Cost-Benefit Analysis Framework
Quantify all costs and benefits of a decision to calculate ROI and payback period for financially sound choices.
Capture this play inside the Decision Log and make it your own.
What is cost-benefit analysis?
Cost-benefit analysis (CBA) is a systematic way to quantify the costs and benefits of a decision to see if it's worth it.
You list all costs (financial, time, opportunity cost), all benefits (earnings, savings, quality of life), and compare.
The goal is to answer: "Does this decision deliver positive ROI? How long until it pays back?"
How to do cost-benefit analysis
List all costs: Direct expenses, opportunity costs (what you give up), time investment (valued at your hourly rate).
List all benefits: Financial gains, time saved, quality of life improvements, skill development.
Assign dollar values: Estimate costs and benefits in monetary terms (even if approximate).
Calculate net benefit: Total benefits minus total costs.
Determine payback period: How long until benefits exceed costs?
Decide: If net benefit is positive and payback period is acceptable, proceed.
Example: Should I get an MBA?
Costs:
• Tuition and fees: $150,000
• Lost salary (2 years): $200,000
• Living expenses during school: $80,000
• Total cost: $430,000
Benefits:
• Salary increase post-MBA: $50k/year higher
• Career acceleration: promotions come 2-3 years faster
• Network value: access to alumni and recruiters
• Signal value: MBA opens doors at top firms
• Annual benefit: ~$60-70k/year (salary + opportunities)
Payback period: $430k ÷ $60k/year = 7.2 years to break even.
Decision: Only worth it if (a) you stay in high-paying career for 10+ years, (b) MBA is required for your target roles, and (c) you get into a top-20 program with strong ROI.
Example: Should I buy a car or use rideshare?
Car costs (annual):
• Purchase depreciation: $3,000
• Insurance: $1,500
• Gas: $1,200
• Maintenance: $800
• Parking: $600
• Total: $7,100/year
Rideshare costs (annual):
• Average rides: 200/year × $25 = $5,000/year
Net benefit of rideshare: Save $2,100/year + no hassle of car ownership.
Decision: Unless you drive >300 times/year, rideshare is cheaper and more convenient.
When to use CBA
Major financial decisions: education, real estate, career changes.
When ROI and payback period are key decision factors.
Comparing multiple options where costs and benefits vary significantly.
When you need to justify a decision to others (partner, investors, boss).
Limitations
Not everything can be quantified (happiness, relationships, personal growth).
Estimates are often wrong—use ranges and sensitivity analysis.
Ignores intangibles like risk, stress, or alignment with values.
Can lead to analysis paralysis if you try to quantify everything.