Practical examples of cost-benefit analysis for risk analysis in 2025

Why start with real examples of cost-benefit analysis for risk analysis

Most teams technically know how to “do” cost-benefit analysis. Where they get stuck is turning vague fears (data breach, lawsuit, supply shock) into numbers that can actually drive a decision. That’s why walking through examples of cost-benefit analysis examples for risk analysis is so helpful: you see how others assign probabilities, quantify impacts, and defend their assumptions.

In 2024–2025, risk analysis is being pushed by a few big forces:

• Cyberattacks and ransomware are more frequent and more expensive.
• Supply chains are still fragile, with geopolitical and climate disruptions.
• Regulators are tightening expectations around safety, privacy, and ESG.

Cost-benefit analysis is how you turn those trends into a concrete choice: spend now to reduce risk, or accept the exposure. Let’s walk through several real examples that show what this looks like in practice.

Cybersecurity: example of cost-benefit analysis for ransomware risk

A mid-sized healthcare provider is deciding whether to invest in a stronger cybersecurity stack: advanced endpoint protection, staff training, and better backups. The finance and IT teams build a cost-benefit analysis for risk analysis focused on ransomware.

Baseline risk estimate (per year)

• Probability of a serious ransomware incident: 10% (based on industry data and insurer feedback).
• Average direct cost of an incident: $1.5 million (ransom, downtime, forensics, legal, notification, and credit monitoring). This aligns with ranges reported by cyber insurers and studies cited by the U.S. Government Accountability Office.

Expected annual loss without new controls:

• 0.10 × \(1,500,000 = \)150,000 expected loss per year.

Proposed controls

• Annual cost of upgraded tools and training: $220,000.
• Projected reduction in ransomware probability: from 10% to 3%.

Expected annual loss with controls:

• 0.03 × \(1,500,000 = \)45,000 expected loss.

Net impact

• Risk reduction benefit: \(150,000 − \)45,000 = $105,000 per year.
• Net cost after risk reduction: \(220,000 − \)105,000 = $115,000 per year.

On a narrow, cash-only view, the investment “costs” $115,000 per year. But the cost-benefit analysis examples for risk analysis in cybersecurity rarely stop there. The team also considers:

• Regulatory risk under HIPAA and state privacy laws.
• Reputational damage and patient churn after a breach.
• Potential premium discounts from their cyber insurer.

When those are modeled, the expected benefit rises, and the board approves the investment. This example of cost-benefit analysis shows how even a negative-looking spreadsheet can flip once you factor in broader risk impacts.

Workplace safety: examples of cost-benefit analysis in injury prevention

Manufacturing and logistics companies live and die by incident rates. Here’s one of the best examples of cost-benefit analysis for risk analysis in a setting where injuries have clear financial and human costs.

A distribution center is considering automated lifting equipment and updated training to cut back injuries from manual handling.

Current situation (per year)

• Average recordable back/shoulder injuries: 8.
• Average total cost per injury (medical, workers’ comp, lost time, overtime coverage): $40,000. Estimates are informed by ranges published by the National Safety Council.

Expected annual injury cost:

• 8 × \(40,000 = \)320,000.

Proposed investment

• Capital cost of lifting equipment: \(600,000 (amortized over 6 years ≈ \)100,000 per year for analysis).
• Additional annual training and maintenance: $40,000.
• Total annualized cost: $140,000.
• Expected reduction in injuries: 60% (based on pilot data at another site).

Injuries after investment:

• 8 × (1 − 0.60) = 3.2 ≈ 3–4 injuries per year.
• Expected annual injury cost: 3.2 × \(40,000 = \)128,000.

Net impact

• Risk reduction benefit: \(320,000 − \)128,000 = $192,000 per year.
• Net financial gain after paying for equipment and training: \(192,000 − \)140,000 = $52,000 per year.

Payback period is under four years, plus the company improves morale and regulatory compliance. This is one of those real examples of cost-benefit analysis that tends to resonate with boards because the math is straightforward and the safety benefits are obvious.

Supply chain risk: examples include dual sourcing and inventory buffers

Supply chain disruptions since 2020 have forced CFOs to treat risk analysis as a standing agenda item. One example of cost-benefit analysis for risk analysis that comes up repeatedly: should you pay more for dual sourcing and extra inventory to cut dependency on a single overseas supplier?

Imagine a mid-market electronics manufacturer.

Current single-source setup

• Annual spend on a critical component: $10 million.
• Supplier is in a politically unstable region.
• Probability of a severe disruption (3+ months) in any given year: estimated at 8%.
• If disrupted, the plant would shut down, costing $1.8 million per month in lost margin.
• Expected disruption length: 3 months.

Expected annual loss from disruption:

• 0.08 × (3 × \(1,800,000) = 0.08 × \)5,400,000 = $432,000.

Proposed risk mitigation

• Add a second, domestic supplier at a 7% price premium.
• Split volume 70% (original supplier) / 30% (new supplier).
• Price impact: 0.30 × 7% × \(10,000,000 = \)210,000 extra per year.
• Expected disruption probability drops from 8% to 2%, and even if one supplier fails, partial production can continue.

