What is Costing?
"I never...went under the illusion that I could appeal to their higher good. That may come, that might be what brings them along further, but it's not going to be what gets them to engage (in mediation). The thing that's going to get them to engage is what it's going to cost them if they don't. And what's it going to cost (if they do)? Is it (mediation) worth trying?" -- Nancy Ferrell, Community Relations Service mediator
Costing (or cost-benefit analysis) is the process of analyzing the costs and benefits of different options to determine 1) what approach should be taken to a particular conflict and 2) what solution or resolution should be chosen once various options are being considered.  Thus, costing happens early on in the process as parties decide whether they should respond at all, and if so, how; and later on once settlement possibilities have been identified.
This type of costing involves an assessment of whether the conflict is worth pursuing or whether the issue should just be dropped. If it is worth pursuing, what strategy should be used? Some sort of persuasive tactic (such as a public relations campaign)? Direct negotiation? Mediation? Arbitration? Litigation? Coercion or force? Generally the stronger the strategy, the higher the costs. In addition to concrete costs such as legal fees or military casualties, it is important that intangible factors such as personal anxiety, damaged relationships, reinforcement of hostilities, and the "backlash coefficient" be considered as well. 
Once parties are involved in negotiation and/or mediation, a list of settlement options is usually developed (see option identification) and the parties then need to assess the relative benefits and costs of each of these options, comparing them to their BATNAs-their "best alternative to a negotiated agreement."
"The central task of the parties at [the costing] stage is to assess how well their interests will be satisfied by any one solution or any combination of the solutions that have been generated," explains mediator Christopher Moore. Costing also requires an assessment of one's ability to implement the option with or without outside help, the likely costs of implementing that approach, and the probable reactions of opponents and decision makers. For instance, extremely negative or antagonistic responses raise the cost of the strategy. It is also important to try to anticipate future disputes. Options that produce short-term victory may not be desirable if they also strengthen the backlash effect, which will likely increase the number of future disputes and reduce one's chances of protecting one's interests over the long term.
How is Costing Done?
Additional insights into costing are offered by Beyond Intractability project participants.
Parties in conflict make strategic decisions on how to pursue the conflict based on assessments of the likelihood of success and the potential costs of carrying out the conflict. Oftentimes parties will underestimate the costs and overestimate their potential for success. This leads them to pursue strategies that do not advance their interests. To prevent this problem, conflict resolution professionals (mediators and negotiators) often assist with the costing process. They ask hard questions: "What makes you think you can do that?" "Where will you get the money?" "Who supports this decision?" "How will the opponent respond?" "What makes you think so?" "Does everyone agree?"
By challenging assumptions and forcing the parties to justify their assessments, the parties usually develop a more realistic assessment of the costs and benefits of the options being considered. If the mediator thinks that the answers given are unrealistic, he or she may urge the parties to check further, perhaps by consulting a lawyer, military planners, outside observers -- anyone who can give them a more accurate assessment of the current situation and likely future scenarios.
The Importance of BATNAs
In addition to assessing settlement options, parties must also assess the costs and benefits of their "BATNA" -- Best Alternative to a Negotiated Agreement. "That is the standard against which any proposed agreement should be measured. That is the only standard which can protect [parties] both from accepting terms that are too unfavorable and from rejecting terms it would be in [their] interest to accept." Once parties establish a BATNA, they must then compare the costs and benefits of the BATNA to all of the settlement options on the table.
Community Relations Service (CRS) mediator Nancy Ferrell used to use the costing process to get people to come to the table by asking, "What's it going to cost you if you don't?" (In other words, how much is your BATNA going to cost?) Often the parties who were reluctant to negotiate would realize that negotiation (or in this case, mediation) was likely going to produce more benefits more quickly than any other option -- and in CRS cases, the cost was very low, as the CRS provides mediation for free. So the only costs were time. But alternative processes, Ferrell would point out, would generally take longer, cost more financially, and might fail to produce results as good as those that were likely to come out of mediation. Though it didn't work in all cases, Ferrell (as well as other CRS mediators) reported considerable success with that approach.
The decision about whether to enter into a conflict, stay in the conflict, and what agreement to reach are not just rational, they are emotional as well. Psychologists have repeatedly shown that people who value A over B and B over C still might not value A over C. So rational cost-benefit analysis is only one part of the strategy forming process. But it is a necessary part...absent such an assessment and one's strategy or tactics are considerably less likely to result in the desired or expected outcome(s).