What is a Benefit-Cost Ratio (BCR)?

A Benefit-Cost Ratio (BCR) serves as a financial metric that is pivotal in project evaluation by quantifying the relationship between the benefits derived from a project and the costs incurred to execute that project. The ratio is calculated by dividing the total expected benefits by the total expected costs. A BCR greater than one indicates that the benefits outweigh the costs, suggesting that the project is financially viable and worth pursuing. Conversely, a BCR less than one implies that the costs exceed the benefits, which may raise concerns about the project's justification.

This metric is essential for decision-makers to assess and compare various projects, especially when resources are limited. It provides a clear numerical representation of financial efficiency, which is crucial for prioritizing projects and making informed investment choices. Understanding this metric aids in maximizing the value generated from available resources, ensuring that investments lead to positive economic outcomes.