Expected annual loss with dual sourcing:

• New expected loss: 0.02 × (1.5 × \(1,800,000) ≈ 0.02 × \)2,700,000 = $54,000 (assuming some production can be shifted and downtime is shorter).

Net impact

• Risk reduction benefit: \(432,000 − \)54,000 = $378,000.
• Net financial gain after higher unit cost: \(378,000 − \)210,000 = $168,000 per year.

In this example of cost-benefit analysis, the company accepts a known, recurring cost (higher component prices) in exchange for a much smaller exposure to catastrophic downtime. This is exactly the kind of logic investors expect to see spelled out in a modern risk section of a business plan.

Climate and flood risk: examples of cost-benefit analysis in facility location

Climate-related risk has moved from ESG slideware into hard-nosed financial planning. A logistics company is deciding whether to invest in flood defenses at a warehouse located in a 100-year floodplain.

Risk profile

• The warehouse holds $50 million in inventory at peak season.
• Based on updated FEMA flood maps and regional data, the company estimates a 1.5% annual probability of a flood that would destroy 40% of inventory and shut operations for one month.
• Expected loss per event: 0.40 × \(50,000,000 (inventory) + \)3,000,000 (business interruption and cleanup) = $23,000,000.

Expected annual loss:

• 0.015 × \(23,000,000 = \)345,000.

Mitigation options

• Option A: Build flood barriers and elevate key systems.
  • Upfront cost: $4,000,000; expected life: 20 years.
  • Annualized cost (simplified): $200,000 per year.
  • Expected reduction in loss severity: 70%.
• Option B: Relocate the warehouse to a lower-risk site.
  • Higher annual operating cost: $600,000.
  • Near-elimination of flood risk.

Expected annual loss with Option A:

• New expected loss: (1 − 0.70) × \(345,000 = \)103,500.
• Total annual cost (risk + mitigation): \(103,500 + \)200,000 = $303,500.

Expected annual loss with Option B:

• Flood risk ≈ 0.
• Total annual cost: $600,000.

In this example of cost-benefit analysis examples for risk analysis, Option A is financially better on a pure expected-value basis. But the board might still favor relocation if they are risk-averse or concerned about insurability and local regulatory changes over 20 years. The analysis clarifies the trade-off instead of leaving it to gut feel.

For background on how U.S. agencies think about flood and climate risk in benefit-cost terms, see guidance from FEMA and the U.S. Climate Resilience Toolkit.

Healthcare and public health: real examples of cost-benefit analysis in risk decisions

Public health agencies have been using cost-benefit analysis for decades to decide which risks deserve funding. These real examples of cost-benefit analysis for risk analysis often revolve around vaccination, screening programs, or pollution control.

Consider a state health department deciding whether to expand a vaccination program for adults at higher risk of a particular infection.

Baseline scenario

• Annual cases among the target group: 2,000.
• Average direct medical cost per case: $7,500.
• Indirect productivity loss per case: $2,000.

Expected annual cost of disease:

• 2,000 × (\(7,500 + \)2,000) = 2,000 × \(9,500 = \)19,000,000.

Program expansion

• Cost of expanded vaccination program: $11,000,000 per year.
• Expected reduction in cases: 60% (based on clinical trial and real-world effectiveness data, similar to how the CDC evaluates immunization programs).

New expected disease cost:

• 0.40 × \(19,000,000 = \)7,600,000.

Net impact

• Risk reduction benefit: \(19,000,000 − \)7,600,000 = $11,400,000.
• Net savings after program cost: \(11,400,000 − \)11,000,000 = $400,000.

On top of the small net savings, the program prevents 1,200 cases per year and improves quality of life. In public health, these examples of cost-benefit analysis often add metrics like cost per quality-adjusted life year (QALY), but the core logic is the same one your business plan should use: compare the cost of intervention with the expected cost of doing nothing.

Insurance and risk transfer: examples of cost-benefit analysis for buying coverage

Insurance decisions are a perfect playground for cost-benefit analysis examples for risk analysis because the trade-off is explicit: pay a certain premium to avoid uncertain losses.

Imagine a SaaS company considering cyber insurance.

Risk profile without insurance

• Estimated annual probability of a major cyber incident: 5%.
• Estimated average financial impact: $4,000,000.

Expected annual loss:

• 0.05 × \(4,000,000 = \)200,000.

Insurance offer

• Annual premium: $260,000.
• Policy covers up to \(5,000,000 per incident after a \)500,000 deductible.

If an incident occurs, the company pays $500,000 and the insurer covers the rest. The expected annual loss with insurance becomes more subtle, but the headline comparison is:

• Expected loss without insurance: $200,000.
• Certain premium with insurance: $260,000.

On expected value alone, insurance looks expensive. But this example of cost-benefit analysis also has to consider:

• The company’s risk appetite and cash reserves.
• Lender or investor expectations (many require coverage).
• The possibility of multiple or larger-than-expected incidents.

