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Literature Review
Published in Alberto Galvis Castaño, Integrated Pollution Prevention and Control for the Municipal Water Cycle in a River Basin Context, 2019
Cost Benefit Analysis (CBA) is a technical evaluation that allows the convenience and opportunity of a project or a solution alternative to be defined, comparing the Net Present Values (NPV) of the costs and benefits (Miranda, 2000). The objective of implementing the CBA is to weigh the positive and negative effects of an investment decision, which can be manifested internally or externally to the solution formulated. In this type of analysis, the benefits of the proposed action are calculated and compared with the total costs that society would assume if the said action were to be carried out (Brent, 2006). A variant of the CBA is when the ‘incremental’ situation is considered. An ‘incremental analysis’ of CBA is a decisionmaking technique used in business to determine the true cost difference between alternatives. It is also called the relevant cost approach, marginal analysis or differential analysis. ‘Incremental’ means that common benefits and common costs are not considered. The discount rate for net present value (NPV) is an efficiency criterion used in CBA to cases where costs and benefits occur over time. The discount rate corresponds to the return that could be earned per unit of time on an investment with similar risk. The social discount rate (SDR) is the rate used in computing the value of funds spent on social projects (Harrison, 2010).
An economic evaluation of operational decisions – an application in scheduling evaluation in fertilizer plants
Published in Production Planning & Control, 2021
Najat Bara, Frédéric Gautier, Vincent Giard
In addition to variable costs, the full costs approach includes a portion of capacity costs. However, at the operational level, these capacity costs are fixed. They are not relevant for short-term decision-making purposes. They are sunk costs that will not be impacted as a result of the decisions being assessed (Burch and Henry 1974). A relevant cost, according to the differential cost concept, is a cost that only relates to a specific management decision, and which will change in the future as a result of that decision. In fact, ‘at the operational level, design costs are fixed and not controllable and must, therefore, not be taken into account’ (Corbey 1994).