www.shsph.blogspot.
com
Applied SENIOR
HIGH
Economics SCHOOL
Self-Learning
Module
Minimizing and Maximizing Business’s
Impact: Cost-benefit Analysis
16
Quarter 4
www.shsph.blogspot.c
om
Applied Economics
Quarter 4 – Self-Learning Module 16: Minimizing and Maximizing Business’s
Impact: Cost-benefit Analysis
First Edition, 2020
Republic Act 8293, Section 176 states that no copyright shall subsist in any
work of the Government of the Philippines. However, prior approval of the
government agency or office wherein the work is created shall be necessary for
exploitation of such work for profit. Such agency or office may, among other things,
impose as a condition the payment of royalties.
Borrowed materials (i.e., songs, stories, poems, pictures, photos, brand
names, trademarks, etc.) included in this module are owned by their respective
copyright holders. Every effort has been exerted to locate and seek permission to use
these materials from their respective copyright owners. The publisher and authors
do not represent nor claim ownership over them.
Published by the Department of Education - Schools Division of Pasig City
Development Team of the Self-Learning Module
Writer: Emmanuel B. Penetrante
Editor: Edna D. Camarao, PhD
Reviewers:
Content/Language: Edna D. Camarao, PhD, Dennis T. Alex
Technical: Emmanuel B. Penetrante
Illustrator:
Layout Artist: Clifchard D. Valente
Management Team: Ma. Evalou Concepcion A. Agustin
OIC-Schools Division Superintendent
Carolina T. Rivera EdD
OIC-Assistant Schools Division Superintendent
Victor M. Javeña EdD
Chief, School Governance and Operations Division and
OIC-Chief, Curriculum Implementation Division
Education Program Supervisors
Librada L. Agon EdD (EPP/TLE/TVL/TVE)
Liza A. Alvarez (Science/STEM/SSP)
Bernard R. Balitao (AP/HUMSS)
Joselito E. Calios (English/SPFL/GAS)
Norlyn D. Conde EdD (MAPEH/SPA/SPS/HOPE/A&D/Sports)
Wilma Q. Del Rosario (LRMS/ADM)
Ma. Teresita E. Herrera EdD (Filipino/GAS/Piling Larang)
Perlita M. Ignacio PhD (EsP)
Dulce O. Santos PhD (Kindergarten/MTB-MLE)
Teresita P. Tagulao EdD (Mathematics/ABM)
Printed in the Philippines by Department of Education – Schools Division of
Pasig City
www.shsph.blogspot.c
Applied
om
SENIOR
HIGH
Economics
SCHOOL
Self-Learning
Module
16
Quarter 4
Minimizing and Maximizing
Business’s
Impact: Cost-benefit Analysis
www.shsph.blogspot.c
om
Introductory Message
For the facilitator:
Welcome to the Senior High School – Applied Economics Self Learning Module
on Minimizing and Maximizing Business’s Impact: Cost-benefit Analysis!
This Self-Learning Module was collaboratively designed, developed and
reviewed by educators from the Schools Division Office of Pasig City headed by its
Officer-in-Charge Schools Division Superintendent, Ma. Evalou Concepcion A.
Agustin, in partnership with the City Government of Pasig through its mayor,
Honorable Victor Ma. Regis N. Sotto. The writers utilized the standards set by the K
to 12 Curriculum using the Most Essential Learning Competencies (MELC) in
developing this instructional resource.
This learning material hopes to engage the learners in guided and independent
learning activities at their own pace and time. Further, this also aims to help
learners acquire the needed 21st century skills especially the 5 Cs, namely:
Communication, Collaboration, Creativity, Critical Thinking, and Character while
taking into consideration their needs and circumstances.
In addition to the material in the main text, you will also see this box in the
body of the module:
Notes to the Teacher
This contains helpful tips or strategies that
will help you in guiding the learners.
As a facilitator you are expected to orient the learners on how to use this
module. You also need to keep track of the learners' progress while allowing them to
manage their own learning. Moreover, you are expected to encourage and assist the
learners as they do the tasks included in the module.
www.shsph.blogspot.c
om For the learner:
Welcome to the Applied Economics Self Learning Module on Minimizing and
Maximizing Business’s Impact: Cost-benefit Analysis!
This module was designed to provide you with fun and meaningful
opportunities for guided and independent learning at your own pace and time. You
will be enabled to process the contents of the learning material while being an active
learner.
