American Institute of Certified Planners (AICP) Practice Exam

Which method is typically used to analyze the cost-effectiveness of a public project?

1. Impact assessment

2. Cost-benefit analysis

3. Input-output analysis

4. Multiple regression analysis

The correct answer is: Cost-benefit analysis

Cost-benefit analysis is the method commonly employed to evaluate the cost-effectiveness of a public project because it systematically compares the costs of a project against the benefits it is expected to generate. This approach quantifies both costs and benefits in monetary terms, allowing planners and policymakers to determine whether a project is economically feasible and worth pursuing. It provides a clear metric—the net benefit or cost-benefit ratio—that assists in decision-making about resource allocation. In conducting a cost-benefit analysis, all anticipated costs (such as construction, operation, and maintenance expenses) and benefits (like revenues, enhanced economic activity, and social improvements) over the project's lifespan are identified, categorized, and discounted to present value to account for the time value of money. This detailed examination helps in understanding the overall impact of the proposed project and facilitates comparisons between different projects. Other methods mentioned serve different functions: impact assessments focus on the potential environmental and social consequences of a project, input-output analysis examines economic relationships and interdependencies within a region, and multiple regression analysis is used for statistical modeling to understand relationships between variables rather than specifically for project cost-effectiveness. Thus, cost-benefit analysis stands out as the most relevant tool for assessing public project viability.