Question

When looking at the cost benefit analysis we are basically weighing our options. We see this type of method can be used for many different scenarios. Do you find most public administers would use a cost and benefit analysis to measure new projects or developments?

Answer 1

Cost-benefit analysis (CBA) is a method that uses a popular metric (most frequently currency units) to compare the complete cost of a program / project with its advantages. This allows the calculation of the program's net price or profit.

As a method, when evaluating and comparing distinct alternatives or courses of action, it is most often used at the beginning of a program or project as an alternative to choose the best strategy. However, it can also be used in quantifiable and monetised terms to assess the general effect of a program.

CBA adds a program or activity's complete cost and compares it to its complete advantages. The method assumes that, in relation to those instantly affected, a financial value can be put on all the expenses and advantages of a program including tangible and intangible returns to other individuals and organizations. As such, a significant benefit of cost-benefit analysis lies in forcing individuals to consider the multiple variables that should affect strategic decision explicitly and systematically.

By comparing the net present value (NPV) of the program or project costs with the net present value of its benefits, decisions are made through CBA. Decisions are based on whether the approach has a net benefit or costs, i.e. total benefits less total costs. In a cost-benefit analysis, the costs and benefits that will occur in the future have less weight attached to them.

The UK government conducted a value-for-money assessment of government investment in various kinds of childcare in 2005. The decision was between higher-cost "integrated" childcare centers, offering kids and parents with a range of services, or lower-cost "non-integrated" centers offering fundamental childcare facilities.

The assessment included both a "difficult workout" and a "smooth workout." The difficult practice recognized direct costs and advantages, quantified and monetized. The smooth practice recognized and characterized non-monetable effects of quality, leading to ranking of options.

Across the federal government, the use of CBA is needed by law and regulation to decide between alternative strategies and programs. CBA is a mathematical instrument used by decision-makers to determine whether the perceived benefit of the program outweighs the anticipated cost. Analysts have profound practical concerns about using CBA in addressing discount rates, opportunity costs, prices, distribution weights, and criteria for assessment. Some critics contend that CBA is not efficient and should not therefore be used.