This module has the following parts and corresponding icons:
Expectations - This points to the set of knowledge and skills
that you will learn after completing the module.
Pretest - This measures your prior knowledge about the lesson
at hand.
Recap - This part of the module provides a review of concepts
and skills that you already know about a previous lesson.
Lesson - This section discusses the topic in the module.
Activities - This is a set of activities that you need to perform.
Wrap-Up - This section summarizes the concepts and
application of the lesson.
Valuing - This part integrates a desirable moral value in the
lesson.
Posttest - This measures how much you have learned from the
entire module.
www.shsph.blogspot.c
om
EXPECTATIONS
After going through this module, you are expected to:
1. define cost-benefit analysis; and
2. understand the process of cost-benefit analysis.
PRETEST
Directions: Choose the letter of the best answer and write it on a separate sheet of
paper.
1. Which of the following is TRUE about the cost-benefit analysis?
A. A cost-benefit analysis should begin with compiling a comprehensive
list of the costs and benefits associated with the project or decision
B. Cost-benefit analysis involves measurable financial metrics such as
revenue earned and costs saved as a result of the decision to
pursue a project.
C. A cost-benefit analysis is a process that the businesses use to
analyze decisions.
D. All of the above
2. Which of the following statements is NOT TRUE?
A. A cost-benefit analysis is a technique which compares the relative
costs to the effects of two or more courses of action.
B. Cost-Benefit Analysis estimates and totals up the equivalent money
value of the benefits and costs to the community of projects.
C. Direct costs would be direct labor involved in
manufacturing, inventory, raw materials, and manufacturing
expenses.
D. None of the above
3. Which of the following costs is NOT INCLUDED in the cost-benefit analysis?
A. Direct costs
B. Indirect costs
C. Opportunity costs
www.shsph.blogspot.c
om D. None of above
www.shsph.blogspot.c
om 4. Which of the following statements is TRUE?
A. If there is more than one mutually exclusive project that has positive
net present value then there a need for further analysis.
B. A major disadvantage of cost-benefit analysis lies in forcing people
to explicitly and systematically consider the various factors which
should influence the strategic choice.
C. Both A and B are correct.
D. None of the above
5. Which of the following benefits is INCLUDED in the cost-benefit analysis?
A. Revenue and sales increase from increased production or new
product.
B. Intangible benefits, such as improved employee safety and morale,
as well as customer satisfaction due to enhanced product offerings
or faster delivery.
C. Competitive advantage or market share gained as a result of the
decision.
D. All of the above
RECAP
Directions: Differentiate positive and negative externalities. Write your answer in
the table below.
In terms of… Positive Externality Negative Externality
definition
effects to the community
example
www.shsph.blogspot.c
om
LESSON
Cost-benefit Analysis
A Cost-benefit Analysis (CBA) is a process that the businesses use to analyze
decisions. It is used most often at the start of a program or project when different
options or courses of action are being appraised and compared, as an option for
choosing the best approach. It can also be used, however, to evaluate the overall
impact of a program in quantifiable and monetized terms.
CBA adds up the total costs of a program or activity and compares it against
its total benefits. The technique assumes that a monetary value can be placed on
the costs and benefits of a program, including tangible and intangible returns to
other people and organizations in addition to those immediately impacted. As such,
a major advantage of cost-benefit analysis lies in forcing people to explicitly and
systematically consider the various factors which should influence the strategic
choice.
Decisions are made through CBA by comparing the net present value (NPV)
of the program or project’s costs with the net present value of its benefits.
Decisions are based on whether there is a net benefit or cost to the approach, i.e.
total benefits less total costs. Costs and benefits that occur in the future have less
weight attached to them in a cost-benefit analysis. To account for this, it is
necessary to ‘discount’ or reduces the value of future costs or benefits to place them
on a par with costs and benefits incurred today. The ‘discount rate’ will vary
depending on the sector or industry, but public sector activity generally uses a
discount rate of 5-6%. The sum of the discounted benefits of an option minus the
sum of the discounted costs, all discounted to the same base date, is the ‘net present
value’ of the option.
If the discounted present value of the benefits exceeds the discounted present
value of the costs then the project is worthwhile. This is equivalent to the condition
that the net benefit must be positive. Another equivalent condition is that the ratio
of the present value of the benefits to the present value of the costs must be greater
than one. If there is more than one mutually exclusive project that has positive net
present value then there has to be further analyzed. From the set of mutually
exclusive projects the one that should be selected is the one with the highest net
present value. If the funds required for carrying out all of the projects with positive
net present value are less than the funds available this means the discount rate used
in computing the present values is too low and does not reflect the true cost of capital.
