert to comparable units
Usually money over a defined time horizon.
- 04
Discount future values
£1 next year is worth less than £1 today — apply a rate (5–10%).
- 05
Compute net present value
Positive = proceed. Close to zero = look at qualitative factors.
A worked example
"Should we hire a second engineer?"
Costs: £90k salary, £20k overhead, 2 months lost productivity onboarding. Benefits: ~40% velocity increase = £180k of shipped value, plus risk reduction. NPV over 2 years positive.
Outcome
Hire — but front-load onboarding to shrink the productivity dip.
Where it quietly breaks
- Missing opportunity costs (what you couldn't do instead).
- False precision — a spreadsheet doesn't make a guess a fact.
Run this on a real decision — in Compass.
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