Cost Benefit Analysis Origin and Applicability of Its Recent Advances: a Critical Review

Abstract

Abstract Purpose: This study reviewed a number of empirical pieces of literature on cost-benefit analysis origin, advancements in its methods, and their applicability. Methodology: This study applied a systematic review by relying on previous publications (20 publications were fully reviewed) in line with this study topic. The collected data was analyzed with the application of narrative synthesis. Findings: There are mixed ideas on the origin of cost benefit analysis. This study concludes that cost benefit analysis was first practiced in China in the 11th Century at the palace construction site. It then spread to the Bavarian Army. The French engineers embraced this technique in the execution of public works in 1708 before the American National Resource Committee incorporated it. Moreover, cost benefit analysis was authoritatively documented in the United States of America in the green book by a sub-committee on benefits and costs where principles and procedures for determining costs and benefits were clarified for reference. Other countries hence embraced Cost benefit analysis after its documentation in the United States. Advances in cost benefit analysis include; willingness to pay which exhibits the definite intention of clients in regard to how they value what they intend to purchase. That is, it expresses the degree the clients are ready to consume a particular product. On the other hand conjoint analysis aids in determining willingness to pay, such that it offers a client an array of characteristics of a product which enables the client to settle on the most preferred product feature. It is shown that designing a conjoint technique is complex. Conjoint is tested at individual level and the model utilized in collecting data is uniformly applicable assuming that all respondents have a similar modeled preference that does not match the real-life situation. Accordingly, information on product attributes could alternatively be obtained via a questionnaire or interview schedule in determining customers’ preferences and not necessarily through the use of conjoint. Implications: This review criticizes conjoint analysis as CBA method on the basis of its complexity and thus other data collection methods are offered like questionnaires and interview schedules. The study also confirms that advances in cost benefit analysis can be applied in all sectors of the economy since they have been empirically tested. Value of the Study: It contributes to the comprehension of the origin of cost-benefit analysis, the advancement in cost-benefit methods, and critique on the methods of cost benefit analysis.