The impacts of a project are defined for a particular study area, be it a city,
region, state, nation, or the world. The nature of the study area is usually specified
by the organization sponsoring the analysis. Many effects of a project may "net out"
over one study area but not over a smaller one. The specification of the study area
may be arbitrary but it may significantly affect the conclusions of the analysis.
www.shsph.blogspot.c
om
The Cost-Benefit Analysis Process
A cost-benefit analysis should begin with compiling a comprehensive list of
the costs and benefits associated with the project or decision.
The costs involved in a CBA might include the following:
1. Direct costs would be direct labor involved in manufacturing, inventory,
raw materials, and manufacturing expenses.
2. Indirect costs might include electricity, overhead costs from management,
rent, and utilities.
3. Intangible costs of a decision, such as an impact on customers, employees,
or delivery times.
4. Opportunity costs such as alternative investments, or buying a plant
versus building one.
5. Cost of potential risks such as regulatory risks, competition, and
environmental impacts.
Benefits might include the following:
1. Revenue and sales increase from increased production or new product.
2. Intangible benefits, such as improved employee safety and morale, as well
as customer satisfaction due to enhanced product offerings or faster
delivery.
3. Competitive advantage or market share gained as a result of the decision.
An analyst or project manager should apply a monetary measurement to all
of the items on the cost-benefit list, taking special care not to underestimate costs or
overestimate benefits. A conservative approach with a conscious effort to avoid any
subjective tendencies when calculating estimates is best suited when assigning a
value to both costs and benefits for a cost-benefit analysis.
Finally, the results of the aggregate costs and benefits should be compared
quantitatively to determine if the benefits outweigh the costs. If so, then the rational
decision is to go forward with the project. If not, the business should review the
project to see if it can make adjustments to either increase benefits or decrease costs
to make the project viable. Otherwise, the company should likely avoid the project.
www.shsph.blogspot.c
om
ACTIVITIES
Activity: My Cost-Benefit Analysis
Directions: Observe and analyze the scenarios in the community. Think of the three
(3) projects that you want to study using the cost-benefit analysis.
Scenario Details of the Project Reasons for the conduct
WRAP-UP
To summarize what you have learned in the lesson, answer the following
questions:
1. What is the cost-benefit analysis?
2. What are the procedures in conducting a cost-benefit analysis?
www.shsph.blogspot.c
om
VALUING
Reflect on this!
“Little changes cost you. Big changes benefit you by changing the game, but only if
you go first.”
— Seth Godin
POSTTEST
Directions: Read each statement carefully. Write T if the statement is correct,
otherwise write F.
1. A cost-benefit analysis should begin with compiling a comprehensive
list of all the costs and benefits associated with the project or decision.
2. The cost-benefit analysis adds up the total costs of a program or
activity and compares it against its total benefits.
3. A major disadvantage of cost-benefit analysis lies in forcing people
to explicitly and systematically consider the various factors which
should influence the strategic choice.
4. A cost-benefit analysis is a technique that compares the relative
costs to the effects of two or more courses of action.
5. A cost-benefit analysis is a process that the businesses use to analyze
decisions.
www.shsph.blogspot.c
om
KEY TO CORRECTION
5. D 5. T
4. 4. F
A 3.
D 3. F
2. 2. T
A 1.
D 1. T
PRETEST POSTTEST:
References
AN INTRODUCTION TO COST BENEFIT ANALYSIS. Accessed August 28, 2020.
https://www.sjsu.edu/faculty/watkins/cba.htm.
Author Josiah Kaplan Oxford University. Oxford. "Cost Benefit Analysis."
BetterEvaluation. January 13, 2014. Accessed August 28, 2020.
https://www.betterevaluation.org/en/evaluation-options/CostBenefitAnalysis.
Kenton, Will. "How Cost-Benefit Analysis Process Is Performed." Investopedia. July 16,
2020. Accessed August 28, 2020. https://www.investopedia.com/terms/c/cost-
benefitanalysis.asp.
"Little Changes Cost You. Big Changes Benefit You by Changing the Game, but Only If
You Go First. Accessed August 28, 2020. "PictureQuotes.com.
http://www.picturequotes.com/little-changes-cost-you-big-changes-benefit-you-
by-changing-the-game-but-only-if-you-go-first-quote-481227.
