Future Business Leaders of America (FBLA) Business Calculations Practice Test

Which financial decision-making strategy involves comparing the costs and benefits of various alternatives?

1. Budgeting

2. Forecasting

3. Analysis

4. Cost-benefit analysis

The correct answer is: Cost-benefit analysis

The concept of cost-benefit analysis is central to effective financial decision-making as it systematically evaluates the expected costs and benefits of different alternatives to determine the most advantageous option. This strategy helps businesses and individuals make informed choices by quantifying the potential financial returns in relation to the costs involved. In a cost-benefit analysis, all relevant costs associated with an option are compared to the benefits it is expected to generate. This allows decision-makers to identify which alternative offers the greatest net benefit, thus facilitating more strategic planning and resource allocation. By focusing on both qualitative and quantitative aspects, cost-benefit analysis promotes a comprehensive understanding of the trade-offs involved in each decision. While budgeting involves planning expenditures and forecasting refers to predicting future trends, these processes do not inherently involve comparing multiple alternatives in the same detailed way as cost-benefit analysis does. Similarly, analysis as a term is broad and could apply to many types of evaluations, but in this specific context, it does not specifically reference the systematic approach of comparing costs and benefits.