What is the significance of comparing aggregate costs and benefits in a Cost-Benefit Analysis?

A Cost-Benefit Analysis (CBA) aids in making data-driven decisions by providing a systematic approach to estimating the strengths and weaknesses of alternatives. It can be used to determine if a decision or project is sound, or to choose between several possible options. The CBA does this by quantifying in monetary terms the expected costs and benefits of a decision or a project. This allows for a comparison to see if the benefits outweigh the costs, and by how much. Furthermore, it can also help in identifying any cost-effective changes to be made to a proposal or project.

The steps involved in conducting a Cost-Benefit Analysis are as follows:

1. Set the framework: Define the scope and objectives of your analysis.

2. Decide on costs and benefits: Identify all potential costs and benefits associated with the project or decision.

3. Determine and categorize: Classify the costs and benefits into tangible and intangible, direct and indirect.

4. Project, monetize and discount costs and benefits: Estimate the monetary value of the costs and benefits over the project's lifespan and apply a discount rate to find their present value.

5. Compute net present values: Subtract the total discounted costs from the total discounted benefits to get the net present value.

6. Run sensitivity analysis: Test the robustness of your results by changing the values of key variables.

7. Propose a recommendation: Based on the results, make a recommendation whether to proceed with the project or not.