American Institute of Certified Planners (AICP) Practice Exam

What is the purpose of a cost-benefit analysis?

1. To evaluate the aesthetic value of projects

2. To ensure compliance with environmental regulations

3. To compare the benefits of a solution against its costs

4. To gauge public opinion on urban planning initiatives

The correct answer is: To compare the benefits of a solution against its costs

A cost-benefit analysis serves as a systematic approach to evaluating the financial implications of different projects or solutions by comparing the expected benefits against the associated costs. This method is crucial in decision-making processes because it provides a quantitative basis for determining whether a project is worthwhile. By assessing both tangible benefits, such as increased revenue or improved infrastructure, and costs, such as financial expenditures or resource allocation, stakeholders can make informed choices on whether to pursue a particular initiative. The analysis helps identify the most efficient use of resources by ensuring that the benefits justify the costs, guiding planners in prioritizing projects that yield the greatest overall value to the community or organization. The other options, although relevant to various aspects of planning, do not specifically define the primary purpose of a cost-benefit analysis. Aesthetic evaluation, environmental compliance, and gauging public opinion focus on different dimensions of project assessment rather than the financial evaluation central to cost-benefit analysis.