In evaluating risks, which analysis method compares the costs of action to the expected benefits?

In evaluating risks, which analysis method compares the costs of action to the expected benefits?

• A. Cost-benefit analysis
• B. Risk assessment
• C. Pareto analysis
• D. Break-even analysis

Answer: (A)

The main idea here is weighing costs and benefits to decide whether taking a risk-reducing action is worthwhile. This method puts all the relevant costs of implementing a control—like capital, operating, and maintenance costs—against the expected benefits, such as reduced losses, fewer incidents, or productivity gains, and converts them into a common metric (usually money). If the benefits exceed the costs, the action is financially justified; if not, it may be revised or rejected. This contrasts with risk assessment, which focuses on identifying and evaluating the likelihood and impact of risks, Pareto analysis, which prioritizes issues by their impact or frequency, and break-even analysis, which determines the point at which costs and revenues are equal without directly weighing broader risk mitigation benefits. For example, installing a security upgrade might cost $100,000 but save $150,000 in expected losses over time, making it favorable under cost-benefit analysis.

The main idea here is weighing costs and benefits to decide whether taking a risk-reducing action is worthwhile. This method puts all the relevant costs of implementing a control—like capital, operating, and maintenance costs—against the expected benefits, such as reduced losses, fewer incidents, or productivity gains, and converts them into a common metric (usually money). If the benefits exceed the costs, the action is financially justified; if not, it may be revised or rejected. This contrasts with risk assessment, which focuses on identifying and evaluating the likelihood and impact of risks, Pareto analysis, which prioritizes issues by their impact or frequency, and break-even analysis, which determines the point at which costs and revenues are equal without directly weighing broader risk mitigation benefits. For example, installing a security upgrade might cost $100,000 but save $150,000 in expected losses over time, making it favorable under cost-benefit analysis.