Benefit Cost Ratio

Benefit cost ratio, abbreviated as BCR, is used to assess the desirability of an investment or a project.  It compares the benefits of a project or investment to its costs, helping decision makers evaluate whether the investment is financially justified.

The BCR provides a simple way to evaluate the economic efficiency of a project.   A BCR greater than 1 indicates that the project's benefits exceed its costs, suggesting that the investment is financially viable and may generate positive returns.  Conversely, a BCR less than 1 indicates that the project's costs outweigh its benefits, suggesting that the investment may not be economically justified.

While the BCR is a useful tool for comparing the costs and benefits of different projects, it's important to consider other factors such as risk, time value of money, and intangible benefits or costs when making investment decisions.

 

Benefit Cost Ratio Formula

\( BCR =  B \;/\; C \)

Symbol

\( BCR \) = benefit cost ratio

\( B \) = benefits

\( C \) = costs