What Costs and Benefits

Costs and benefits are to be included in the cost benefit analysis. As mentioned earlier, the cost – benefit analysis of a project, we should not merely confine ourselves to the consideration of direct costs and benefits analysis nit we  should also consider the external or side effects and secondary benefits. That is the costs and benefits have to be taken in a wider sense which means that we must take into account cost and benefits which accrue to the bodies other than the one sponsoring the project. This is necessary because investment in a particular project alters the physical production possibilities  of the other producers or the consumption possibilities of the other producers or the consumption possibilities of the other producers or the consumption possibilities of other consumers thus affection their satisfaction from given resources. For instance, construction of a reservoir upstream will necessitate more dredging by thee downstream authority , or improvement of  a certain road increases the incomes of garages and restaurants on that road. But it has to be offset by the losses incurred by those on the other roads owing to diversion of traffic.