What does cost-benefit analysis help determine in budgeting?

Cost-benefit analysis is a systematic approach used to evaluate the potential financial outcomes of projects or programs by comparing the costs associated with them to the benefits they are expected to generate. This method is essential in budgeting because it helps decision-makers assess the financial viability of proposed projects by quantifying their economic advantages in relation to their costs.

By employing cost-benefit analysis, organizations can prioritize projects based on their expected return on investment, ensuring that resources are allocated to initiatives that offer the most significant financial benefit relative to their cost. This process enables a more informed decision-making framework, ultimately leading to more effective budgeting and resource management.

In contrast, other options focus on aspects such as revenue forecasting, reserve management, or the performance of the budgeting team, none of which directly involve the comparison of costs and benefits that are central to effective budgeting decisions through a cost-benefit analysis.