In project analysis, the objectives of the analysis provide the standard against which costs and benefits are defined. Simply put, a cost is anything that reduces an objective, and a benefit is anything that contributes to an objective.

The problem with such simplicity, however, is that each participant in a project has many objectives. For a farmer, a major objective of participating is to maximize the amount his family has to live on. But this is only one of the farmer's interests. He may also want his children to be educated; as a result, they may not be available to work full time in the fields. He may also value his time away from the fields: a farmer will not adopt a cropping pattern, however remunerative, that requires him to work ten hours a day 365 days a year. Taste preference may lead a farmer to continue to grow a traditional variety of rice for home consumption even though a new, high-yielding variety might increase his family income more. A farmer may wish to avoid risk, and so may plan his cropping pattern to limit the risk of crop failure to an acceptable level or to reduce the risk of his depending solely on the market for the food grains his family will consume. As a result, although he may be able to increase his income over time if he grows cotton instead of wheat or maize, he would rather continue growing food grains to forestall the possibility that in any one year the cotton crop might fail or that food grains might be available for purchase in the market only at a very high price. All these considerations affect a farmer's choice of cropping pattern and thus the income-generating capacity of the project. Yet all are sensible decisions in the farmer's view. In the analytical system presented here, we will try to identify the cropping pattern that we think the farmer will most probably select, and then we will judge the effects of that pattern on his incremental income and, thus, on the new income generated by the project.

For private business firms or government corporations, a major objective is to maximize net income, yet both have significant objectives other than simply making the highest profit possible. Both will want to diversify their activities to reduce risk. The private store owner may have a preference for leisure, which leads him to hire a manager to help operate his store, especially during late hours. This reduces the income-since the manager must be paid a salary-but it is a