What is the purpose of a cost-benefit analysis in development projects?

• A. To weigh total expected benefits and costs to decide whether a project should proceed and which option is optimal.
• B. To estimate only costs.
• C. To forecast political outcomes.
• D. To maximize government revenue.

Answer: (A)

The main idea being tested is that a cost-benefit analysis weighs all expected benefits and costs of a development project to decide whether it should go ahead and which option offers the best overall value. In practice, you list every relevant cost (construction, maintenance, operating expenses) and every expected benefit (economic gains, time savings, health improvements), convert them into monetary terms where possible, and discount future values to their present value. By calculating the net benefit (total benefits minus total costs) or a benefit-cost ratio, you can determine if the project is worthwhile and which alternative maximizes net value. If the net benefit is positive and the ratio favorable, the project is more likely to be chosen; if not, you might skip it or choose a different option. This approach helps decision-makers compare trade-offs and allocate resources to the option with the greatest net value. It’s not about estimating only costs, forecasting political outcomes, or simply maximizing government revenue, since those do not capture the full comparative value of different choices.