What is a cost-benefit analysis in procurement?

• A. A calculation of only costs
• B. A qualitative guess
• C. A method to determine supplier rank
• D. A comparative assessment of total costs and expected benefits to determine value for money

Answer: (D)

In procurement, a cost-benefit analysis is a structured comparison of all costs and all expected benefits of a procurement option to determine value for money. It looks at total costs—purchase price, implementation, operating and maintenance, and end-of-life disposal—along with all benefits, including direct savings, productivity gains, quality improvements, risk reduction, and even some intangible advantages like better service or reputation. Often these benefits are quantified and discounted to present value so you can compare options on a like-for-like basis. By weighing the full set of costs and benefits, you identify which option delivers the best overall value, not just the lowest price. It’s more than just listing costs, and it’s more than a guess or a simple ranking method; it’s a disciplined way to show how much value a decision will generate.