BCR – Benefit-Cost Ratio

The Benefit-Cost Ratio (BCR) is one of the fundamental tools for evaluating the profitability of projects. It helps determine whether the planned benefits outweigh the costs of implementing a particular undertaking. It is widely used in financial, economic, and project management analysis.

📐 Definition and formula

Formula for BCR:

BCR = Total Benefits / Total Costs

• Benefits: All positive effects resulting from the project implementation – can be financial (e.g. revenue growth, savings) or non-financial (e.g. quality improvement, customer satisfaction increase).

• Costs: All expenses required to carry out the project – financial, time, material, etc.

🧮 Interpretation of the result
 

Example:
If a project brings in benefits of 200,000 zł and costs 100,000 zł:

BCR = 200,000/100,000 = 2.0

This means that for every złoty spent, the project yields 2 złoty in benefits – it is profitable.

🎯 Application of BCR in practice
 

• 📈 Investment analysis: Helps decide which projects should be implemented when resources are limited.

• 📊 Project comparison: Facilitates comparison of several investment alternatives.

• 🛠 Strategic decisions: Serves as one of the tools supporting project selection in the project portfolio (portfolio management).

📌 BCR vs. other indicators

Although BCR is a simple and intuitive indicator, it is worth using it together with other measures of financial efficiency, such as:

• NPV (Net Present Value) – net present value

• IRR (Internal Rate of Return) – internal rate of return

• Payback Period – investment payback period

🧾 Summary

The BCR ratio is a useful tool for evaluating the efficiency of investments and projects. Its simplicity and clarity make it ideal for both managers and analysts assessing project profitability. However, like any tool, it should be used as part of a broader analysis.

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