Question

outline the technique of cost benefit analysis and discuss how it can be used to inform decision making in the public sector

Answer 1

Cost-benefit analysis (CBA) is a method used, using a common metric (most commonly monetary units), to equate the overall costs of a program / project with its benefits. This allows estimation of program-related net cost or profit. As a strategy, when assessing and comparing various alternatives or courses of action, it is most commonly used at the start of a plan or project as an opportunity to select the best solution. However, it can also be used in quantifiable and monetised terms to measure the overall effect of a programme.

CBA applies a plan or activity's overall cost and compares it to the overall benefits. The methodology suggests that, in addition to those directly affected, a monetary value may be put on all the costs and benefits of a system including tangible and intangible returns to other individuals and organisations. As such, a significant advantage of cost-benefit analysis lies in getting people to consider clearly and regularly the various variables that can affect strategic choices.

In the private sector, investment is concerned with whether, as a result of undertaking a particular business, a company will be better off or not. The investment decision is taken in the public sector, as a result of assessing whether society would be better off for a specific investment. Analysis of cost benefit is a statistical tool that helps managers of the public sector to assess net social benefits to inform and direct the decision-making process. It is a technique of particular significance when drawing up the 'provider business plans' needed by the implementation of the NHS and Community Care Act 1990.