A tool used to assess the financial viability of a project or investment by comparing the total benefits to the total costs. It produces a numerical value representing the relative worth of the endeavor. For instance, a result greater than one suggests that the anticipated advantages outweigh the disadvantages, indicating a potentially sound undertaking.
This calculation serves as a critical decision-making instrument across various sectors. It facilitates resource allocation by providing a quantifiable metric for comparing different options. Its application can lead to increased efficiency and optimized investment returns. The principles underlying this methodology have been employed, in various forms, for decades to guide economic and strategic planning.