TOPIC: Benefit Cost Ratio

I came across a question asking what is the benefit cost ratio of 9:91.

I did not know how to solve this problem - Can anyone explain.

Thank you

Farid Hadj-Hamou

Hi Farid,

Can you post the complete question along with the source?

Thanks

Hi Fajid,

To answer the question fully, I will have to understand the context in which the 9:91 ratio was presented.

However, a 9:91 benefit cost ratio implies that for every 91 units of cost, there is only 9 units of benefit to be had, which means that justification for the project is going to be difficult.

There is often reference to cost benefit ratio's too, in which case you just interpret the values either side of the colon as cost to the left, and benefit to the right (other way round than in example above)

Hope this helps.

Regards

in terms for which is higher in this example, can we say that costs are higher than the benefit?

and sorry Rahul, I saw this questions somewhere and I did not understand it and it d id not have additional information.

Thank you Andre!

Sorry Rahul - I did not have additional infor on this as I saw it and I did not know how to answer it.

Andre - is it safe to say thet the costs are higher than the benefits?

Thank you for your explanation.

Farid

Hello Farid,

The order of the term indicates which order the ratio goes in. So a benefit-cost ratio of 2:1 would indicate the benefit is twice the cost. A cost-benefit ratio of 2:1 would indicate that the cost is twice the benefit.

In this case, I would interpret your question to indicate that there are 9 units of benefit, and 91 units of cost. So yes, the costs would be much higher than the benefits in this case.

Maybe they're looking for you to simplify the ratio down? 9:91 would be equivalent to a 1:10.11 ratio.

Hi Farid,

The secret lies in how the terminology is presented. The wording sequence follows the ratio sequence, in that the first word describes the value to left of the colon, while second word describes value to right of colon. So yes, in the example given, the costs outweigh the benifits by far, which puts the viability of the project into question.

Thank you Andre and Steve for the explanation - It is much clearer now

Regards
Farid