The benefit-cost ratio summarises the relationship between the proposed costs and the proposed return from a project. In large projects multiple Benefit-Cost ratios may be calculated based on potential scenarios which have been identified. This can feed into the risk management process for the project and also when assigning a relative weighting to a set of candidate projects.
Benefit-Cost ratios above 1.0 indicate a positive return for the amount invested. A ratio below 1.0 indicates that the cost of the project would out weight its benefit.
The formula used in the calculation is:
Benefit-Cost Ratio = Total Benefit / Total Cost