Cost-Benefit Analysis

Basics

Economists use the terms cost-benefit analysis and benefit-cost analysis interchangeably to describe the technique of assigning an economic value to both the costs and the benefits of a capital expenditure, and then comparing the two numbers. In the most basic application of the technique, one simply sums the value of the costs, sums the value of the benefits, and compares the sum of the costs to the sum of the benefits. If the economic value of the benefits exceeds the economic value of the costs, then the capital expenditure is justified. If the economic value of the costs exceeds the economic value of the benefits, then the expenditure is not justified. There may be additional hurdles to overcome before making the expenditure, such as finding money in the budget, but at least the organization has crossed the first threshold.

Many organizations require a cost-benefit analysis as a prerequisite to adopting any new technology. Despite some critiques, the use of cost-benefit analysis is well established in the GIS literature, and it remains the gold standard as a means to justify the purchase and implementation of geographic information systems.

Tangible Costs of GIS

Traditional cost-benefit analysis begins with an organization's identifying, listing, valuing, and summing the tangible costs associated with purchasing and implementing a GIS. These costs include expenditures on computer hardware and software, the transformation of paper maps and data into digital format along with collection of new data as needed, and hiring GIS professionals or training existing staff members to use [Page 53]the technology competently and efficiently. These costs are considered to be tangible because there is a firm, relatively fixed price (economic value) for each item that the GIS adopter learns from the vendor of each component of the technology. The prices of such products are determined on the open market and thus are readily quantifiable.

Tangible costs for GIS begin with the hardware needed for the operation, including computers, servers, and extensive data storage capacity to accommodate the vast quantities of both raster and vector data associated with GIS. Furthermore, there may be a need for a dedicated server, and other peripheral devices, such as printers, monitors, global positioning systems (GPS) devices, and perhaps even digital-recording devices (such as a camera, for example). Once the organization has determined what hardware it needs, it may work with vendors to agree on prices.

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