Discussion:
Cost Benefit Analysis
Q: A certain type of injury has tangible costs of $40,000 per occurrence and intangible costs of $150,000 per occurrence. Injury frequency is .05 per year but would be reducible to .01 per year with the installation of a new guarding system. Calculate the annual benefit the new system provides.
A certain company estimates that implementation of a safety glasses policy will cost $8000 per year. Eye injuries are rare in this plant, but 2 have occurred over the past five years at a cost of $50,000 each including direct costs and estimated hidden intangible costs. It is believed that the proposed safety glasses policy will reduce the hazard of eye injuries by 75%. If interest and inflation are ignored, the $20,000 actual cost is assumed to be typical of eye injury costs.
Perform a cost/benefit analysis to weigh the benefits of the proposed safety glasses policy against its expected costs.