Here, the CFO may accept a higher expected annual cost in exchange for survival-level protection against a tail-risk event. This is a reminder that examples of cost-benefit analysis for risk analysis are not only about maximizing expected value; they’re also about keeping the company alive under stress.

Digital transformation: examples of cost-benefit analysis in automation risk

Automation projects are often sold as pure upside, but they carry real risks: implementation failure, downtime, security vulnerabilities, and workforce disruption. A retailer considering automated checkout systems builds a risk-focused cost-benefit analysis.

Current manual checkout

• Annual labor cost for cashiers: $8,000,000.
• Shrinkage and errors at checkout: $900,000 per year.

Automation proposal

• Upfront investment in automated systems: \(15,000,000 (amortized over 10 years ≈ \)1,500,000 per year for analysis).
• Ongoing maintenance and software: $1,000,000 per year.
• Labor savings: $5,000,000 per year.
• Expected reduction in shrinkage: 30%.

Baseline shrinkage cost:

• $900,000 per year.

Shrinkage after automation:

• 0.70 × \(900,000 = \)630,000.

Risk factors

• Probability of major implementation failure causing 2 weeks of checkout disruption in year one: 15%.
• Estimated loss if that happens: $4,000,000 in lost sales and remediation.

Expected one-year implementation risk cost:

• 0.15 × \(4,000,000 = \)600,000.

Net annual impact (steady state)

• Labor savings: +$5,000,000.
• Reduced shrinkage: +$270,000.
• Annualized capital + maintenance: −$2,500,000.
• Expected implementation risk (spread over first few years): −\(600,000 / 3 ≈ −\)200,000 per year.

Net benefit in early years:

• \(5,000,000 + \)270,000 − \(2,500,000 − \)200,000 = $2,570,000 per year.

This example of cost-benefit analysis for risk analysis shows that even when the benefits are large, you still quantify implementation risk instead of pretending it doesn’t exist.

How to structure your own cost-benefit analysis for risk

After seeing these examples of cost-benefit analysis examples for risk analysis, a pattern should be obvious:

• Define the risk clearly (event, probability, impact).
• Estimate the expected annual loss without intervention.
• Define the mitigation (controls, insurance, redesign, relocation).
• Estimate how the mitigation changes probability and/or impact.
• Compare the cost of mitigation with the reduction in expected loss.
• Layer in qualitative factors: regulation, reputation, investor expectations, and risk appetite.

In practice, the hardest part is getting decent inputs. That’s where external benchmarks, insurer data, and industry reports come in. Regulatory agencies like OSHA, CDC, and FEMA publish data that can anchor your assumptions instead of plucking numbers out of thin air.

If you’re writing a business plan, investors don’t expect perfect precision. They expect you to show your work. These real examples of cost-benefit analysis give you a template: be explicit about probabilities, costs, and how your decisions actually move the risk needle.

FAQ: examples of cost-benefit analysis for risk analysis

Q1. What are some simple examples of cost-benefit analysis for risk analysis in a small business?
A coffee shop deciding whether to install security cameras is a classic example of cost-benefit analysis for risk analysis. The owner compares the upfront cost and monitoring fees with the expected reduction in theft and vandalism losses. Another basic example is a small e-commerce brand choosing between free open-source software and a paid platform with better uptime guarantees and security; the analysis weighs subscription fees against the risk and cost of outages or data breaches.

Q2. How detailed should an example of cost-benefit analysis be in a business plan?
You don’t need a 40-tab spreadsheet, but you do need enough detail to show that your risk assumptions are thought through. Good examples include: clearly stated probabilities, realistic impact ranges, and references to external data or industry benchmarks. Investors want to see that you’ve considered downside scenarios and that your mitigation spending is justified.

Q3. Can qualitative risks be included in cost-benefit analysis examples for risk analysis?
Yes, but you may need to translate them into financial proxies. For instance, reputational damage can be modeled as a temporary revenue drop, higher customer acquisition costs, or a higher discount rate on future cash flows. Many of the best examples of cost-benefit analysis mix hard numbers with scenario narratives that explain how those qualitative risks would actually hit the income statement.

Q4. Where can I find data to support real examples of cost-benefit analysis?
Government and academic sources are your friend. For health and safety, the CDC, NIH, OSHA, and the National Safety Council publish cost and incidence data. For climate and disaster risk, FEMA and NOAA provide frequency and impact estimates. For education and labor, sites like the Bureau of Labor Statistics and major universities (for example, Harvard or MIT) often publish relevant research. Linking your assumptions to these sources makes your examples of cost-benefit analysis far more credible.

Q5. How often should I update my cost-benefit analysis for risk?
At least annually, and more frequently if your risk environment changes: new regulations, major technology shifts, insurance market changes, or big moves in your supply chain. The 2020–2024 period made this painfully obvious. The best examples of cost-benefit analysis for risk analysis are living documents, not one-off appendices you never touch again.