Just a while ago, someone linked to a post of mine that talked about cost-benefit analysis, and I realized I haven’t really done a specific explanation of how to do one. There are plenty of explanations of numerical CBA out there for people doing their econ homework — not so much for someone who might want to do one without involving any math.
So, I threw together this little guide of suggestions, to use if it helps you organize your decision-making. Note, this kind of thing may not be helpful for everyone. But in case it is, here you go.
Cost-benefit analysis basically describes the structured process of evaluating which is more: the costs of doing something or the benefits of doing something.
To do a cost-benefit analysis for a decision in your life, I suggest typing out or writing down all the factors to consider. To keep things organized, it might help to create a table or chart. I’ve created a googledocs table here as an example.
On one side of your paper or document, list out the costs of the undertaking under consideration. Consider “costs” broadly. We’re not just talking money here. A cost is anything that hurts you, anything you dislike, anything you don’t like to happen. A panic attack is a cost, for instance. But a cost can also be a cost of time — time lost that you could have spent doing something else. Write down the main negative things that you think would happen as a result of deciding to do whatever it is. Consider physical costs, psychological/emotional costs, financial costs, and any other costs. If something would happen for sure, write that down and note it as such. If something might happen, or has a partial chance of happening, write that down and note it as such. List however many costs you need to in order to feel like you’ve thoroughly covered the situation.
On the other side, list out the benefits of the undertaking under consideration. Again, consider “benefits” broadly. That means anything you’d get out of it, including a strictly internal experience, or avoiding something bad that would have happened otherwise. Write down the main positive things that you think would would happen as a result of the decision. Consider physical benefits, psychological/emotional benefits, financial benefits, and any other benefits. Again, make note of which ones are for sure and which ones are a maybe. Get as detailed as you like.
The idea is to lay out all the points to consider and then evaluate for yourself which is “more” to you.
That step isn’t necessarily easy, especially if you find large lists overwhelming. That’s part of why I say this tool isn’t useful for everyone.
For those that want to try it, I suggest looking at few specifics alongside your gut feeling. For example, which side’s list is longer? Which side has more things that are certain, and which side has things more things that are just a chance? If both sides are chancy, can you determine which chances are more likely? If you can’t tell just by looking at the lists which side is more important to you, can you rank the individual effects by which are most important to you? If you’re seriously stuck at an impasse, you might ask for help in figuring out what to add to each side, research some relevant details to each cost and benefit, or determine something you can do to reduce or cope with some of the costs.
Note: this tool is not for making “objectively” “good” decisions. This is not for making “healthy” decisions. This is for helping you optimize your decisions, based on your own value system and priorities.
In this post, I brought up CBA in relation to medical decisions, but it can just as well be used for other decisions as well, like beginning or ending a relationship, taking on or quitting a job, or anything else.
CBA can be as flexible as you want it to be — what may be a cost for one person, could be a benefit to someone else.
The thing I like best about doing deliberate CBA is that it allows me to counter the refrain of “Why not?” with an equal “Why bother?” For me, optimal decision-making isn’t just about “What’s the worst that could happen?” but also about “What’s the best that could happen?” — or rather, when you stack the negatives up next to the positives, would it be worth it? Is there enough to outweigh them? I’m especially reminded of this post in which Queenie talks about making just one of these lists (“reasons not to”) and not the other (reasons to, or reasons to want to), when having both would have been more revealing. And as it happens, I think having both lists, combined on the balance scales, grants you more than the sum of its parts.