Break-even Analysis

Definition(s)


Break-even Analysis

Variant of cost-benefit analysis that estimates the threshold value at which a policy alternative’s costs equal its benefits.

Sample Usage: Break-even analysis showed that the proposed security policy would have to reduce the probability of attack by two orders of magnitude for its benefits to equal its costs; since this was judged unlikely, the proposed security policy was rejected.

Annotation: Analysts have applied this technique to homeland security by calculating the minimum threat probability required for the risk reduction benefits of a security policy to exceed the costs. If decision makers believe the actual threat is greater than the calculated break-even threat level, then the expected benefits of the policy exceed the costs. The technique also may be applied to other uncertain parameters in the analysis.

Source: DHS Risk Lexicon, U.S. Department of Homeland Security, 2010 Edition. September 2010 Regulatory Guidance